BT Explains: Why the latest property cooling measures may not lower new home prices

THERE’S been a lot of buzz about property prices and cooling measures since the government announced higher additional buyer’s stamp duty (ABSD) rates for residential property, effective April 27.

If you’ve just returned from a holiday in Japan, here’s a catch-up on the changes announced on April 26.

1. Singapore citizens buying their second residential property now must 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.
2. Singapore permanent residents (PRs) 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.
3. 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.

Why is the government doing this?

The short answer, from National Development Minister Desmond Lee: It wants to dampen investment demand – both foreign and local – which is driving up housing prices and affecting Singapore citizens looking for homes to live in.

The last time the ABSD was hiked was in December 2021, alongside a tightening of borrowing. Further restrictions on housing loan limits followed in September 2022. These changes are only the most recent in a long history of the government tweaking the rules to ensure property prices do not run ahead of fundamentals. Here’s a summary of Singapore’s property cooling measures: 1996 to present day.

What prompted the latest move? The state of play in the market in the past few months would give an idea:

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In a doorstop interview on the day the latest ABSD measures came into effect, Minister Lee said sales figures show that foreign investment demand is returning to Singapore’s housing market, forming 7 per cent of all private housing transactions in the first quarter of the year.

While this is lower than the 20 per cent in 2011, it’s still rebounding from around 3 to 6 per cent in recent years. Lee described the ABSD decision as “early pre-emptive measures” to help Singaporeans looking to buy homes to live in.

Where will foreigners’ money go, then?

Other markets, like Hong Kong, which has in recent years (thanks to Covid measures) been losing ultra high-net-worth individuals to Singapore, and even New York City and London, which have 4 and 15 per cent in taxes respectively – compared with 65 per cent for Singapore property now.

But Singapore investment champions who are still betting on its economy, and safe political and social environment could also look at alternative asset classes in the Republic, like SGX-listed real estate investment trusts and equities, said consultant Nicholas Mak of MOGUL.sg.

What about for Singaporeans and PRs?

The ABSD hikes for these two groups – which form the bulk of buyers – are a shade of that for foreigners, but since data shows high price sensitivity to ABSD moves, Minister Lee said the shifts should suffice to discourage local investment demand.

Will hiking the ABSD work?

Not necessarily, according to property analysts BT spoke to.

While dampening investment demand could ease prices, developers could also counter that by regulating the supply tap.

OrangeTee & Tie’s Christine Sun said sellers and developers who anticipate slower demand may withhold putting their property on the market and wait for a better opportunity to do so, thus giving support to prices.

City Developments did just that. It said it’s postponing the launch of Newport Residences, a freehold project on downtown Anson Road. A spokesperson told BT it “will monitor market conditions closely” before putting it on the market.

In terms of residential land, Colliers’s Catherine He says developers may hold off bidding for Government housing site tenders, especially those in the Core Central Region (CCR), which is an area traditionally popular with foreigners.

In more concrete evidence of the ABSD impact, Blossoms by the Park – launched on the first weekend after the measures were announced – met with robust sales. Three-quarters of the property in Buona Vista were snapped up.

It might be early days, but the absence of a knee-jerk pullback might signal to some that the impact of the measures would also be muted even in longer term.