Should Foreign Buyers Be Deterred By the 30% ABSD?
TLDR Foreign buyers interested in private residential properties in Singapore is a common sight due to the country's positive reputation...
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TLDR
When it comes to navigating the ups and downs of the Singapore property market, timing is crucial. Three real-life stories shed light on the challenges faced by homeowners looking to sell their properties. From dealing with changing regulations like ABSD and TDSR to unforeseen events like the COVID-19 pandemic, each tale underscores the importance of patience and strategic decision-making when it comes to real estate transactions. In a market where uncertainty looms, being well-informed and prepared can make all the difference in ensuring a successful property sale.
Let’s face it, the web is bursting with rags-to-riches tales of successful homeowners. And with realtors consistently showcasing deals that exceed property valuations, it’s easy to wear rose-tinted glasses when viewing Singapore’s property market. But wait, let’s hit the pause button there. As enticing as it may seem, real estate isn’t exactly a walk in the park.
Yes, it might not be as adrenaline-pumping as options trading, but don’t be fooled into thinking it’s a risk-free game. There’s always another side to every coin, and this one is no different. It’s crucial to take a leaf out of the books of those who’ve unfortunately found themselves selling at less than opportune times, and the consequent hurdles they’ve had to tackle. So, are you ready to see the flip side of the property coin?
1. Trying to Sell a Single-Bedroom in the Post-Shoebox Frenzy Era
Once upon a time, in the bustling year of 2012, investor LM found himself drawn to the buzzing shoebox property craze. He recalls how ABSD rates were tantalizingly low back then, making even a tiny second property seem like a golden goose.
He narrates, “The ABSD was a mere three per cent. My cozy one-bedroom shoebox’s ABSD was just around $20,000. With half a year’s rent covering this cost, it felt like striking gold.”
Always the strategist, LM opted for a resale one-bedroom property. His aim? A lower purchase price and immediate rental income. Alas, his well-laid plans hit a snag as Singapore’s rental market went soft from 2013 onwards.
LM paints a vivid picture of his journey, “When I began renting out my property, rates were a little over $4 psf. Fast forward to May 2017, when I decided to bid adieu, the rates had taken a tumble to $3.35 psf.”
The ever-changing market landscape, peppered with a series of cooling measures, forced LM to accept the new reality – these measures were here to stay, keeping prices in check. Feeling the pinch, he decided it was time to sell.
LM continues his tale, “By the time I put up the ‘For Sale’ sign, the ABSD rate had skyrocketed to a staggering 10 per cent. To add salt to the wound, TDSR was introduced. The shockwaves of these changes still echoed in the market.”
Despite numerous viewings and inquiries facilitated by his realtor, LM observed a shift in the type of potential buyers. Gone were the days of landlords; singles were the new majority. He muses, “Cooling measures coupled with weak rentals had seemingly burst the investors’ bubble.”
LM soon discovered that the singles demographic was rather budget-conscious. He points out the TDSR was a significant hurdle, especially for singles looking to secure a home loan. Imagine a single individual earning $5,000 a month having to limit their total debts to $3,000 or less, inclusive of all expenses like car loans, education loans, and more. Quite a tightrope walk, isn’t it?
LM, in 2013, found himself tangled in the new Total Debt Servicing Ratio (TDSR) rules. It was a change that knocked down Loan-To-Value (LTV) from 80% to 75%. Fast forward to the day he sold his house for $718,000, everyone thought he’d hit a gold mine. They praised him for buying when Additional Buyer’s Stamp Duty (ABSD) and prices were low.
But here’s the catch – he barely broke even. Don’t forget to factor in property taxes and maintenance fees. So, no, it wasn’t as rosy as everyone assumed.
“Buying at the right time?” LM chuckled, debunking their misconception. He bought at the sweet spot, sure. But selling? That’s where he tripped. Had he waited, let the dust settle post-TDSR and new ABSD rates, he would’ve made a neat profit. “Just picture if I had sold it in 2023 instead of 2017,” he mused.
A quick rewind to pre-2013 days. The ABSD rates were a friendly one per cent for the first $180,000, two per cent on the next $180,000, and three per cent on whatever was left.
Then came the cooling measures – a supposed temporary fix to stop a property bubble from inflating. Spoiler alert! They stayed. And they grew stronger with each passing year. Today, we just nod and accept them as part of the game.
2. Starting to Sell just ahead of New Cooling Measures
Imagine this scenario: GH and his better half had a pretty little three-bedroom home tucked away in the Katong district. The year was 2004, they bought their dream home. Fast forward to August 2018, life threw them a curveball — GH got a job offer in Australia. Naturally, they thought about selling their nest.
