Property investment demand is rising after falling back in the last few years, and adding stress to the local housing market. So the government has moved to crimp investment demand – from both local and foreign buyers – to proritise Singaporeans looking to buy homes for their own occupation, Minister for National Development Desmond Lee said on Thursday (Apr 27).

The increase in Additional Buyer’s Stamp Duty (ABSD) rates for residential properties kicks in from Thursday.

Foreign investment in residential property made up 7 per cent of all private housing transactions in the first quarter of 2023, Lee noted.  

As a proportion of private property transactions, foreign investment has fallen from some 20 per cent in 2011 to about 3 per cent to 4 per cent over the last few years, he added. 

Between 2017 and 2019, the average proportion was about 6 per cent, as a result of a few factors including the economic environment, property cooling measures and border closures. 

However, foreign investors have now returned to the market, with investment demand from both local and foreign buyers remaining resilient due to the “fundamentals in our economy” and in Singapore’s property market. 

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Lee said: “If we don’t take early pre-emptive measures, we may see investment numbers both by locals and by foreigners grow, that will add stress to Singaporeans who are looking to buy residential property principally for owner occupation.” 

Official flash data shows private home prices rose 3.2 per cent in the first quarter of 2023 on lower sales volume. This followed a 0.4 per cent increase in the fourth quarter of last year.

Lee said some investment buyers were foreign investors, while others are looking to relocate here, and they are principally looking at “high-end” residential properties. 

Lee was speaking to reporters on Thursday after the government announced on Wednesday that it will be stepping up ABSD rates for residential properties, in fresh cooling measures.

From Apr 27, Singapore citizens buying their second residential property will pay 20 per cent ABSD, up from 17 per cent. They will pay 30 per cent ABSD, an increase from 25 per cent, for their third and subsequent properties. 

Singapore permanent residents will see ABSD raised from 25 per cent to 30 per cent on their second property, and from 30 per cent to 35 per cent for their third and subsequent properties.

For foreigners, ABSD on any residential property purchase doubles from 30 per cent to 60 per cent. A 65 per cent rate will apply to residential properties bought by entities or in trust, up from 35 per cent. 

The new rates are expected to impact about 10 per cent of all private residential property transactions, based on 2022 data.

When asked why there was such a large increase in ABSD for foreigners, Lee noted that foreign investment demand mostly comes from those overseas who see Singapore residential property as an attractive investment class.  

Data has shown that local buyers are “very price sensitive to ABSD moves”, therefore the increases in the ABSD rate applicable to Singapore citizens of between 3 and 5 per cent would suffice to dampen local investment.

“We’ve had to calibrate the ABSD rate in order to have an effective dampener on investments from abroad. But these measures tackle both local and foreign investment,” Lee said. 

He added that the vast majority of foreigners, who come to Singapore to work and study, rent instead of buy property, and are “largely not affected” by the measures.

ABSD was introduced in December 2011, as one of several property market cooling measures. Rates were hiked in 2013, 2018 and 2021. This round of cooling measures follows the last intervention in September 2022, when borrowing limits for all property loans were tightened.

“We’ve had to take a series of measures both on the supply and demand side to make sure that we achieve stability and the markets don’t run ahead of economic fundamentals because if they do, they will hurt Singaporeans.”