(Bloomberg) -- Singapore property stocks declined after the government raised taxes on home purchases of more than S$1 million ($761,600), just as the housing market starts to recover from a four-year slump.
UOL Group Ltd. and City Developments Ltd. fell more than 2 percent in early trading, making them the biggest decliners on the benchmark Straits Times Index. CapitaLand Ltd., the city-state’s largest developer, dropped for the first time in a week.
Stamp duty on the portion of a property’s price above S$1 million will be raised effective immediately, to 4 percent from 3 percent, the government said in its budget Monday. The move comes after home prices rose the past two quarters, ending a four-year decline.
The tax increase isn’t “enough to derail an ongoing home price recovery,” Morgan Stanley (NYSE:MS) said in a note to clients on Monday, “but this could weigh on sentiment on Singapore developer stocks in the near term.”
| Purchase Price | Stamp duty from Feb. 20 | Current stamp duty |
| First S$180,000 | 1% | 1% |
| Next S$180,000 | 2% | 2% |
| Next S$640,000 | 3% | 3% |
| Remaining Amount | 4% | 3% |
Source: Inland Revenue Authority of Singapore
“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,” Christine Li, a director of research at Cushman & Wakefield Inc. “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 move is less about cooling the real-estate market than about making the tax system more progressive, S. Iswaran, minister of trade and industry, said in a Bloomberg Television interview on Tuesday. Existing property curbs have had the desired effect, and if there was any concern about the real-estate market, “we would have seen far more significant measures,” he said.
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 percent, she estimates.
Singapore developers have been aggressively bidding for land as rising apartment sales and prices signaled an end to the downturn. 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 totaled more than S$3.1 billion, almost double the S$1.66 billion seen in 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.”
(Adds comment from minister in second paragraph below table.)
