STAMP DUTIES (AMENDMENT) BILL

Order for Second Reading read.

The Minister for Finance (Dr Richard Hu Tsu Tau): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

The Government recently introduced a package of measures to discourage speculation in the residential property market. The aim is to stabilise the market and prevent prices from overshooting. The Stamp Duties (Amendment) Bill 1996 and the one following it, the Income Tax (Amendment) Bill 1996, will provide for the legislative effect of the announced measures.

The Stamp Duties (Amendment) Bill 1996 seeks to do the following:

(i) to extend the coverage of stamp duty to every sale and sub-sale of properties;

(ii) to levy additional stamp duty, to be payable by the seller, if any residential property is sold within three years of its purchase equal to the existing stamp duty payable by purchasers if the sale is within one year of the purchase, 2/3 if in the second year and 1/3 if in the third year;

(iii) consequential amendments to stamp duty changes announced in the 1996 Budget.

Stamp duty to be extended to all sales and sub-sales of properties

Previously, a buyer who purchases an uncompleted property from a developer need not pay stamp duty until the title is transferred to him. If he resells the property before the transfer of title, he does not pay stamp duty at all. This means that property speculators who quickly resell properties pay no stamp duty.

Clause 6 of the Stamp Duties (Amendment) Bill repeals the existing section 22 and inserts a new section 22 to provide for stamp duty to be imposed in respect of every sale and sub-sale of property and for the duty to be payable at the time of agreement to purchase the property. This makes speculative activities more costly. This provision will apply to residential as well as other types of properties.

Additional stamp duty to be paid by the seller if any residential property is sold within 3 years of its purchase

As part of the new tax measures, stamp duty is payable by the seller if any residential property is sold within three years of its purchase. The stamp duty on sellers is equal to the existing stamp duty on purchasers in the first year after the purchase, 2/3 of this in the second year and 1/3 in the third year. Clause 6 of the Stamp Duties (Amendment) Bill inserts a new section 22A to provide for this. Clauses 18 and 19 amend the First and Third Schedules to specify the rates of the additional stamp duty payable by the vendor or transferor.

Consequential amendments resulting from stamp duty changes announced in the 1996 Budget

Clauses 3, 4, 8, 9, 10, 11, 12, 13, 16 and 17 amend and repeal various provisions in the Stamp Duties Act to reflect stamp duty changes announced in the 1996 Budget.

In addition, to facilitate the enforcement of the new stamp duty measures, the Stamp Duties (Amendment) Bill provides for the Commissioner of Stamp Duties to appoint agents to recover unpaid duties, similar to that presently provided for in the Income Tax Act. The Commissioner of Stamp Duties is also empowered to impound any document for which insufficient duty or no duty has been paid. This is to ensure that in cases where stamp duty is payable by both buyer and seller, both sets of duty are paid before the document is stamped. Clauses 14 and 15 provide for these changes by inserting new sections 72A and 73A.

Sir, I beg to move.

Question proposed.

Dr Ow Chin Hock (Leng Kee): Mr Speaker, Sir, the Stamp Duties (Amendment) Bill seeks to provide for stamp duty to be payable by the purchaser in respect of every sale and sub-sale of properties, and also to impose an additional stamp duty payable by the vendor and transferor of residential property where the property is disposed of within three years of its purchase. These are contained in clause 6 of the Bill which repeals the existing section 22 and introduces two new sections 22 and 22A. Clauses 18 and 19 specify the rates of the additional stamp duty payable under the new section 22A.

This is part of a package of measures to curb speculation in the property market with effect from 15th May 1996. In this context, speculation is defined as sale of property within three years of its purchase by any individual or a company. The Feedback Unit held a dialogue session on the property market on 17th June 1996. I have sent the notes of the dialogue to the Minister. Most participants supported the package of measures to curb speculation in property. Also, out of 150 inputs received so far by the Feedback Unit, 130 inputs or 86.6% supported the measures to cool the property market, although there were some reservations on stamp duties, and the timing of the package.

