IRAS scraps concession to defer stamp duty

In what appears to be a subtle warning to the real estate industry to keep the property market in check, the government has withdrawn the concession to defer stamp duty - a move that coincided with last night’s annual dinner of the Real Estate Developers Association of Singapore (Redas).

A statement released by the Inland Revenue Authority of Singapore (IRAS) yesterday said: ‘The government has decided to withdraw the concession with immediate effect (starting today) as the economic conditions and the property market have improved.‘

The statement was timed to be made public only at 12.05 am today, but news of the taxman’s action surfaced early at last night’s Redas dinner - taking most by surprise.

However, developers BT spoke to said they are not too worried that the change will dampen demand for high-end property. Redas president Kwee Liong Keng said the withdrawal of the concession might not have an effect even on buyers looking to ‘flip’ properties quickly, as previously, they had to pay the stamp duty when selling their properties anyway.

Developers also maintained that speculation is not rampant. ‘If you look at top-end products, I don’t think
Singapore has seen the kind of interest from overseas before. So you can’t use the yardstick from the past to measure,’ said Redas honorary treasurer Eddie Yong.

Minister of State for National Development Grace Fu, who was the guest of honour at the Redas dinner, was more prepared with a comment - and she similarly maintained the government’s official stance that the property market is not seeing a ‘bubble’.

‘As we have done in the past, we will monitor the trends of property prices and rentals quite closely,’ Ms Fu said. ‘So far, the growth is supported by economic growth - it is quite a healthy growth.’ She was unable to comment on the withdrawal of the concession or the reasons behind it.

The concession to defer stamp duty payment was introduced in 1998 to cushion the impact of an economic slowdown. With its withdrawal, buyers of new properties will have to pay stamp duty within 14 days of making a purchase. Previously, they could defer payment until a project received its Temporary Occupation Permit or TOP.

Interestingly, the withdrawal of the concession comes at the time when the most sought-after residential property of the moment, Marina Bay Residences, is being sold, and with at least three more city centre properties about to be launched.

Knight Frank’s director of research and consultancy Nicholas Mak said the withdrawal of stamp duty concession does not necessarily bode ill for the property market. ‘One view is that IRAS does simply feel that with the property market looking up, there is no longer a need for the concession.’

Mr Mak did, however, say that if one ‘read between the lines’, it could be seen as the government, ‘taking a small step towards discouraging property speculation’. However, it is just ‘baby steps’.

Savills Singapore director of marketing and business development Ku Swee Yong agreed, and said that if the government really wanted to curb property prices, it could increase Government Land Sales (GLS) or capital gains tax.

Developers are unlikely to be in favour of increased GLS. At the Redas dinner, Mr Kwee urged the authorities to continue using the Reserve List in its land sales programme to make sure the demand-supply balance is maintained.

He said the Reserve List is one of the key mechanisms that has helped stabilise the Singapore real estate market. Under the Reserve List system, a site is put on the market only after a developer commits what the authorities deem is an acceptable bid for it.

‘With developments at Sentosa Cove and Marina Bay, redevelopments at Orchard Road and Bras Basah Road and the launch of the two large integrated resorts . . . the real estate market is undergoing a significant transformation that will see major adjustments in the supply and demand equation,’ said Mr Kwee.

‘We need to ensure that the supply of real estate over the next few years will not run ahead of demand.’

Separately, the Building and Construction Authority (BCA) yesterday said it will launch three initiatives worth a total of $70 million to bring about more energy-saving buildings.

For private developers, BCA will dangle a carrot by offering a $20 million incentive scheme for projects that meet certain criteria. And a $50 million fund has been set up to intensify R&D efforts in green building technologies and energy efficiency.

Moving with the market

1996: Govt announced measures to curb property speculation, including:  Extending stamp duty to buyers of all sales and sub-sales of uncompleted properties.  New stamp duty on those who sell properties within 3 years.  Tax on gains from properties sold within 3 years of purchase.

1997: Following Asian financial crisis, stamp duty for sellers was suspended.

1998: Stamp duty deferred for buyer of uncompleted properties until TOP or subsequent sale to help improve cash flow of property purchasers.

Dec 15 2006: IRAS withdraws this concession. All property buyers to pay stamp duty (at up to 3% for properties worth over $360,000) within 14 days of the date of acceptance of an Option. Sales before today’s date are not affected by new rule. As transitional measure, buyers who accept an Option or sign S&P agreement between today and the end of the year will have until March 14 to pay the stamp duty.

Source: The Business Times, 15 December 2006