More sellers selling under Seller's Stamp Duty
By Esther Hoon,
Lin Zhiqin
Sellers are letting go of their properties, even if they have to incur seller’s stamp duty. However, they generally wait until the SSD falls to 4% in the fourth year of purchase. Based on the latest revision of the SSD measure, homeowners who purchased their houses on or after Jan 14, 2011 and resold them within four years of the date of purchase are required to pay SSD. The SSD rates vary with the holding period, at 16%, 12%, 8% and 4% within the first, second, third and fourth years from the date of purchase respectively.
Table
Source: URA, The Edge Property
The number of sellers who paid 4% SSD grew from 200 in 2014 to 244 between January and November this year. On the other hand, only 68 sellers let go of their properties within three years of purchase in 2015, when SSD rates were hefty at between 8% and 16% (see table).
There could be several factors behind this. First, sellers might prefer to hold cash or other liquid assets in the current market so they can re-enter the market when property prices bottom.
The number of sellers who paid 4% SSD in 2014 and 2015 had purchased the properties in 2011 and 2012 and most of them netted a profit even after paying the 4% SSD.
Second, sellers who do not wish to hold on to their properties, for financial or other reasons, might do well to offload them now rather than next year, in case prices drop further. Prices of private non-landed homes have fallen an average of 1% a quarter since 3Q2013’s peak. If this trend continues or worsens, sellers might be better off incurring the 4% SSD now instead of waiting another year and risk selling their properties at lower prices as a result of a higher supply in the market.
Third, there are sellers who are forced to let go of their properties because of the soft rental environment and interest rate hikes. These properties might be sold at a loss or within the first three years of purchase. The proportion of unprofitable transactions moves in tandem with the decline in SSD rates, declining from 80% at 16% SSD rate in the first year to 22% at 4% SSD rate in the fourth year and 12% on the fifth year, when SSD is lifted (see chart).
The findings are based on matched URA’s resale and subsale caveats for private non-landed homes as at Nov 24, 2015, with their previous transactions on or after Jan 14, 2011.
Chart
Source: URA, The Edge Property
Investors pressured to offload shoebox and large units
Projects with the highest number of resale transactions in the fourth year of purchase were Parc Rosewood, A Treasure Trove and Ripple Bay, with 19, 11 and 10 resale caveats respectively. Interestingly, these caveats involved mostly shoebox units.
Of the 19 resale caveats at Parc Rosewood, 84%, or 16 caveats, were for shoebox units averaging 445 sq ft. Similarly, for Ripple Bay, 90% — or nine of the 10 caveats — were for shoebox units averaging 490 sq ft.
The eagerness to offload shoebox units as soon as SSD fell to 4% in the fourth year could have been motivated by a soft rental market, yield compression and the interest rate hike. In addition, shoebox units in the mass-market continue to face strong competition from HDB flats for tenants. Based on our basket of properties, monthly rents for shoebox units in the mass-market were estimated to have fallen 21%, or more than $500, from $2,552 in 3Q2013 to $2,016 in 3Q2015.
In fact, URA data shows that monthly rents for a 400 to 500 sq ft unit at Parc Rosewood averaged just $1,657 in 3Q2015. Parc Rosewood was completed in 2014. Similar-sized units commanded an average monthly rent of $1,815 in 3Q2014. Over the course of one year, the average rent for shoebox units in the development has fallen 8.7%.
At A Treasure Trove, 58% — or seven of 12 caveats — were for 775 sq ft units, the smallest apartments in the project. Although the project was completed this year, there is evidence of rental decline within the course of just a few months. For example, 700 to 800 sq ft units were let at an average monthly rent of $2,367 in July. Similar units fetched an average monthly rent of $2,230 in October, reflecting a 6% decline over a period of three months.
On a more positive note, all the transactions at Parc Rosewood, A Treasure Trove and Ripple Bay were profitable after accounting for the 4% SSD payable, as the sellers had purchased the properties at attractive prices in 2011.
Larger units are also likely to be the most affected by the interest rate hike and soft rental environment. In dollar terms, Reflections at Keppel Bay accrued the most SSD from Jan 14, 2011, amounting to $1.81 million for seven resale caveats. Four caveats were for units measuring between 1,200 and 2,207 sq ft. The Minton trailed closely with $1.29 million for 18 resale caveats, with an average unit size of 1,159 sq ft.
The highest SSD incurred for a single transaction was for a 3,821 sq ft unit at Four Seasons Park, amounting to $1.14 million in SSD.
At least 18,145 non-landed homes to be freed from SSD in 1H2016
Based on our study, 18,145 non-landed homes will no longer be subject to SSD in 1H2016, as their holding periods cross the four-year mark. Of these, 1,574 units will be located in Core Central Region, 4,164 units in Rest of Central Region and 12,407 units in Outside Central Region. Some of these units could turn out to be value deals, as the owners who are under pressure to sell have weaker bargaining power.
The top three projects with at least 100 shoebox units entering the fifth year of their holding period are Parc Rosewood, Guillemard Edge and Casa Cambio.
This article appeared in The Edge Property Pullout, Issue 708 (December 21, 2015) of The Edge Singapore.
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