This amendment is an effective measure to curb speculation in the property market by making speculation more costly. Indeed, a number of participants in the dialogue session on17th June 1996 considered the new rule on stamp duty as a more effective measure than income tax on gains derived from real property transactions in curbing speculation in the property market. This is because under the new rule on stamp duty, speculators will be hit twice -- first, when they buy and, subsequently, when they dispose of their properties within three years. However, some participants expressed concern that the genuine buyer may also be hurt because the stamp duty is payable upfront when he signs the sale and purchase agreement, instead of when the property is completed. Also, under the new rule, stamp duty is payable on the full value of the property on every sale and sub-sale, regardless of whether the property is completed or uncompleted. The new stamp duty would therefore add to the cash flow problem faced by young couples.

Sir, there were some suggestions by the participants in the dialogue:

(i) Since speculative activities focused on new projects and not older projects, should stamp duty be levied only on new projects?

(ii) Should the first-time property buyer be exempted from paying the stamp duty upfront? In other words, the old rule should apply.

(iii) Should the first-time property buyer be allowed to use his CPF to pay for the stamp duty?

(iv) Should there be a greater flexibility in the refund of stamp duty? For instance, should the refund be extended to include a situation where any one party cannot proceed with the transaction, especially because of circumstances beyond his control?

Could the Minister consider these suggestions since the main objective of the amendment Bill is to curb speculative activities in the property market, and not to impose financial difficulties on the genuine buyers and first-time home buyers?

Sir, I support the Bill.

Mr Leong Horn Kee (Thomson GRC): Mr Speaker, Sir, before I commence my speech, I would like to declare my interest as a director of a company involved in property development. But my remarks are made in the interest of the public on this subject.

The recently announced measures to cool property speculation were sudden, and they had an immediate impact on the property market. Press reports said that property sales have dropped to 10% or less of the original volume.

I wish to state that, in principle, I agree with the need to curb excessive property speculation. To make a quick buck through blatant property speculation is not compatible with our desire to promote good work ethics. It makes a mockery of the ethos of thrift and diligence, when someone can simply turn around to re-sell a property in a few days and make $50,000 or more, a sum which an average worker cannot earn in a whole year!

However, on the other hand, I wish to remark that the set of new measures announced did come too suddenly and forcefully. While the measures were needed to cool the high speculative fever, the measures had caught many genuine investors and home buyers off guard.

Sir, allow me to comment on some of these measures, particularly with regard to stamp duties. Stamp duty to be paid by a buyer at the signing of the sale and purchase agreement

The new ruling requires stamp duty to be paid by a buyer at the signing of the sale and purchase agreement. This usually occurs within two weeks of the date of option. The shortened timeframe to pay the 3% stamp duty will pose an immediate heavy cash burden on the buyer.

I feel that for the sale of a completed property, the previous rule of paying stamp duty upon completion of a sale, which is usually in about three months' time, is more reasonable. However, for an uncompleted property, ie, a property under development, it may be fairer to set a new rule to impose stamp duty at, say, three months after the signing of the sale and purchase agreement. The previous rule of 2-3 years later at the temporary occupation permit (TOP) stage is understandably too long, and it has the effect of encouraging speculation. Hence, I feel that a good compromise is three months from the sale and purchase agreement. The current new rule of two weeks from the sale and purchase agreement is too tight a timeframe. Moreover, because of the shorter period, there is insufficient time to obtain approval for CPF funds to be used for payment of the stamp duty. And this, of course, has posed an additional cash burden on genuine buyers.

Stamp duty to be paid by the seller if the property is sold within three years

I feel that this new rule to impose stamp duty on the seller if the property is sold within three years is unnecessary. Not all sellers who sell their properties within three years are speculators. Many may be selling for financial or other personal reasons. There are already other new rules to curb speculation. For example, there is a new rule that income tax is payable if the seller makes a profit from the sale. However, if the seller had to sell at a loss, and he has to pay stamp duty on top of that, his financial loss will be aggravated.

