If you have not heard, our Singapore Government on 10th March 2017 has finally announced two little tweaks to the property curbs. But before you jump for joy, let’s break-down the tweaks and find out whether you will benefit from it.
FIRST TWEAK – SELLER’S STAMP DUTY (SSD)
|SSD For Purchase of Private Property||0 to 1 Yr||1 – 2 Yrs||2 to 3 Yrs||3 to 4 Yrs||> 4 Yrs|
|Before 11 March 2017||16%||12%||8%||4%||No SSD|
|After 11 March 2017||12%||8%||4%||No SSD||No SSD|
To avoid confusion, there are three types of stamp duty :
- Buyer’s Stamp Duty (BSD)
- Additional Buyer’s Duty (ABSD)
- Seller’s Stamp Duty (SSD)
The tweak only applies to Seller’s Stamp Duty. No change for the rest. To define, SSD is a tax imposed when you decide to sell your property within a certain holding period (Please see table 1). For old measure, if you hold your property for more than 4 years, you are not required to pay SSD. Latest measure, instead of 4 years, it has been reduced to 3 years. But before you jump for the joy, please take note that this takes effect after 11th March 2017. This means that if you have bought your property before that or even when you have exercised your S&P before 11th March 2017, SSD of 4 years still applies. So please clarify with your property agent or lawyer before you start selling.
Who Will Benefit?
- Short Term Property Investors
- Less holding time required. Can sell after holding a private property for more than 3 years
- Buyers who bought a BUC (Building Under Construction).
- Building Under Construction will usually take around 3 years to achieve TOP status, if the timing is right, a buyer may be able to sell it in 3 years when the Seller’s Stamp Duty or TOP is completed.
SECOND TWEAK – TOTAL DEBT SERVICING RATIO (ON MORTGAGE EQUITY WITHDRAWAL LOANS)
|Total Debt Servicing Ratio (TDSR)|
|Before 11 March 2017||Loan Obligation Cannot Exceed 60% of Gross Monthly Income|
|After 11 March 2017||60% Threshold NO LONGER applies if LOAN TO VALUE (LTV) Ratio is 50% and Below|
If your reaction is “Huh? English Please!” Don’t worry, you are not the only one…to put it in simple terms, this only affects people who are using their current property as collateral. By tapping into the value of your house, without having to SELL it. The most likely to benefit from this is :
- Example : 30 years ago, you bought your property at $800,000 and have since paid it off in FULL. The current value of the property is $1.4 million. To put up your house as collateral, you can take out a mortgage equity withdrawal loan, which allows you to borrow 50% of your current property value, which is for this example $700000. With this loan, you can use it to raise capital for other investments. For more information and detailed illustration, it is best to consult your banker.
SO WHAT’S NEXT?
For the short term, there will most likely be a slight increase in demand. Judging from the tweaks, the reduction of holding period is actually quite attractive. 1 year difference can really make a huge difference through an investor’s point of view. Plus if you are investing in a property that is currently under construction, you can actually make use of the progressive payment to your advantage. But these are just minor tweaks and hence may not likely to cause property prices to jump drastically. ABSD and TDSR restriction still play a large part in a home buyer’s purchasing decision.