Property

Why Stamp Duty is So Expensive

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Mr Propwise

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Why does stamp duty cost so much more than it used to? Exactly what’s so hard about stamping a bunch of documents? At the very least it should have a less innocuous name, like “fine you for taking up space” duty, or “because up yours, that’s why” duty. Either way, stamp duties were raised as a cooling measure, one that hits you right in the pockets. This article came from Mr. Propwise last year, but it explains everything:

 

Update: Summary and Impact of the Latest Property Measures

Here’s a summary of the measures:

1) The holding period for Seller’s Stamp Duty (SSD) to be imposed has been increased from the current three years to four years.

2) Seller’s Stamp Duty (SSD) rates have been increased to 16%, 12%, 8% and 4% of selling price for residential properties which are bought on or after 14 January 2011, and are sold in the first, second, third and fourth year after purchase respectively.

(This is currently 3%, 2% and 1% for properties sold in the first, second, and third year after purchase respectively.)

3) The LTV limit has been lowered to 50% on housing loans for property purchasers who are not individuals (e.g. companies)

4) The LTV limit has been lowered from 70% to 60% for purchasers who are individuals with one or more outstanding housing loans at the time of the new purchase.

These measures will take immediate effect on 14 January 2011.

 

My Take on the Likely Impact of the Measures

The increased Seller’s Stamp Duty is very harsh. To just breakeven if you’re selling within the first 3 years, your property price has to go up by at least 15-20% (taking into account transaction and interest costs). This basically means that most buyers are forced to hold for at least 3 (if not 4) years.

Also the SSD is a tax on your selling price regardless of whether you made money or not (unlike a capital gains tax). If property prices stay flat and you are forced to sell your house for whatever reason (loss of job, need liquidity etc) you will immediately make a loss of 4-16% (not including transaction and interest costs) on the total home price. Assuming you took a 60% loan, you could lose up to 40% of your capital due to the impact of leverage even if home prices stay flat.

I believe the net impact of these measures is that transaction volumes will fall significantly. Buying demand from investors and speculators will be heavily impacted, while even end users are likely to take a “wait and see” attitude in the hope that prices fall more.

But at this juncture I don’t think prices will fall significantly in the short to medium term. Home owners and developers still have strong balance sheet positions and are not likely to sell at a loss. We will need to have a recession and retrenchments before these two groups start to sweat.

 

A MoneySmart Response

This was a year ago, but the impact is still ongoing. Property prices don’t seem to be falling, even with the increased stamp duty. But those rates are going to stay for a while, and home owners had better brace themselves. Stamp duties won’t be slacking while housing prices keep going up.

Image Credits:

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Got an opinion on whether the stamp duty works? Comment and let us know!

 

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Mr Propwise

Mr Propwise is the founder of Propwise.sg, a Singapore property blog dedicated to helping you understand the real estate market and make better decisions. A Chartered Financial Analyst, his articles on the Singapore property market has been published on Yahoo and other finance related websites.