Q: Will Budget 2009 revive the property market bull?

A: The short answer is NO – it will not. Below are the explanations:

There weren’t any demand-side goodies

The very obvious absentees in the Budget are the recent demands made by developers, including all the demand-side boosters, such as suspension of stamp fees and the reinstatement of Deferred Payment Scheme which was singularly blamed for stoking the speculative fervour in 2007.

Let’s look at what was installed for the property market by the Finance Minister:

• There will be a two-year deferment of property tax for land approved for development.
• Property developers who bought government land sites and foreign developers who own private residential land in Singapore are given a one-year extension, beyond the normal six years before they commence development.
• Property developers, including foreign ones with Qualifying Certificates, are allowed to resell the land or dispose of their interest in it before Jan 21 next year. Before the 2009 budget, they were not allowed to resell the sites.
• Foreign property developers are given two more years to dispose of the units and they can also rent out unsold apartments for up to four years.

In the past, they were required to sell all the units in their project within two years of completion and were not allowed to rent out unsold units.

The measure is to provide the developers with greater flexibility in building and selling their developments according to market conditions. This will enable the developers to better cope with the downturn.

Moreover, all property owners and firms will also benefit from the Inland Revenue Authority of Singapore's bringing forward of its assessment on property taxes this year.

All are supply-side initiatives

The Budget builds on the supply-side measure which took effect last October i.e. suspension of the sale of state land through the confirmed list until June 2009.

Developers’ long wish-list snubbed

In fact, before the budget day, developers in Singapore had clamoured for the reinstatement of the deferment of stamp duty payment for projects under development, the reintroduction of the deferred payment scheme (DPS) with more safeguards being built in, and a temporary cut or suspension of stamp duty.

The developers even suggested changing the investment criteria for Economic Development Board's Global Investor Programme for foreigners to be considered for Permanent Resident (PR) status, by allowing a higher quantum for property purchase.

(Since July 2005, a foreigner can be considered for PR status if he invests at least S$2 million in business set-ups, other investment vehicles, and/or private residential properties, with up to half of the investment allowed in private residential properties.)

Calling any artificial measures to create demand ‘pointless’, the government stood firm on its priority of saving jobs at this critical time and set aside the developers’ requests.

When will the demand boosters come?

When the job market improves and the all-round economic situation looks more hopeful, says the government, without giving any specifics. However, it is very clear that the government is unusually panicky this time round, perhaps because more white-collar jobs are on the line and household income across the island is expected to fall drastically.

In fact, there are still much to be done to revive the property market. For one, the hefty Development Charge (DC) is still artificially high with the DC rate at 70 per cent of the market value. Reverting the DC rate to its original 50 per cent would help restore the incentive developers may need when redeveloping old buildings and help the government to prevent city slumps being formed in the pristine city-state.

Conclusion

Most importantly, for the property market to be revived, people’s confidence must first be restored. There is no point stimulating demand for private properties when the general public are fearful of losing their jobs. It seems that the road to recovery will be a long and tortuous one.

Property Tax Rebates brings much needed relief

Having said that the 2009 Budget won’t bring back the market rally, another measure in the new Budget will definitely help small businesses, who are real estate agents’ customers.

There will be a 40 per cent property tax rebate for landlords of industrial and commercial properties. This is to improve Singapore’s economic competitiveness and help to reduce business costs for everybody. CapitaLand was the first to announce a corresponding cut in rents, bringing the much needed relief and feelings of goodwill among its tenants.

All home owners also benefit from the 40 per cent property tax rebate for owner-occupied residential properties for 2009. This tax incentive aims to help Singapore at large to cope with the worst economic recession in decades.

Right now, owners of self-occupied homes pay a property tax which is equivalent to four per cent of the property's net annual value.

From year of assessment 2010 onwards, owners who own higher-value homes (homes with a net annual value* of more than S$150,000) or secondary residences need not pay income tax on the net annual value of their property.

*The net annual value of a property is an estimate of how much the property will fetch on the rental market, less related expenses.

Prepared by Sam Gian - Independent Real Estate Sales Trainer