Singapore – The Singapore government announced a fresh round of property cooling measures on April 26, 2023, to “promote a sustainable property market” amid rising prices and low-interest rates.
Higher ABSD Rates for all Buyers
The Additional Buyer’s Stamp Duty (ABSD) rate for foreigners buying any residential property was raised from 30% to 60% – the highest increase. The rate for Singapore citizens buying their second residential property was raised from 17% to 20%, and from 25% to 30% for those buying their third and subsequent property. The rate for permanent residents buying their first residential property was not raised but kept at 5%, and from 20% to 25% for those buying their second and subsequent property. The rate for entities buying any residential property was raised from 35% to 65%.
The New ABSD Rates took Effect on April 27, 2023.
Given that the private residential property price index increased by 3.3% in the first quarter of 2023 compared to a 0.4% increase in the final quarter of 2022, the government said that the measures were necessary to “keep a stable and sustainable property market.” The government also warned that the climate of low-interest rates and surplus liquidity would generate a detachment in property values from economic fundamentals and raise the likelihood of financial hazards.
Foreign Buyers hit Hardest
Our analysts said the measures would have the most impact on foreign buyers of higher-end private homes, who accounted for about 10% of total transactions in the first quarter of 2023. They said some foreign buyers might be deterred by the higher ABSD rates or look for alternative investments in other countries.
For example, a foreign buyer wanting to buy a $5 million condo would have to pay an additional $3 million in ABSD, up from $1.5 million. This would increase the total cost of ownership by 60% and reduce the potential return on investment.
Local Buyers less Affected but Cautious
According to our analysts, the measures would affect local buyers of mass-market homes to a lesser extent, as they might still be able to afford the higher ABSD rates or qualify for remission schemes. However, they said some local buyers might adopt a wait-and-see attitude or delay their purchase decisions until the market stabilizes.
For example, a Singapore citizen who wants to buy a second home worth $1 million would have to pay an additional $200,000 in ABSD, up from $170,000 previously. This would increase the total cost of ownership by 3% and reduce the affordability of the home.
Uncertain Impact on Prices
Our analysts also concluded that the impact on prices was uncertain, as some buyers might still be willing to pay the higher ABSD rates or negotiate for lower selling prices. They said the price growth might moderate in the coming quarters, but not decline significantly unless there was a change in economic conditions or supply-demand dynamics.
They said the measures were unlikely to affect the public housing market, as most HDB flat buyers and sellers were not subject to ABSD. They said the HDB resale price index rose by 6.5% in the first quarter of 2023, compared with the same period in 2022, driven by strong demand and limited supply.
More Measures Possible
They said the government might introduce more measures to cool the property market if prices continued to rise or if there were signs of excessive speculation or over-leveraging. They said some possible measures could include lowering the loan-to-value ratio, increasing the minimum cash down payment, or imposing a vacancy tax on unoccupied units.
The Singapore government has introduced a fresh round of property cooling measures to curb the rising prices and demand in the private residential market. The measures include raising the ABSD rates for all buyers, especially foreigners, who will face the highest increase of 60%. The measures aim to promote a stable and sustainable property market and prevent financial risks. The measures are expected to have the most impact on foreign buyers of higher-end private homes, while local buyers of mass-market homes will be less affected but more cautious. The impact on prices is uncertain, as some buyers might still be willing to pay the higher ABSD rates or negotiate for lower selling prices. The public housing market is unlikely to be affected by the measures, as most HDB flat buyers and sellers are not subject to ABSD. The government might introduce more measures to cool the property market if prices continue to rise or if there are signs of excessive speculation or over-leveraging.