Sir, I feel that the Government must guard that the new measures to cool property speculation do not become an overkill. Experiences in both Singapore and other countries have shown that the confidence in the economy is closely linked to confidence in the property and share markets.

These linkages are more evident in Singapore as 97% of our people own their homes (87% own HDB flats and another 10% own private properties). At the same time, more and more people are encouraged to own shares. Hence, any sharp drop in the property market will have a wide cascading effect on consumer spending, the retail trade, the share market, bank loans, the construction industry and related industries and, ultimately, on the overall business confidence.

In conclusion, while I support the principle that we must cool a feverish property market, I wish to urge the Government to watch carefully over the state of the property market. Ideally, this market should be just nice and warm, but not too hot and not too cold.

Dr Kanwaljit Soin: Mr Speaker, Sir, over the last three years, private residential property prices have more than doubled. According to a recent paper by a major stockbroking company, the reasons for the strong residential property market are sustained economic growth, the high prices of resale public housing which facilitate upgrading to the private residential ownership, the high returns of housing investment in Singapore which is made more attractive by political stability, the presence of a large speculative element in the market, the low interest rate environment and a significant foreign interest in the market. As prices looked increasingly to spiral out of control and as the implications of this are not only economic but also socio-political, the Government stepped in to cool the overheated market with a set of wide-ranging measures which include credit measures, supply measures, income tax measures and stamp duty measures.

Sir, there are two views on the effect of these measures. Some experts think that the residential market was already on its way to an over supply situation and the Government's curbs will compound the situation. Rents will fall and so will the property prices in the region of 20%. Other experts think that the 15th May curbs are likely to cause only a knee-jerk correction over the short term. But by 1997, prices will return to their long-term growth rates.

Whatever the scenario, we still have to deal with the new measures which are being proposed by the Government. Where the tax measures are concerned, there are some substantive issues that have to be raised and these are:

(1) Where a real property is sold by way of a mortgagee sale within the 3-year period, is the owner of this property subject to vendor's stamp duty and income tax, considering the fact that this was a forced sale situation?

(2) Does the Comptroller or the Commissioner, as the case may be, have power to grant waivers for deserving or hardship cases, eg, intra family transfers, a husband wants to include his wife's name in the house that was bought before marriage and intended to be used as a matrimonial home. Of course, I am referring to within the 3-year period.

(3) The Bill only recognises two situations where stamp duty can be refunded: (a) vendor's lack of title; and (b) approval under the Residential Property Act not obtained. This provision is not generous enough. It is understandable that there should be no refund when the contract falls through because one party defaults and the contract is rescinded. However, when the contract is conditional on certain matters, eg, satisfactory requisitions, and these conditions are not fulfilled, stamp duty should be refundable. Why should the law appear to give higher recognition to the Residential Property Act approval condition than to other conditions to which the sale is subject as agreed by the parties?

(4) A question arises about nominations by option holders of third parties to exercise their option. Is the letter of authority appointing a third party nominee to exercise the option stampable? What if some consideration is given for this nomination? What if the option period is for a long period of time? If the letter of authority is not stampable, then this may become a recourse of getting around the stamp duty and income tax rules affecting sub-sales.

Another issue to be considered is the timing of the payment of stamp duty. With the amendment, this has to be paid at the time of the signing of the sale and purchase agreement. This new imposition does not differentiate between genuine buyers and speculators and puts, as has been suggested by Dr Ow, a strain on the cash flow of genuine buyers. We should consider retaining the old practice of paying stamp duty only at the time of the legal completion of the project.

Also, Sir, with the new amendments to the Stamp Duties Act, will the renewal of the lease of premises be subject to stamp duty? If this is so, then what is the position for voluntary welfare organisations which have to renew the lease of their premises? Will the new amendment add to their financial burden? Would the Minister please be good enough to respond to these queries?

Mr Speaker: Order. I suspend the Sitting and will take the Chair again at 2.50 pm.

Sitting accordingly suspended at 2.29 pm until 2.50 pm. Sitting resumed at 2.50 pm.