Strata office and shophouse owners could be biggest gainers from higher ABSD rates

By EdgeProp Singapore / EdgeProp | July 6, 2018 12:30 PM SGT
The Government has announced higher Additional Buyer’s Stamp Duty (ABSD) rates for some categories of residential property purchases, and the Loan-to-Value (LTV) limits on residential property purchases have been lowered in a bid to cool the property market.
After four tepid years, house prices began to rise in the third quarter of 2017 and have surged by 9.1% over the past year.
"The sharp increase in prices, if left unchecked, could run ahead of economic fundamentals and raise the risk of a destabilising correction later, especially with rising interest rates and the strong pipeline of housing supply," the Singapore government said in a statement.
Demand for private residential property has also seen a strong recovery as transaction volumes continue to rise, the joint statement by the Finance Ministry, the Ministry of National Development and the central bank said.
Stamp duty for Singaporeans and permanent residents buying their first home will be unchanged, but those buying their second or subsequent properties will see increases of 5 percentage points effective on 6 July 2018, it said.
Sales volume expected to slow although home prices could still inch towards 10% for 2018
According to Tay Huey Ying, head of research & consultancy for JLL Singapore, the measures should achieve their intended objectives of cooling demand and moderating price growth, as almost all categories of buyers have been affected. This explains the rush to snap their dream homes the night before the measures kick in.
The crowd at the sales gallery of Park Colonial on the night of its launch on July 5
“We expect sales to stall as soon as the measures become effective as buyers step back to evaluate the financial implications and developers reassess pricing strategies. The home market may only start to see some signs of activity in September after the lunar seventh month. Even then, we expect sales volume to stay subdued unless developers adopt competitive marketing strategies,” says JLL’s Tay.
The en bloc market will also be dampened as developers become wary of end-demand and are hurt by the 5% non-remittable ABSD on land purchase. This will have an impact on their offer prices.
JLL’s Tay adds that the rush to purchase units the night before the measures kick-in could still contribute to the URA all-residential private property price index (PPI) inching up in 3Q18 although at a moderated pace from 2Q18 given that sales will likely slow thereafter. For the year as a whole, the growth in the PPI could still inch towards 10% given the more than 7% growth in 1H18.
“All said, we feel the additional measures have been introduced too hastily coming just after 9.1% growth in PPI over four quarters. The market should have been given a chance to find its own level in response to the expected surge in launches in coming months,” she explains.
Strata-office and shophouse markets could emerge the biggest gainers from higher ABSD rates
The biggest gainers following this set of measures will likely be owners of strata-offices and shophouses approved for commercial use, JLL’s Tay points out.
Strata-office and shophouse markets could emerge the biggest gainers, says JLL's head of research & consultancy, Tay Huey Ying
“The government’s swift response to curb home price growth has tampered the prospects of residential properties as attractive investments. Investors looking for alternatives to park their money could divert their attention to the strata office and shophouse markets as they are not subjected to this round of purchase or sales restrictions/encumbrances,” she says.
The residential leasing market might also stand to benefit as some foreign owners of collective sale sites who might now look to rent instead of own their place of residence to avoid the higher ABSDs. Some local owners of collective sale sites could also look to rent as an interim measure while they wait in hope of private home prices to correct, Tay concludes.