- Raising the Additional Buyer’s Stamp Duty from 20% to 30% is seen as a short-term measure; it will not deter buyers seeking properties above S$30 million.
- China, India, and the United States are the largest investors in Singapore property, but U.S. citizen buyers will be exempted due to a free trade agreement.
For the first time since 2018, Singapore has raised the additional stamp duty for foreigners and citizens purchasing a second private property, in an attempt to cool soaring home prices and debt fueled by housing loans.
Announced late on Wednesday, December 15, a joint statement from two ministries and the central bank said that foreigners buying their first home will face an additional 10% Additional Buyer’s Stamp Duty (ABSD), increasing the stamp duty from 20% to 30% of the purchase price.
The rate for corporate buyers will be raised from 25% to 35%.
For Singaporeans and Permanent Residents eligible to buy HDB flats, the stamp duty for the first property will not be increased, but it will be raised by 5% for the second and third properties.
The Total Debt Servicing Ratio (TDSR) has also been reduced from 60% to 55%. This means that only 55% of a borrower’s total monthly income can be used to service their total monthly debt.
A property agent told the South China Morning Post that his client, a woman from a southeastern Chinese province, has been regretting not buying her dream home sooner.
The woman’s child is studying in Singapore. She had planned to buy a S$3 million condominium in downtown Singapore, but was waiting for her husband to arrive next month to confirm the purchase. Her stamp duty will increase from S$600,000 to S$900,000.
Authorities said that since the first quarter of last year, private housing prices have risen by 9%, a sign of a booming market. Private housing accounts for about 20% of the housing supply for Singapore’s 5.45 million population.
During the same period, the HDB resale market rose by about 15%. According to Bloomberg, property sales in the first half of 2021 reached S$32.9 billion (US$24 billion), double that of Manhattan, driven by demand from the super-rich flocking to this business hub.
“If left unchecked, prices could run ahead of economic fundamentals. This would increase the risk of a destabilising correction later on, which would hurt many households,” said Minister for National Development Desmond Lee.
In June this year, central bank chief Ravi Menon warned that the authorities were on “high alert” and would intervene before the market overheated. He pointed out that Singapore’s property prices were already higher than pre-pandemic levels, even though economic growth had not fully recovered from COVID-19.
Earlier this month, the Monetary Authority of Singapore said that housing loans were driving an increase in household debt and urged Singaporeans to be cautious when taking on debt to purchase property. In Wednesday’s announcement, the authorities stated that the loan amount available to buyers for HDB flats also cannot exceed 85% of the sale price.
Meanwhile, prices for resale condominiums in Singapore’s central region have reached sky-high levels, especially for units on higher floors with open views.
In the first half of this year, 106 HDB flats were sold for over S$1 million. Given that a 90-square-meter HDB flat can be purchased from the government for around S$400,000, the million-dollar price tag on the resale market represents a significant increase.
Lester Guo from Anjiasg, which focuses on luxury property sales, described the late-night announcement as “earth-shattering” and a “silent and swift execution” compared to the last tax hike that cooled the market. In 2018, the Additional Buyer’s Stamp Duty (ABSD) for most tiers was raised by 5 percentage points, and that announcement was also made in the evening, taking effect the next day.
Property-crazed Singaporeans then flocked to developers’ showflats, which extended their opening hours to allow people to participate in a buying frenzy before the new rules took effect at midnight. After the 2018 measures, property prices remained stable until the pandemic, when they began to pick up again, driven by low interest rates and expectations of economic recovery.
Lester Guo expects this announcement to trigger a knee-jerk reaction, with sales slowing for about six months before prices stabilize, rising at a much slower pace next year.
Lester Guo stated that he is revising his price forecast for the private residential market next year, down from 6% – 9% to 0% – 3%.
Lester Guo predicts that property sales in 2022 will slow to about 11,000 to 12,000 units, compared to the expected performance of over 13,000 units this year.
Lester Guo said some of his foreign clients were shocked by the news, and most overseas clients are now putting their property purchase plans on hold, waiting for the new rules to be implemented.
Lester Guo said the largest groups of foreign investors are from China and India, followed closely by American buyers, who are not affected by the stamp duty hike due to the city-state’s free trade agreement with the United States.
Lester Guo believes that the 10% increase in stamp duty for foreigners is “quite harsh,” as foreign buyers in the private property market have already dropped significantly, from about 15% before the pandemic to about 6%. This means that such purchases “were not really stimulating much.”
He said, “Of course, buyer sentiment is a bit high, but at the end of the day, housing is a necessity.” These clients—mostly from China—have recently moved to the city-state for their children’s education and have been looking for houses in recent months.
According to data, foreigners have purchased 1,069 condominium units this year, while permanent residents bought 4,375, and Singaporeans bought 22,113. The number of homes purchased by foreigners this year is only 69 more than in pre-pandemic 2019.
Lester Guo said that foreigners buying landmark properties tend to attract public attention, even though sales volumes are not high. For example, a Taiwanese family bought Eden, a 20-unit condominium located near the coveted Orchard Road shopping belt, in a bulk purchase for S$293 million.
Lester Guo said that raising the stamp duty would dampen foreign demand in the luxury market, especially for those buying properties in the S$10 million to S$15 million range.
“When you add about S$1 million to their total purchase price, this group might pause and think, even though it’s well within their means,” he said.
On the other hand, buyers eager to purchase high-end homes priced between S$30 million and S$50 million will not be deterred. These buyers are the super-rich, and these homes are usually not for investment but for them to settle and live in. “This extra 10% will not drive them away,” he said.
Although the new cooling measures will weaken foreign demand in the near future, Lester Guo is optimistic that potential buyers will eventually still set their sights on Singapore.
However, he noted that with a 30% stamp duty, Singapore property prices will now be comparable to those in China’s first-tier cities. Singapore will also be placed in the same tax bracket as Hong Kong, which might affect buyers. But he added that investors are now increasingly seeing Hong Kong as an “appendage of China” and prefer a more “international location.”
Lester Guo stated that in the past, investors only focused on returns, but now the government’s handling of the COVID-19 pandemic and economic stability are also attracting buyers to Singapore.
“Foreigners are looking for a safe place. Financially, Singapore is one of the best places for them to park their money. Medically, it’s probably one of the best places,” he said.
“These are factors that didn’t exist in previous years. That’s why I feel that foreigners will eventually return to Singapore.”
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