The Top 5 Tax Considerations When Investing In Singapore Property
When investing in Singapore property, it is essential to be aware of the various tax implications and considerations. Here are...
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TLDR
We explore the need to reevaluate the current Additional Buyer’s Stamp Duty (ABSD) rates in Singapore, considering their impact on both the real estate market and potential homebuyers. It discusses how these rates affect property affordability and market dynamics, highlighting arguments for and against adjusting them. The piece also examines economic trends and policy changes, suggesting that a balanced approach might be necessary to ensure sustainable growth in the housing sector while maintaining market stability.
In April of last year, a shift in the housing market began with an increase in the Additional Buyer’s Stamp Duty (ABSD) rates for residential properties. The most notable impact was on foreign buyers, who saw their ABSD rate rise significantly from 30% to a staggering 60% of the property’s purchase price or market value, whichever was higher. Unlike Singaporeans and permanent residents, foreigners’ ABSD rate was not influenced by the number of properties they owned.
Reflecting on the year since the ABSD rate adjustment, an investigation was carried out to assess its effects on demand and prices for condominiums, particularly those located in the prestigious Core Central Region (CCR).
Fewer foreign buyers are making purchases, but Permanent Residents are still buying
The increase in Additional Buyer’s Stamp Duty (ABSD) rates for foreign buyers has significantly reduced their demand, leading to a notable decrease in the number of condominiums purchased by this group. In particular, the count dropped from 923 units in 2022 to only 618 units last year. This trend has persisted, with a mere 328 units sold to foreigners in Singapore from May of last year to the present.
The effect on foreign buyers is particularly severe when compared to overall condo sales. In 2022, foreigners constituted 4.7% of total transactions, but this figure decreased to 3.5% last year and further plummeted to 1.8% currently.
Interestingly, Permanent Residents (PR) buyers have fared better during this period. In 2022, they bought 17.7% of all condo units sold, which slightly decreased to 17.3% last year and then to 17% from May of last year to the present.
This can be attributed to the smaller increase in ABSD rates for PR buyers compared to foreign buyers. While the rate for first property purchases remained the same, those buying their second or subsequent properties faced only a 5 percentage point increase. In contrast, foreign buyers experienced a substantial 30 percentage point increase, irrespective of how many properties they already owned.
It is important to note that citizens and PRs of Iceland, Liechtenstein, Norway, Switzerland, as well as Americans, receive the same ABSD treatment as Singaporeans due to free trade agreements with Singapore.
Traditionally, buyers from the USA and China have been among the top five non-Singaporean purchasers of condos in Singapore. While Americans face identical ABSD rates as Singaporeans, the same does not apply to Chinese buyers. However, following the ABSD rate increase last year, the situation has changed. In 2022, Chinese buyers acquired 266 condo units, while American buyers purchased 251. From May last year to the present, Chinese buyers have only bought 41 units, whereas Americans have purchased 172.
Notably, the demand from Chinese PRs has remained robust, with 1,117 condo units bought in 2022 and 906 since May last year. Evidently, the impact of ABSD rates varies among different buyer groups, and Chinese PRs seem to have been less affected.
Twofold Setback For Chinese Property Investors
The Singapore government’s crackdown on money laundering and the subsequent arrest of 10 Chinese nationals in August of last year may have played a role in the dwindling interest of Chinese buyers. These 10 individuals, hailing from the Middle Kingdom, are believed to have contributed to the decline in demand.
In 2018, a total of 1,548 condo units were snapped up by Chinese buyers, including permanent residents. However, with the recent surge in Additional Buyer’s Stamp Duty (ABSD) rates, the number of Chinese purchases has plummeted to a mere 947 units.
The situation appears even more grim when excluding Chinese PRs. In 2018, non-PR foreigners from China accounted for 33.9% of all condo units sold to Chinese buyers. But in the following year, the figure nosedived to 16.4%, and a meagre 4.3% since the implementation of the new ABSD rates.
Experts predict that the decline in Chinese demand will only continue to worsen. So far this year, a paltry eight condo units have been acquired by Chinese foreign buyers, representing a mere 2.7% of all purchases made by their countrymen.
Impact On Demand For CCR Condos
Since the alteration of ABSD rates, the proportion of foreign buyers in the market for CCR (Core Central Region) condos has decreased. In 2022, a total of 4,032 luxury condominium units were sold in the sought-after CCR region, with foreigners making up only 12.1% of the transactions. However, this percentage has further dropped to just 6% based on sales data from May of last year until now.
On the other hand, local Permanent Residents (PRs) and Singaporean buyers have been seizing the opportunity and purchasing more CCR condos, helping to offset the slowdown in foreign demand. PRs acquired 15.6% of CCR condo units sold in 2022, which has increased to an impressive 18.8% after May 2023. Meanwhile, Singaporean buyers have been dominating the market, constituting a significant 72.2% of all sales transactions for CCR condos in 2022, which has risen even higher to 75.2% after the ABSD adjustment.
Despite the changes in ABSD rates, the resale market for CCR condos remains active. In 2022, CCR condos accounted for only 18% of the total resale volume, but this has increased to 21% this year. The attractive discounts offered for prestigious developments like Cuscaden Reserve and The Residences at W Singapore Sentosa Cove have sparked a surge in demand for CCR condos this year.
