Wealthy foreigners gain less from buying Singapore property through family offices, experts say

WHILE foreign interest in Singapore properties has been on the rise in recent years, wealthy foreigners are likely buying assets under their individual names – instead of through their family offices – to circumvent financial disincentives.

Experts noted that this has likely resulted in the small number of property transactions attributable to family offices in the past few years.

According to National Development Minister Desmond Lee, there have been only four commercial property transactions attributable to family offices over the past six years.

These purchases form around 0.04 per cent of the total commercial property transaction value over the period, he said.

In a written response to questions in Parliament on Jan 9, Lee added that there were no such residential property transactions by family offices over the same period.

The disclosure came in response to queries by the mayor of North East District, Desmond Choo, on the total investment by family offices in commercial and residential property from 2020 to 2022. Choo had also asked how this compares to the three years before the Covid-19 pandemic.

Market watchers say the figures do not come as a surprise, despite anecdotal evidence of wealthy foreigners snapping up properties in Singapore in recent months.

For example, a Chinese national was said to have bought 20 units at CanningHill Piers, a condominium along the Singapore River, for more than S$85 million in 2022.

In the same year, a Thai citizen was understood to have bought the top floor of the 44-storey Suntec Tower One for S$39.7 million, or at a record S$3,850 per square foot (psf).

In 2020, Chinese buyers also made up the biggest group of foreigners who bought villas in Sentosa Cove – this included the family of Chinese tycoon Zhou Haijiang, which picked up a two-and-a-half storey bungalow on Cove Drive for S$16.5 million.

Dawn Quek, head of the wealth management practice at Baker McKenzie Wong & Leow in Singapore, noted that the local tax incentive schemes for funds managed by family offices exclude Singapore real estate.

She added that this could potentially dampen the appeal of Singapore properties as an asset class to family offices.

“Many family offices – given their mandate to preserve and grow the family’s wealth – seek to implement a diversified investment strategy which includes exposure to equities, fixed income, commodities and other alternative investments,” Quek said.

Kum Soek Ching, head of Apac Research at Credit Suisse, also noted that residential properties bought under individual names incur an additional buyer’s stamp duty (ABSD) rate of 30 per cent, while entities such as family offices have to pay an ABSD rate of 35 per cent.

Therefore, it makes more financial sense for wealthy individuals to purchase properties under their own names, rather than through the family offices.

Desmond Teo, Asean EY private tax leader, said a multitude of factors could influence the acquisition of a real property. These include the purpose for acquisition, additional stamp duty and property tax rates, and funding means for the acquisition.

Residential property acquired for personal usage or wealth succession may be held directly by the individual owner or trust. Meanwhile, a property holding company may be specifically used to acquire and operate a property to derive taxable rental income where financing is required, Teo said.

He added that the rising number of foreign investors can include real estate players, real estate investment trusts, companies that own the premises where their businesses operate in, as well as private investors.