Now, you’d remember August 2018, right? That’s when new property cooling measures hit, and the Additional Buyer’s Stamp Duty (ABSD) went up. Talk about bad timing! They just hired a real estate agent and put their house on the market three days before the rules changed.
GH felt the impact straight away. He remembers, “I thought we were golden. My old boss loved our house and seemed like he might buy it if we didn’t get any better offers. But then, bam! The news broke, and he texted me saying he probably wouldn’t buy because of the steeper ABSD.”
Things didn’t look too rosy from their real estate agent’s side either. They were told that these cooling measures mess with people’s heads when buying property — suddenly everyone adopts a ‘let’s wait and see’ attitude, hoping for prices to fall, no matter how high the ABSD is.
GH found himself stuck between a rock and a hard place:
“We could either make the first move, put our faith in the real estate agent to handle things while we were overseas, or rush into selling now and settle for less. It was a tense period, especially as we were on the hunt for a new place overseas.”
In the end, GH bit the bullet and sold at a “minor loss”, which he says was under five percent of the property’s estimated value. Despite this, he considers himself fortunate. Why? Because over the following couple of months, the real estate agent only managed to reel in two serious buyers.
The whole ordeal burst GH’s bubble about the supposed security of the real estate market, as he realized that “no matter how secure you think property investment is, you can still be one of the unfortunate ones who ends up taking a hit.”
3. Selling during the COVID pandemic
Imagine this: You’re like Felicia, a homeowner with a cute little flat on Thomson Road. It’s your first home, and it’s got just one bedroom – perfect for a single person. Then in January 2020, you get engaged! Exciting news, right? But, you realize that your love nest might be a little too small to start a family in, so you decide to sell.
You pick a realtor and put your home on the market, but then – bam! – Singapore’s alert level gets raised to DORSCON Orange due to that pesky Covid pandemic. By April, Circuit Breaker comes into play and all viewings come to a screeching halt.
“Man, I was hoping things would get back to normal after the Circuit Breaker”, says Felicia, “but there were still restrictions on viewings. And nobody knew what was happening with the property market.”
Then along comes a buyer who’s happy with just photos and a virtual tour of the place. Without missing a beat, Felicia says yes to the sale. This happened around a month after the Circuit Breaker.
Looking back, Felicia admits she might have jumped the gun. “Not only was the offer a bit on the low side,” she says, “but I didn’t take into account the fact that I’d also have to find a new place in the middle of a pandemic.
“In hindsight,” Felicia sighs, “I should’ve taken my time. Turns out, finding a new place took just as long. Plus, I ended up selling my renovated flat for a price that barely matched its market value.”
The real sting hit at the tail end of the pandemic. From 2021 to 2022, the cost of properties shot up – if Felicia had just held out a bit longer, she could have cashed in on the high demand for homes.
Felicia sighs, “I wish I hadn’t listened to my friends and family who convinced me that Covid would make property prices drop and that I should sell quick. The market right now is completely different from what they expected.”
One downside of settling for a lower price is that Felicia now lives further from work. If she had waited, she could have gone for a pricier place and stayed in the Thomson area, where her job needs her to be on-site early in the morning.
Felicia’s new pad is a second-hand condo in Serangoon. It’s bigger than her old home with three bedrooms, but the money she got from selling her old place didn’t even cover the full deposit.
There are ways to guess if you’ll make a profit when selling (like comparing profitable and unprofitable sales, and looking at past prices), but it all comes down to one thing: patience.
In the end, most deals that don’t go well happen because of urgency: they’re from sellers who, for some reason, can’t wait out the rough patches or unexpected events like Covid. That’s why it’s important to make sure you have enough funds or a backup plan, just in case things don’t go your way.
Should You Buy, Sell or Wait?
If you’re reading this, you must be trying to figure out the best course of action right now: is it the right time to buy or sell?
It’s difficult to give an exact answer since everyone’s situation is unique and what works for one person may not necessarily work for you.
I can bring you a wealth of on-the-ground experience and a data-driven approach to provide clarity and direction. From beginners to experienced investors, our top-down, objective approach will help you on your real estate journey.
I can help you by:
- Offering Strategic Real Estate Advice – I can help create a comprehensive plan to guide you through your property journey.
- Connecting Your Home with the Perfect Buyers – Through stunning visuals, an effective communication strategy, and an in-depth knowledge of the market, we’ll ensure your home is presented in the best possible way to fulfill your goals.
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