How Budget 2023 Will Impact The Property Market

Published: Mar 21, 2023 by 
PropertyGiant Singapore
Before rushing to make a decision, it is important to understand how the measures in Budget 2023 will impact the property market. Credit: The Straits Times, Lim Yaohui
Before rushing to make a decision, it is important to understand how the measures in Budget 2023 will impact the property market. Credit: The Straits Times, Lim Yaohui

Several measures in Budget 2023 that involve residential properties, such as increasing housing grants for first-timer families buying resale flats and the move to adjust stamp duty rates for higher-value properties, are likely to influence buyers' sentiments.

But before you rush to make a decision, here are four things to know on how the measures will impact the property market.

More options for HDB resale buyers

This initiative will help many young Singaporeans own their first homes quickly, especially cash-strapped buyers who need urgent housing and cannot wait for the completion of a Build-To-Order (BTO) flat. As Housing Board resale prices have risen over the past two years, buyers can now choose from more housing estates and flat types with the increased subsidies.

Higher resale demand will also benefit sellers, as resale transactions have dipped after September 2022's cooling measures. If more buyers take up resale flats, fewer people need to apply for BTO flats - this will result in better chances of obtaining a unit, especially when more new flats are being built.

Eligible buyers will likely opt for three- and four-room resale flats, since higher grants are given to families purchasing smaller flats. Under the new scheme, the Central Provident Fund (CPF) Housing Grant will rise by $30,000, to a total of $80,000 for eligible buyers of four-room or smaller flats, while others can receive $10,000 more, or $50,000, if they were to purchase a five-room or larger resale flat.

For instance, the median price of a four-room resale flat is around $535.000 in February 2023. So the additional $30,000 in grant alone can cover almost 6 per cent of the resale price; this means that the full $80,000 grant will amount to an offset of 15 per cent of the property price.

In comparison, the $10,000 extra grant constitutes just about 1.6 per cent of the median price of a five-room resale flat at around $638,000. The total grant of $50,000 can cover only about 7.8 per cent of the purchase price.

Some eligible buyers may switch from buying a resale flat in the non-mature to mature estates as the additional grants can partially offset the price difference. For example, the median price of four- room resale flats in mature estates is $595.000, while those in non- mature estates are around $515.500.

Higher grants, higher prices?

In an open market, price dynamics are driven by many factors. If prices rise too steeply, sellers risk being priced out of the market.

Competition for buyers will stiffen with more BTO flats slated for launch. Moreover, the extra grants specifically target first-timers with incomes below $14,000 for families and $7.000 for singles.

Further, buyers receive additional grants through their CPF. If prices far exceed valuation, these buyers may still lack the cash to pay the higher COV (cash over valuation).

We expect more price impact on three- and four-room resale flats in some popular locations or mature estates. There could be less impact on large flats as the additional grants are noticeably smaller for five-room or bigger resale units.

Non-selection rule for new flats

Currently, around 40 per cent of successful BTO flat applicants do not book a BTO flat. Starting from the August sales exercise, first- timers who decline to select a flat will be deemed second-timers for a year and this will reduce their chances of getting, new flats during that period.

The number of applicants may fall in the August BTO sales launches as many people may hold back until they are ready for marriage or have carefully weighed their housing options. Buyers will also be more selective and apply only for the most suitable project.

Queue dropouts would include those who wanted only popular mature estates or specific flat types deemed to yield better returns. Others could be undergraduates or couples who may not be ready to get married but have applied to secure units earlier.

The penalty for non-selection may drive more buyers to the resale market. Those who fail to obtain a unit on the first attempt or have their first-timer privileges suspended will likely opt for a resale flat since the CPF housing grants have been increased for first-timers.

Higher tax for higher-valued properties

For residential properties, the portion of the property's value that exceeds $1.5 million and up to $3 million will be taxed at 5 per cent, while the portion of the property's value of more than $3 million will be taxed at 6 per cent, up@rom the previous rate of 4 per cent for value above $1.5 million.

The buyer's stamp duty (BSD) increase is unlikely to impact the property market significantly, since only properties above $1.5 million are affected. All HDB flats, most executive condominiums and about half the private properties in Singapore are valued below $1.5 million.

Past transaction data from the Urban Redevelopment Authority indicates that about 40 per cent of the private residential sales in 2022, including executive condominiums, were between $1.5 million and $3 million, and approximately 15 per cent were at least $3 million.

Further, around 70 per cent of new sales and 47 per cent of resales were at least $1.5 million in 2022. Using past data as an estimate and with more than 50 per cent of the upcoming launches being in the city fringes and prime locations where price tags tend to be higher, the BSD increase may affect the primary market more than the secondary market in 2023.

However, most buyers may not feel that the increase in BSD is excessive, especially if the amount is expressed as a percentage of the total purchase price and if the homes were bought for owner occupation or a long-term investment.

For instance, an HDB flat upgrader purchasing a $2 million condominium will pay an extra $5,000 in BSD, or around 0.25 per cent of the total purchase price.

An investor purchasing a $3 million condominium might pass the $15,000 BSD increase to the next buyer when he sells the unit. He may alternatively raise future rents to cover the extra cost should be lease the unit.

The increase is unlikely to impact foreign investors and luxury home buyers. Wealthy buyers may not be deterred at the upper end of the market, even if the BSD increase can be as high as $155.000 for a $10 million property. Luxury homes in this price range usually entail unique attributes and ultra-high-net-worth individuals are willing to splurge on assets that are exclusive, prestigious or rare.

Similarly, an increase of 1 per cent to 2 per cent BSD will not rock the boat for permanent residents (PRS) and foreign buyers (non- PR). Non-PRs must cross more significant hurdles like paying an extra 30 per cent of the property purchase price as additional buyer's stamp duty (ABSD) for any property purchase. PRs are charged a 5 per cent ABSD for their first residential property, going up to 25 per cent for the second property and 30 per cent for subsequent ones.

Despite the current ABSD rates, many PRs and non-PRs purchased private properties over the past year. To such buyers, other factors such as potential investment returns, capital appreciation and product attributes are more important.

Many investors have enjoyed high rental and capital returns in recent years and the strong Singapore dollar has helped preserve their property assets value. Moreover, properties in Singapore are generally regarded as safe-haven assets.

The positive perception will likely stay even if property acquisition costs have risen. Singapore will continue to be one of the world's best investment destinations.

Credit: Christine Sun, The Straits Times

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