Despite earlier cooling measures, the government's implementation of this third round of measures since December 2021 highlights the resilience of the property market. The aim of this latest implementation is to encourage a more sustainable property market, while maintaining the existing ABSD rates for first-time property buyers.
Below is a table displaying the original ABSD rates and the revised rates as of April 27, 2023:
It is crucial to note that the latest cooling measures introduced can vastly differ based on what measures were already in place alongside the overall state of the property market at the point of implementation.
Whom will this impact?
The joint statement between Ministry of Finance, Ministry of National Development and Monetary Authority of Singapore details the increase of ABSD rates for Singaporean Citizens purchasing their second property onwards, with the second residential property at 20% (3% increase from the previous 17%) and third property onwards at 30% (5% increase from the previous 25%).
For permanent residents buying their second property or more, the rates have been raised by 5%, with the ABSD rate being set at 30% for the second property and 35% for all subsequent properties.
The latest cooling measures have the most significant impact on foreigners, entities, and trustees, as their ABSD rate has increased by 30%. As a result, foreigners must now pay a 60% ABSD rate for any residential property they purchase, while entities and trustees are subject to a 65% ABSD rate.
Similarly, there will be a transitional period. ABSD rates on or before April 26 will apply for situations meeting all of the following criteria - the seller granted the potential buyer the Option to Purchase (OTP) on or before April 26, 2023; the OTP is exercised on or before May 17, 2023, or within the OTP validity period, whichever comes first; and the OTP remains unaltered on or after April 27, 2023.
It is also important to note when certain conditions are met, married couples with a Singaporean Citizen spouse may continue to apply for the remission of ABSD. Having to pay more and subsequently applying for the refund may however deter some couples due to the lessened buyer power.
The impact of this is expected to be most severe on the luxury housing market, as foreigners generally make up a larger proportion of sales in the Core Central Region (CCR) compared to the outskirts and suburban regions.
What are the reasons behind the latest implementation of cooling measures?
Although earlier cooling measures have had a mitigating effect on the property market, property prices have displayed renewed signs of acceleration in Q1 of 2023, likely due to robust demand. This is inclusive of demand from local buyers intending to occupy the property themselves, in addition to renewed interest from both local and foreign investors in the residential property market in Singapore.
This move is also to prioritize Singaporeans purchasing properties for owner-occupation. As a result, the ABSD rate for first residential property buyers remains unchanged.
National Development Minister Desmond Lee also commented on the significant difference between the increase in ABSD (Additional Buyer's Stamp Duty) rate for foreigners and locals, and the reason behind it was to, “calibrate the ABSD rate in order to have an effective dampener on investments from abroad.”
Minister Desmond Lee also noted that ‘Foreign investment in residential property made up 7% of all private housing transactions in the first quarter of 2023.’ and that foreign investments have fallen from approximately 20% in 2011 to around 3-4% the last few years.
Case Study (ABSD)
Let's examine the potential impact of the revised ABSD on you, based on the assumption that the property's price is S$1,000,000:
Although first-time property buyers can breathe a sigh of relief as there are no modifications to the ABSD, those seeking to purchase their second property or more should expect a minimum increase of $30,000 for a property worth $1 million!
As expected, foreign buyers face the most significant change, as they are now required to pay double the ABSD rate than before.
Foreign buyers continues with property purchases despite increase in ABSD
Despite the increase in the ABSD rate for foreign buyers, property purchases by foreign investors in Singapore have persisted, as seen during the launch on April 29 for Blossoms By The Park, where 8 out of 198 units were snapped up by foreign buyers. Four of these units were purchased by buyers from China, whilst the remaining four went to American citizens who were accorded the same stamp duty as Singapore citizens under the FTA (free trade agreement) between the US and Singapore.
In the past with the previous ABSD rate in place, foreigners were still attracted to investing or setting up their family office/business in Singapore, and there are several reasons for this.
Firstly, Singapore remains an attractive destination for foreign buyers due to its strong economy, stable political environment, and high standard of living. Many foreign buyers view Singapore as a safe and secure place to invest in property, with the potential for long-term capital appreciation.
Secondly, the Singapore government has introduced several measures to encourage foreign investment in the property market, such as the Global Investor Programme (GIP) and the Residential Property Act (RPA). These measures have made it easier for foreign buyers to invest in Singapore's property market.
Thirdly, despite the increase in the ABSD rate, Singapore's property market remains relatively affordable compared to other major cities such as Hong Kong, London, and New York. This affordability factor continues to attract foreign buyers to Singapore's property market.
What is happening in the rental market as well as the market for resale properties?
Following the rapid growth of prices for new private homes, there has been an increase in demand for resale condominiums for the second consecutive month. In the first quarter of this year alone, there was a 30.5% surge in the prices of new non-landed homes (at $2586 per sq ft), leading to a greater disparity in prices between new and resale properties.
As a substantial number of residential units are set to be completed soon, the rise in residential rents is expected to ease in the upcoming quarters. The surge in rental prices since 2021 was mainly driven by the imbalance between supply and demand, which was caused by the COVID-19 pandemic.
In what way would an increase in ABSD be beneficial?
Officials have stated that the increase in ABSD would work alongside the efforts to boost the housing supply, with the aim of alleviating the constrained housing market for both renters and owner-occupiers.
The number of public housing units available for sale under the Government Land Sales program has risen from 3,500 (confirmed list in second half of 2022) to 4,100 units in the first half of 2023. In regards to public housing, HDB is planning to release up to 23,000 flats in 2023, and up to 100,000 units from 2021 to 2025.
Taking into account the overall dynamics of supply VS demand, current economic conditions and interest rate environment, from here on out we should be seeing a more sustainable growth at a much reasonable pace.
In conclusion, the increase in ABSD rates for foreigners in Singapore is expected to impact the luxury housing market the most, as foreigners account for a larger proportion of sales in this segment. However, authorities believe that the hike in ABSD, in conjunction with efforts to ramp up the housing supply, will help to alleviate the tight housing market for both renters and owner-occupiers. With an increase in public housing units in the pipeline, and more residential units set to be completed soon, the upward momentum in the rental market is expected to slow down in the coming quarters.
While the latest cooling measures may have affected certain groups of buyers/investors, we believe it may have little to no impact on the UHNW (Ultra-High-Net-Worth individuals) who still see interest in Singapore as a safe haven.
For any guidance in navigating the new property measure, supporting your property investment and more insights, feel free to reach out to us via the ‘Contact’ button on the top right!