Wing Tai chairman Cheng Wai Keung has a solution for the property sector’s angst over the ABSD (additional buyer’s stamp duty): “Keep ABSD for foreign buyers but fine-tune it for Singaporeans who wish to buy more than one property.”
He argues that the ABSD should be retained for foreigners who buy residential property, as the danger posed by foreign hot money still lurks.
However, there is scope to fine-tune the ABSD for Singaporeans, given that the total debt servicing ratio (TDSR) framework is in place to limit their debt exposure.
Foreigners buying any residential property here pay 15 per cent ABSD; the same rate applies to buyers that are corporate entities.
Singaporeans are spared ABSD when they buy their first residential property. But they have to pay 7 per cent ABSD when they buy a second property, and 10 per cent for third and subsequent purchases.
While many players lament a drying-up of foreign buying – especially in the high-end residential sector due to the punitive ABSD rate, and hope that the authorities would reduce the rate, if not do away with the charge altogether – Mr Cheng shared a different perspective in an interview with BT.
“ABSD is still necessary to deal with foreign hot money. Recall the original intent of the ABSD: it is to deal with excessive liquidity flooding in from developed countries’ monetary policies. Looking at the global economy now, the conditions that necessitated the introduction of the ABSD by MAS (the Monetary Authority of Singapore) have not abated.
“Notwithstanding QE (quantitative easing) tapering moves in the US, interest rates are still expected to stay low, and countries like Japan and Europe are still expanding their liquidity policy. Hence, for now, it is prudent for government not to remove the ABSD, to effectively manage the influx of foreign hot money and to stabilise our economy.”
However, Singaporeans who wish to purchase additional residential properties here for investment should be given relief from the ABSD, he added. “Why should they be dealing with three policies – SSD, ABSD and TDSR? Especially with the TDSR in place to limit debt exposure and SSD to prevent short-term trading, I believe that it is redundant to continue imposing ABSD on Singaporeans who have the financial ability and wish to invest locally in real estate.”
SSD is the seller’s stamp duty, payable on residential properties sold within four years of purchase. Under the TDSR framework introduced in June last year, financial institutions (when granting new property loans to individuals) have to ensure a borrower’s total monthly debt obligations (including car loan repayments and credit card bills) do not exceed 60 per cent of gross monthly income.
Given that the market has already responded to the cooling measures – demand has shrunk and prices softened – it is timely for the government to consider opening up options for Singaporean investors so that they may invest their excess funds in the local property market, which provides greater protection for buyers and is considered relatively less risky than foreign property markets.
“This can be a win-win situation for both the industry and the domestic investor market,” Mr Cheng said, adding that Wing Tai would continue to price its properties at “what market can bear, without eroding market confidence”.
He argued that there was a need to consider market segmentation in adjusting prices. The reaction to a price cut is different in the mass and high-end markets. A price chop for the mass market, where buyers are more price-sensitive, is more likely to be met with an immediate increase in sales, whereas a price drop at the high end could magnify buyers’ wait-and-see attitude.
“That is why pricing has to be calibrated in order not to dampen market confidence and cause an unnecessary downward spiral.”
When asked if Singaporeans’ affinity for property reflects an Asian trait, Mr Cheng said: “I don’t see it as a specific Asian trait. I’ve also observed that in Anglo-Saxon economies generally, real estate investment has become an important factor of growth.
“Today, given a lacklustre stock market, people are putting their investments in fixed assets to hedge against inflation. For long-term returns, if you have the financial means to sustain that investment – that is, to ride out the cycles – real estate is a good investment. Which is why, at certain points in time, governments do encourage their people to invest in property.”
He says Singaporeans will learn that when they invest in property, they need to stay prudent and consider their ability to pay. “They would understand that all business has a cycle and that the government, from time to time, would intervene in the (property) market, for the overall good of the economy.
“They will need to have sustainable financial means to help them ride out the cycles and tide over the storms, so that they can continue holding the investment for the long run in order to generate a superior return from the investment.”