Property

This Small Policy Change Could Help You Decide On Property Investments In 2015

property investment singapore absd

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Everyone’s got that uncle or auntie they meet once in a while at a family dinner, who goes on and on about how investing in Singapore property is your way to untold riches and finally not having to work anymore. Or maybe perhaps, YOU are that uncle or auntie who goes on and o…… you get the picture.

The market of course, does not look the same as when uncle or auntie first started snapping up condos, and is in fact quite vastly different.

The government’s introduction of the property cooling measures in 2013, worked so well, it sent thousands of property agents begging for their old jobs back. Some of the major things that were affected were:

  • MSR (Mortgage Servicing Ratio)
  • TDSR (Total Debt Servicing Ratio) restrictions
  • Loan To Value cuts and also
  • SSD (Seller’s stamp duty) and ABSD (Additional Buyer’s Stamp Duty)

 

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Before ALS, there was the Property Market Ice Bucket Challenge 2013

 

What Was Introduced?

The MSR, TDSR and LTV cuts all make sure that buyers do not over leverage themselves by buying properties they cannot really afford – by restricting how much of your income you can use to service loans and also cutting the amount you can borrow as your property portfolio increases.

The ABSD was that extra nail in the property market coffin, making triply sure you didn’t scrounge your last dime together to buy a 2nd property.

ABSD was introduced as a tax that would not affect 1st time buyers who were Singapore Citizens, but aimed its barrels at investors looking to purchase their 2nd or 3rd properties. Making it more expensive for them to do so, turned out to be very effective – property prices have come off up to 6%.

With the ABSD, this was what potential buyers faced:

absd
Source: MAS

This ABSD however, is the one thing that could be changed moving forward, with some rumblings that it could be addressed in the upcoming Singapore Budget 2015.

 

Why is ABSD the moving piece that the Government could tweak in 2015?

With the MSR and TDSR already fulfilling its role of making sure you’re not some property Rambo shooting from the hip, the ABSD isn’t all that necessary in cooling the market anymore.

Easing it however, could make a difference with cash rich Singaporeans / foreign buyers waiting to pull the trigger on an investment purchase. With the current market facing an over supply of properties as no one’s buying right now, lowering the ABSD will bring some buyers back into the fray without the risk of setting the market on fire again.

 

So what should you do if you wanted to buy a property?

We spoke with real estate salesperson, Mr Stanley Tan of Principium on his thoughts about how a Singapore Citizen hoping to invest in property, should consider the a potential change in ABSD and what to consider when making a prediction:

 

Buyers looking to get an investment property:

“At the most basic level – someone who is ready to pick up another property, and also expects property prices to rise upon the reduction or removal of the ABSD, should go ahead and make that purchase immediately. This is intuitive- if you expect prices to rise, you should buy now in order to benefit from an expected capital gain later.”

Sellers wanting to sell current investment property:

“The owners who are looking at selling off an investment property should first consider if they have to pay SSD. Again, if you expect property prices to rise because you first expect the ABSD to be reduced or removed, you should sell your property after the announcement is made. This will maximize your sales price. Just beware that you may miss the current pool of buyers.”

Switchers wanting to sell current investment to buy a different one:

“Again, if you assume that the ABSD is going to be reduced, you should be acting to prepare for the event. Participants looking to switch out of one property into another, and are not impeded by the TDSR, should enter into buying the targeted property now, and selling the currently-held property later. “

“This is the profit-maximizing trade, assuming that the said participant believes that property prices will rise upon the reduction or removal of the ABSD.”

 

That being said, you should definitely consult a professional realtor  before making any moves in the market. It’s not possible to capture all the different variables that may be relevant to your situation and you should be aware of the risks involved. Principium Realty has a pretty neat decision cheat sheet that covers this topic in greater detail.

Do you think the ABSD is going to get reduced? Share your thoughts with us at MoneySmart.sg!

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