TDSR changes - property market

TDSR Removed?

Don’t get too excited yet like the stock market, it’s only applicable to those who take an equity term loan of not more than 50% of the current property valuation.  In the same breadth, the three government ministries (MND, MOF and MAS) also announced today some tweaking on the SSD (Seller’s Stamp Duty) from 4 years down to 3 and a reduction of the duties by 4%.  The market is just over-reacting to the sudden news.  And the measures are forward-looking, not back-dated.  It has minimal impact in our view.

Compare All Latest Rates 2018

 

The joint-press release can be found on the ministry’s and here we reproduce the Annex provided within the press release which captures the key changes on SSD:

This is a typical case of “you hear what you want to hear”.  The market and the industry players have been lobbying for several years now for removal or relaxation on some of the “cooling measures” and any slightest move by the government is suddenly taken out of proportion – a knee-jerk response if you like.

In our view, the impact on the latest moves is likely minimal to the market as a whole.  There are really three announcements which the market only got carried away with the first two:

1. Removal Of TDSR For Equity Term Loan Where Loan-To-Value Is Less Than 50%

What is equity term loan (ETL)?  This is strictly not at purchase, but refers to the additional loan that is taken out against the property valuation on the part which has been fully paid for over the years.  And there is a condition – the equity loan portion does not comprise more than 50% of the loan-to-value (LTV).

It is still unclear how the banks will apply this exemption – is it only the equity portion of the loan not to be above 50%?  Or in cases where there is still a housing loan outstanding, for the total housing and the new equity term loan combined not to be over 50%?  From the wordings per se, it seems to suggest the former.

The likely beneficiaries are retirees, which the authorities have indicated as the primary motivation for the change – to help them monetize one of their biggest assets at old age where there is no more or insufficient income to justify for a term loan or even to refinance.  What this means is that those homeowners who have bought properties from a long time ago where the loan has been fully paid down or where there is very little outstanding mortgage, can now look at gearing up for a term loan without the need to show income.

However we think lenders, in particular, credit departments, after being conditioned by TDSR applications since 2013 would most likely remain cautious and might still like to see some income.  Also remember that term loan essentially carry a higher risk to the lender as a 5th charge loan, hence how much of this becoming a benefit to retirees or anyone seeking ETLs with less than 50% LTV, is contingent on how the lenders implement the measures.  And from our experience it would take 3-6 months before we know that.

Compare All Latest Rates 2018

 

2. Tweaking Of Seller’s Stamp Duty

This is positive news for the property market but does not bring about any substantial change as speculative froth has been by and large removed with the last hike on SSD to the current 16% down to 4% since Jan 2011.  No one buys a property now to “flip over” for a profit immediately or in a short time frame.  This reduction of the holding period from 4 years back to 3 years (SSD started in Aug 2010 with 3-year holding period with a tax of 3% down to 1% if one sells within the first year to the end of 3rd year respectively) will not change the mindset.  And the slight reduction of 4% across the respective 3 years holding period will not matter much as well except forced sales where the financial loss will be reduced.

There is also another factor that makes this move a non-event.  It is not across-the-board (or back-dated) but applies only to those who purchase a residential property on and after 11 March 2017.  What this means is that after today, anyone who buys a property could look at selling it with no SSD payable after a holding period of 3 years instead of 4.  The majority of sellers out there who bought their property from 2013 to 2016 would still not be able to sell until they meet the 4-year minimum period in order not to attract SSD.

However one good news is you will likely see more transactions in TOP properties from property launches henceforth as the holding period coincides with the typical 3-year construction period, especially for those who buy at the launch.  The segment of buyers who still believe in price inflation on TOP might want to take advantage of current property market weakness to buy at launches especially when the product is priced correctly.

3. Closing of Loophole For Those Buying Using PHE

We have already explained why the first two measures announced will likely see minimal impact.  What is more interesting to us is the third announcement on how the government will now apply the same taxation rules on ABSD (Additional Buyer’s Stamp Duty), SSD, etc to transactions involving PHE (property-holding entities), essentially closing the loophole for those using property-holding companies to transfer properties, usually the wealthy and those in the property business like developers. A new stamp duty called ACD (Additional Conveyance Duty) will be introduced for this purpose which will be levied on significant owners of equity in both the selling and buying PHEs for such transactions.  More details will be announced.

Compare All Latest Rates 2018

 

Again the impact here is likely restricted to a small group as not many could afford to buy using private limited vehicles which could only get 20% financing for residential property purchase and which also attract the same 15% ABSD  like foreigners.

There is impact though on those already holding such assets in a corporate entity prior to all the rule changes of the past years as they can no longer just sell the assets from company A to company B and pay only 0.2% stamp duty.  It will be interesting to watch how this affects market pricing (if any) especially for those in the property business.

On the whole, we think the announcements today will have minimal impact on the property market.  And TDSR is here to stay.  It is a structural move which the government has re-iterated over the years and will never be removed.  The more significant impact will come only from changes to ABSD or a raising of TDSR threshold currently at 60%.

 

At MortgageWise, we seek to provide thought leadership in the area of mortgage planning in Singapore, taking deep dive into developments and news on mortgages & helping clients track interest rate movements.  We do not just go for one-time business with clients but rather choose to build long trusting relationships by giving truly independent advice to the extent of losing the deal.  We strive to become the first-choice mortgage partner for homeowners and the creditable distributor of mortgage products for banks and financial institutions in Singapore.

 

Compare All Latest Rates 2018

 

 

Share This :
Facebookgoogle_plus

About Darren Goh

Darren Goh is the Executive Director of MortgageWise.sg, a thought leader in the Singapore mortgage industry, with frequent interviews and quotes by the press - Business Times, Straits Times, Zaobao and EdgeProperty for his views on the latest mortgage trends. He is an avid property investor with careers in banking & real estate before becoming an entrepreneur.
View all posts by Darren Goh

CALL 6221-1089

(8AM to 10PM Daily)

LATEST RATES

Search Criteria






Follow Us

Facebookgoogle_plusyoutube