Buyers Stamp Duty hike to hit en bloc deals: analysts

Developers may pull back and reassess the effects of higher taxes.

Analysts have noted the rise in property sales taxes may not have much effect on individual unit sales but will affect en bloc sales.

DBS Analyst Derek Tan noted that based on their estimates, every $1m dollars in value above the first $1m threshold will raise BSD by $10,000. For a $2m property, the effective tax rate is expected to increase by only 0.5 basis points from 2.7% to 3.2% and is unlikely to affect the affordability of home buyers.

But the tax changes could be bad news for sellers hoping for a communal sale, added Tan.

"Developers are facing strong competition for land, leading to razor-thin profit margins to land-bank in Singapore. The increase in stamp duties could cause a minor road bump, although the impact is small, considering the large transaction quantum for each site purchased through the government land sales (GLS) and en bloc market. Amongst the two, we believe that the en bloc market will be impacted more given the longer time to complete the transaction (if the collective sales did not achieve the 100% approval) which will be a drag on returns and profitability," he said.

"Recent transactions in the en bloc market appear to lose some pricing momentum, given that the last 4 deals are transacted through private treaty after an unsuccessful tender. We believe that en bloc transaction velocity will continue to slow (not stop), subject to the site’s attractiveness," he added.

Cushman & Wakefield head of research Christine Li noted the increase in Buyer’s Stamp Duty to 4% for properties with a value of more than 1m is not expected to have a substantial cooling effect on property demand. "Given the heightened interest in the residential market, the government has timed the increase of the BSD well, as prices and transaction volumes could return in vengeance after Chinese New Year with more new launches in the pipeline. Given the upsurge in land prices in 2017 and positive market sentiments, private property prices are expected to grow by 5-7% in 2018 and a 1% increase in BSD is unlikely to deter buying demand. Furthermore, as BSD is progressive, the effective increase in BSD would be less than 1% for most properties below $1.5m. For example, for a $2m property, the increase in effect BSD is only 0.5 percentage points. For a $10m property the effective increase is around 0.9 percentage points. Nonetheless, the increase in BSD would sway more demand towards smaller units or properties in suburban areas, where the quantum is relatively lower. New launches would also benefit as the current unit mix tends to be geared towards smaller units," she said.

She concurred with DBS that the increase in BSD, however, would marginally impact the collective sales market, as the price tag can be hefty for most collective sale deals which easily run into hundreds of millions of dollars. "Developers may pull back a little after securing a total of 8 sites over the first 7 weeks for a total of $3.1 billion to re-assess the feasibility of land acquisition at the current price level. Some developers may also look at properties zoned commercial instead, as the BSD rates for commercial is unchanged."