Quick takes: The impact of new ABSD rates for residential properties

ADJUSTMENTS to Additional Buyer’s Stamp Duty (ABSD) rates for residential properties will take effect on Thursday (Apr 27) as part of the Singapore government’s cooling measures to manage investment demand. 

For Singapore citizens, ABSD will be raised to 20 per cent from 17 per cent for the purchase of their second property, and to 30 per cent from 25 per cent for their third and subsequent properties. 

Singapore permanent residents (PRs) will have ABSD increased to 30 per cent from 25 per cent on their second property, and to 35 per cent from 30 per cent for their third and subsequent properties. 

ABSD rates will double to 60 per cent from 30 per cent for foreigners purchasing any residential property. 

Excluding housing developers, any entities or trusts purchasing residential properties will experience ABSD rates rise to 65 per cent from 35 per cent. 

Here are some quick takes from property analysts on the hikes for residential property ABSD: 

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Leonard Tay, Knight Frank Singapore head of research

• “As the government has maintained that Singapore’s continued success is contingent on remaining open and relevant to the world, and also to foreign talent to ensure that long-term economic growth is sustainable, the increase in ABSD (for foreigners) is astonishing to say the least.”

• “Foreigners buying private homes ranged between 110 to 301 transactions per quarter from Q1 2020 to Q4 2022, with a quarterly average of about 236 during the three-year period that included the circuit breaker, the pandemic restrictions and border closures. Therefore, 264 foreign homebuyers in Q1 2023, when other countries in Asia opened to travel, can be considered fairly normative of the past three years and nowhere near a surge that would set alarm bells ringing.”

• “With the changes in the ABSD rates anticipated by the government to affect about 10 per cent of residential property transactions, one can only wonder whether the measures are possibly slightly excessive.”

Eugene Lim, ERA Realty Network key executive officer

• “This round of cooling measures is clearly targeting investment demand for private residential property. By increasing the ABSD rates, the government hopes to moderate investment demand.  At the same time, with the ramp-up in supply, they hope to alleviate the tight housing market for owner-occupation and rental.”

• “Singapore citizens and Singapore PR first-time buyers are not affected by this increase, and we can expect them to be the key demand drivers in the months ahead. According to the government’s press release, this group accounts for about 90 per cent of residential property transactions based on 2022 data. Investors and foreigners are likely to back down and re-evaluate their options.”

Nicholas Mak, MOGUL.sg chief research officer

• “Some potential property investors may give up the whole idea of investing in physical real estate and turn to investing in other assets. Some investors may invest in real estate indirectly, for example through real estate investment trusts or securities of property developers.”

• “Developers could build even smaller residential units in order to keep the price quantum “affordable”. Property developers are always looking for ways to increase the property price in terms of dollar per square foot without turning off the buyers. The most common method is to reduce the size of the housing unit.”

Christine Sun, OrangeTee & Tie senior vice-president of research and analytics

• “The increase in ABSD will reduce investment demand. In the long run, the number of homes bought for rental income may reduce, further impacting the private rental market. However, other asset classes may benefit as investors may divert their money to non-residential investments.”

• “When volume is low and purchase sentiment declines, it may lead to lesser supply in the market, as sellers and developers may choose to withhold their sales and wait for a better opportunity to sell. Therefore, prices of homes may still not drop significantly as supply remains low in the market and sellers have holding power.”

• “The ‘cooling measures’ have turned into ‘freezing measures’ for foreign buyers (non-PRs) as ABSD has doubled for these buyers and most will find the rates to be high. Many foreigners have already been affected by the previous hike, where ABSD was raised to 30 per cent on Dec 16, 2021. With the ABSD rate adjustments, we can expect purchases of non-PRs to drop further.”

Jeremy Lake, Savills Singapore managing director, investment sales & capital markets

• “The ABSD hikes will dampen bids from developers for sites, particularly for prime Districts 9,10 and 11 sites because the new launches on these sites typically target a higher percentage of foreign buyers who are most impacted by the higher ABSD. The price gap which has hindered collective sales over the last 12 months or so just got bigger.”

Lam Chern Woon, Edmund Tie head of research and consulting

• “While the ABSD rates for developers were left intact, developers will exercise even more restraint in upcoming land bids. We expect a decline in bidding activity and pricing levels.”

• “Sales volumes could be softer in the near-term, as some potential buyers await for possible price adjustments from developers, especially for projects approaching ABSD deadlines in the Core Central Region (CCR).”

Sing Tien Foo, NUS Business School Provost’s Chair Professor in Real Estate

• “The demand for the high-end segment and CCR projects will likely be hit the most. Developers will have to recalibrate the situation and review their pricing strategies, considering the huge jump in ABSD for foreigners and the second purchases by Singaporean and Singapore PR buyers.”

Lee Sze Teck, Huttons senior director of research

• “The mass market and city fringe projects are likely to go ahead with their launches as the buyers are predominantly Singaporeans and PRs. The high-end market which is targeted at more foreigners may hold back for the time being for the market to absorb the impact of the announcement.”

• “Observations on past cooling measures are that there will be a knee-jerk reaction and demand will ease in the next three months. This is to be expected, as buyers will reassess their finances before making their decision on a property purchase. Prices may not ease given the low number of unsold units in the market.“

Catherine He, Colliers head of research

• “There is likely to be more muted bidding for upcoming Government Land Sales sites, especially those in the CCR and Rest of Central Region (RCR), such as the Marina Gardens Lane and Jalan Tembusu sites. 

• “Around 60 per cent of upcoming launches are in the RCR and CCR segments. Some of these launches might be delayed as developers recalibrate their marketing strategies or wait for the market to stabilise.”

Ismail Gafoor, PropNex Realty chief executive

• “For Singaporeans buying a second residential property, the ABSD rate has been raised from 17 per cent to 20 per cent, and for PRs from 25 per cent to 30 per cent. This will likely cool sentiment for investment properties, but we think the impact on sales could be measured, as many property purchasers today are first-time buyers, including those who have decoupled and buying a property separately.”

• “We expect foreign investors to shift their focus to evaluate opportunities in the commercial property and shophouse property segments.”

Dr Tan Tee Khoon, PropertyGuru Singapore country manager

• “Property seekers are likely to view the increased ABSD rates as a measure that is more permanent than temporary. They may treat it as a transaction cost, like certificate of entitlement premiums for cars. Additionally, more buyers may bring forward their purchase than wait, as they fear the introduction of further measures down the road.”

• “We should see little impact on home purchases in the range of S$1.8 million to S$4 million in the RCR and Outside Central Region after the initial knee-jerk reaction. Demand remains from the upgraders as households have a stronger liquidity position due to intergenerational wealth transfers.”

Chia Siew Chuin, JLL head of residential research, research and consultancy

• “Foreign buyers looking to buy luxury homes in Singapore may seek alternative avenues. For instance, those who qualify for the Global Investor Programme could seek permanent residency in Singapore if they satisfy all conditions of the programme and in turn purchase their homes as a PR and pay a lower ABSD.”