In March, Cuscaden Reserve was reintroduced with prices starting from £2,900 per square foot, which represents a significant 20% discount from average transacted prices. Last month, The Residences at W Singapore Sentosa Cove followed with a relaunch at prices starting from £1,648 per square foot, a substantial 40% below its peak price.
According to the latest URA data, a total of 78 units in Cuscaden Reserve and 46 units in The Residences at W Singapore Sentosa Cove have been purchased this year. These two developments have emerged as the most sought-after CCR condos in the lively resale market for this year.
Average Prices For CCR Condos Still Rising
The prices of resale CCR (Core Central Region) condos have been consistently increasing, driven by high demand. In 2022, the average price was $2,187 per square foot, which rose by 0.8% to $2,204 psf last year. Currently, the average price stands at a high $2,293 psf, marking a 4% increase compared to the previous year.
Similarly, the trend of rising prices is seen in new CCR condos as well. Last year, there was a notable 6.1% year-on-year growth, reaching $3,016 psf. The latest data shows an even more significant increase, with the current average price climbing to $3,179 psf – a substantial 5.4% rise from the previous year’s average.
RCR Condos Finding Favour With Foreign Buyers
The glamour of luxury condos in the CCR (Core Central Region) has faded away as foreign buyers have pulled back from the market due to the adjustment in ABSD (Additional Buyer’s Stamp Duty) rates. In 2022, only 923 condo units were bought by overseas buyers, with just 52.9% of them located in the CCR. However, this percentage decreased further to 52.4% out of a total of 328 condo units purchased by foreigners, following the increase in ABSD rates.
On the bright side, the Rest of Central Region (RCR) has become a new attractive destination for foreign investors. RCR quickly captured 30.8% of the condo units sold to overseas buyers in 2022. With the rise in ABSD rates, this percentage increased to 33.5%, leaving the Outside Central Region (OCR) lagging behind at only 14%, down from 16.4% in the previous year.
What could have driven this shift in preference? The answer might be found in the appealing prices of RCR condos. Currently, the average price for CCR condos is a high $2,481 per square foot (psf), significantly higher than the more reasonable average price of $2,124 psf for RCR properties. It is understandable that a lower price tag also means a lower ABSD, as the stamp duty amount is calculated based on the property’s purchase price or market value.
Developers Have Less Appetite for CCR sites
The property market in the Core Central Region (CCR) is experiencing a decrease in interest from foreign buyers and a weakened economy. This trend is evident in recent government land sales (GLS) tenders where bids were scarce and prices were lower than anticipated.
For example, the Marina Gardens Crescent GLS site closed in January with only one bid that fell short of the Urban Redevelopment Authority’s (URA) standards. The bid of $984 per square foot per plot ratio (ppr) was considered too low, resulting in the site remaining unawarded.
Similarly, the Orchard Boulevard GLS site received four bids, but the highest bid of $1,617 psf ppr marked a significant 32% decline from the price paid six years ago for a neighboring site, Cuscaden Reserve.
The trend continued with the Zion Road (Parcel A) GLS site, which was awarded to a consortium of City Developments Ltd and Mitsui Fudosan with just one bid of $1,202 psf ppr. However, there was a positive development this month as the Holland Drive GLS site was finally awarded to the highest of three bids. The winning bid of $1,285 psf ppr, from a consortium of CapitaLand and UOL, was notably lower than the $1,888 psf ppr paid for One Holland Village nearby. Despite this, plans for two high-rise condominiums with 680 units are underway.
While challenges are present in the CCR property market, strategic partnerships and innovative solutions offer hope for continued development and growth in the region.
Conclusion
The surge in Additional Buyer’s Stamp Duty (ABSD) rates has had a significant impact on the foreign condominium market, causing a ripple effect on demand. Particularly noteworthy is the decreasing interest from Chinese buyers, which is in stark contrast to their American counterparts, as the government’s strict measures against money laundering take effect. In a surprising turn of events, the number of condos purchased by Chinese nationals has dropped below that of Americans for the first time in history. Consequently, there has been an observed shift towards Rest of Central Region (RCR) condos.
While prices for Core Central Region (CCR) condos continue to rise due to strong demand from Permanent Residents (PRs) and locals, the uncertain economic environment in Singapore may dampen the enthusiasm of local buyers. Despite the Ministry of Trade and Industry reporting a 2.7% year-on-year growth in the first quarter, with a forecasted 1-3% growth for the year, concerns remain due to geopolitical tensions in the Middle East and the conflict in Ukraine disrupting global trade and supply chains.
During these uncertain times, it is anticipated that more CCR condos will enter the market as three Government Land Sales (GLS) sites in the sought-after area were awarded this year. The key to boosting demand for these properties lies in their pricing, as evidenced by successful recent developments like Cuscaden Reserve and The Residences at W Singapore Sentosa Cove, which offered attractive discounts and experienced increased demand.
However, with a potential oversupply of CCR units looming, caution is necessary. The weaker economy could further decrease demand, resulting in an excess of unsold condos in the prime district. To prevent this scenario, measures such as reducing transaction costs for foreign buyers through a tiered ABSD rate similar to that of PRs and locals should be considered. This action could potentially reignite foreign buyers’ interest and prevent an oversupply of CCR units.
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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