Property stocks drop on higher buyer’s stamp duty

The one-percentage-point hike in the top marginal buyer’s stamps duty (BSD) rate for residential properties priced over $1 million saw Singapore property stock decline, with City Developments Ltd. and UOL Group Ltd. registering the biggest drop on the benchmark Straits Times Index, reported Bloomberg.

Singapore’s biggest developer CapitaLand also fell for the first time in a week.

In its budget on Monday, the government raised the stamp duty on the portion of a property’s price over $1 million from three percent to four percent. The move comes after house prices increased during the last two quarters, ending a four-year slump.

While Morgan Stanley believes that the tax increase is not “enough to derail an ongoing home price recovery”, it noted that “this could weigh on sentiment on Singapore developer stocks in the near term”.

“Given the heightened interest in the residential market, the government has timed the increase well as prices and transaction volumes could return with a vengeance after Chinese New Year,” said Cushman & Wakefield research director Christine Li. “The effective increase in the tax revenue is quite minimal, hence this measure acts more as a deterrent to the red-hot property market.”

Minister of trade and industry S. Iswaran said the move is less on cooling the property market than about making the city-state’s tax system more progressive.

Li noted that the increase would have more effect on ultra-luxury properties. The stamp duty for a $10 million property, for instance, would increase by about 0.9 percentage point to 3.8 percent, she said.

Meanwhile, Monetary Authority of Singapore managing director Ravi Menon previously noted that while a recovery in house prices is not a cause for concern, he believes that the “exuberance” in the collective sale market may not be warranted.

For the first two months of 2018, collective apartment sales totalled over $3.1 billion, or almost twice the $1.66 billion registered over the same period during the previous en bloc market peak in 2007, wrote Nomura analyst Min Chow Sai in a note.

And with the BSD rate hike, Li expects developers to pull back from such purchases “as the price tag can be hefty for most collective sale deals, which easily run into hundreds of millions of dollars”.

This article was edited by Keshia Faculin.