Singapore imposed new taxes on home purchases to curb excessive investment, sending shares of the city-state’s biggest developers tumbling by the most in more than two years.
Foreigners and corporate entities will have to pay an additional 10 percent stamp duty, the government said in a statement yesterday. The extra levy, effective today, will be 3 percent for permanent residents purchasing a second home and for citizens buying their third residential property.
CapitaLand Ltd. (CAPL) and City Developments Ltd., Singapore’s biggest builders, tumbled more than 7 percent on speculation the taxes will hurt sales and drive down property prices. Economies from Singapore to China have sought to rein in real-estate costs, with private home prices in the Southeast Asian nation rising for nine quarters.
“This is severe and likely to have a significant and negative impact on the residential property market, especially in prime districts,” Wendy Koh, an analyst at Citigroup Inc., wrote in a note to clients today. The latest taxes could be the catalyst for price cuts and result in a “significant decline” in residential property sales volume.
CapitaLand, Southeast Asia’s biggest developer, sank 7.3 percent to S$2.42 at the close in Singapore, its biggest decline since April 2009. City Developments (CIT), the city-state’s second- largest real estate company, tumbled 8.4 percent to S$9.18, the most since October 2008 and the worst performance on the MSCI Asia Pacific excluding Japan Index. (MXAPJ) CapitaLand has lost about 30 percent this year through yesterday, while City Developments has declined about 20 percent.
“We have always had open markets and must keep them that way,” Finance Minister Tharman Shanmugaratnam said in the statement. “However, the reality is that investment flows into our property market are now larger than before, and unlikely to recede as long as interest rates remain low. The additional buyer’s stamp duty should help cool investment demand, and avoid the prospect of a major, destabilizing correction further down the road.”
Singapore has been attempting to rein in prices since 2009, when the government barred interest-only loans for some housing projects and stopped allowing developers to absorb interest payments for apartments still being built.
Home prices are 13 percent above the high seen in the second quarter of 1996 and 16 percent higher than the “more recent peak” in the second quarter of 2008, the government said.
“Even with the current economic uncertainties, the demand for private residential property remains firm,” the government said. “Given the uncertainty in stock markets and with interest rates remaining low, private property in Singapore continues to attract investors, local and foreign. Excessive investment demand will however make the property cycle more volatile, and thus increase the risks to our economy and banking system.”
Home prices in China and Hong Kong have been declining. Hong Kong will reverse some property-cooling measures if the slide continues, John Tsang, the city’s financial secretary said in a Dec. 6 interview. In China, home prices dropped in October in 33 of 70 cities monitored by the government, the worst performance this year.
‘Almost Dry Up’
Singapore’s latest steps “will curb investment demand for private residential properties drastically, especially demand from non-resident foreigners,” said Nicholas Mak, an executive director at SLP International Property Consultants in Singapore. “In the next one to two months or so, the home-buying demand from non-resident foreigners will almost dry up.”
The higher additional buyer’s stamp duty for foreigners “is necessary, in view of the large pool of external liquidity and strong buying interest from abroad, and the relatively small size of the Singapore market,” the government said. Singapore, smaller than New York City, has a population of about 5.2 million people.
Foreign purchases accounted for 19 percent of all private residential property purchases in the second half of 2011, up from 7 percent in the first half of 2009, it said.
“We’ll probably see a dwindling in terms of potential demand coming from foreign investors,” said Donald Han, Singapore-based managing director at Cushman & Wakefield Pte. “The impact will be more critically felt particularly for the high-end, as well as the upper mid-market, rather than the mass market.”
The government currently imposes a 1 percent duty on the first S$180,000 ($140,000) of the property price, 2 percent on the next S$180,000 and 3 percent for the remainder.
Singapore will introduce sites that can accommodate 14,100 homes, 2.3 million square-feet of commercial space and 4,800 hotel rooms in the first half of 2012, the Ministry of National Development said yesterday.
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