SINGAPORE (BLOOMBERG) - Singapore property stocks declined on Tuesday (Feb 20) after the Government raised taxes on home purchases of more than S$1 million, just as the housing market started to recover from a four-year slump.
UOL Group and City Developments fell more than 2 per cent in early trading, making them the biggest decliners on the benchmark Straits Times Index. CapitaLand, Singapore's largest developer, dropped for the first time in a week.
Buyer's stamp duty on the portion of a property's price above S$1 million will be raised, with immediate effect, to 4 per cent from 3 per cent, the Government said in its Budget statement on Monday. The move comes after home prices rose in the past two quarters, ending a four-year decline.
The tax increase is not enough to derail an ongoing home price recovery, Morgan Stanley said in a note to clients on Monday. "But this could weigh on sentiment on Singapore developer stocks in the near term."
Cushman & Wakefield director of research Christine Li said: "Given the heightened interest in the residential market, the Government has timed the increase well, as prices and transaction volumes could return with a vengeance after Chinese New Year." She added: "The effective increase in the tax revenue is quite minimal, hence this measure acts more as a deterrent to the red-hot property market."
The increase will have more of an effect on ultra-luxury properties, Li said. The stamp duty on a S$10 million property will increase by about 0.9 percentage point to 3.8 per cent, she estimates.
Singapore developers have been aggressively bidding for land as rising apartment sales and prices signalled an end to the economic slowdown. Still, the central bank has warned that rising vacancies and slowing population growth may undermine a residential property recovery.
While a recovery in home prices is not a cause for concern, "exuberance" in the so-called en-bloc market for redevelopments may not be warranted, Ravi Menon, the managing director of the Monetary Authority of Singapore, said at a conference last month.
Collective apartment sales for redevelopment in the first two months of 2018 totalled more than S$3.1 billion, almost double the S$1.66 billion seen in the same period during the last en-bloc market peak in 2007, Nomura analyst Min Chow Sai wrote in a note dated Feb 19.
Li said developers may pull back from these purchases as the price tag can be hefty for most collective sale deals, which easily run into hundreds of millions of dollars.
CapitaLand chief executive Lim Ming Yan said in an interview last week: "Home prices may rise as much as 10 per cent this year."