Time to call off Singapore’s stamp duty surcharge?

Now may be the right time to call off Singapore’s stamp duty surcharge, JLL has said, after the cooling measure has proven successful.

House prices in Asia Pacific countries have risen sharply in the last eight years, often exceeding local income growth. Policymakers have reacted with concern in many markets. In Singapore, where prices rose 62 per cent between the aftermath of the global financial crisis and 2013, the government introduced additional buyer’s stamp duty (ABSD) in 2011, as a move to combat climbing property values. As a result, local buyers have to pay an additional 7 to 10 per cent for second homes, while overseas buyers have to pay an additional 15 per cent on any residential purchase.

Since then, the measures have been successful, with Singapore property prices now at a near-historic level of affordablity. Prices have fallen to be currently 45 per cent above the low point in 2009.

However, JLL is now calling for the measures to be scrapped to provide a boost to the residential property market, particularly given the similar dampening effect of 2013’s Total Debt Servicing Ratio (TDSR), which caps loan repayments to less than 60 per cent of borrowers’ annual gross income.

“The tax on the seller penalises short-term speculators,” says the firm in a new report reviewing the market. “ABSD has been very effective in managing the inflow of foreign capital and excess local speculations. It has greatly reduced demand, causing prices to fall whilst household incomes increased. Prices are now at one of their most affordable levels on record. Affordable Singapore home prices are clear proof of the success the cooling measures and TDSR. With this in mind, now could be the right time to reconsider the measures in place and reflect on whether to allow the residential market to stabilise and resume a course for moderate growth.”

JLL argues that ABSD is now holding back demand, because it is perceived as temporary, causing buyers to wait until it has been withdrawn or changed before investing. By removing it for local buyers, and replacing it with a tax based on the investment holding period, ABSD could be substituted for a more sustainable levy, suggests JLL, while also encouraging activity.

“Raising the property tax on residential investment properties will steer buyers to evaluate their capital investment against the long-term holding costs. Such costs include property taxes, asset management, maintenance fees and capital expenditure on the property. This will shift the investment decision towards the longer term,” adds JLL. “Adjusting ABSD would remove a barrier, making it easier for investors to return to the residential market as well as making it easier for Singaporeans who are interested in investing in the local residential property market to save for a rainy day or retirement.”