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30% increased in ABSD. Check out latest round of Cooling Measure on 26th April 2023

Posted by alvintay on April 27, 2023

The Singapore Government announced a fresh set of cooling measures on 26 Apr 2023. The Additional Buyer’s Stamp Duty (ABSD) for all residential status was increased by 3% to 30%.

ABSD New Rate 27042023
ABSD New Rate 27042023

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The cooling measures came after the URA announced a 3.2% quarter-on-quarter (QoQ) increase in private property prices in 1Q 2023. This increase is much faster than the 0.4% increase in 4Q 2022. Furthermore, the Singapore economy contracted 0.7% QoQ in 1Q 2023 and there were concerns over the employment situation in Singapore. The property market looked to have run ahead of economic fundamentals and that is something the Government is concerned with.

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In the past one year, there has been an increase in the proportion of foreigners buying residential properties in Singapore. From a low of 3.1% in 1Q 2022, this proportion has increased steadily to hit 6.9% in 1Q 2023. This is the highest since 1Q 2018 when the proportion was 7.3%.

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*non-residential properties (all sale types)

Residential by Status Data
Source: URA, Huttons Research (data downloaded on 27 Apr 2023)

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The opening up of Singapore borders to the world is one factor behind the increase. This allowed more foreigners to relocate to Singapore. The second reason could be due to the relaxation of borders by China in Jan 2023. There has been an increase in enquiries from Chinese corporates and UHNWIs looking to set up their headquarters and family offices in Singapore in recent months. Another reason fuelling the increase in proportion of purchases by foreigners is geopolitical tensions. According to reports, there is an increase in enquiries from Taiwanese UHNWIs looking to manage and preserve their wealth in Singapore. There has been a significant increase in the number of Taiwanese buying residential properties in Singapore.

*non-residential properties (all sale types)

Residential by Status Data By Residency
Source: URA, Huttons Research (data downloaded on 27 Apr 2023)

Nationals and Permanent Residents of Iceland, Liechtenstein, Norway or Switzerland; Nationals of the United States of America will be accorded the same stamp duty treatment as Singaporeans

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The doubling in ABSD for foreigners may be seen as discouraging for them. Some of them want to sink their roots here and contribute to the economy. This may be a pre-emptive move to stem the number of high-end luxury home sales. Huttons’ agents have given feedback that the number of enquiries from foreigners are increasing.

The rental and EC markets are likely to see more demand after this announcement. It is getting too expensive for Singaporean buyers to buy a second home. Hence most of them are likely to sell off their first property and rent in the interim. For example, HDB upgraders buying a $1.5 million private residential property will have to pay 20% or $300,000 in ABSD. If they were to rent a HDB flat for $40,000/year for 4 years, this works out to $160,000 in rent paid and a savings of $140,000. ECs have become even more attractive as they are given upfront remission on ABSD. The upcoming EC, Altura along Bukit Batok West Ave 8 may see overwhelming interest. This may also push developers to bid for the EC sites at Tengah Plantation Loop and Tampines Street 62 (Parcel B).

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Foreigners are likely to rent for the moment while they apply for their permanent residency or citizenship. Anecdotally there are foreigners who rent with an option to purchase the home once they become PR or citizen. The rental market will pick up in the coming months and rents are estimated to grow around 10% in 2023.

The HDB resale market may see an increase in supply of flats for sale if upgraders choose to sell before buying their next home. This increase may moderate prices in HDB resale flats. The HDB resale market is likely to trend towards stabilisation and see not more than 5% increase in 2023. HDB resale flat transactions are estimated to be in the range of 24,000 to 26,000 in 2023.

Interest may flow over to the commercial, industrial and shophouse sectors as they are not subjected to ABSD. Transactions may increase in the coming months.

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Observations on past cooling measures are that there will be a knee jerk reaction and demand will ease in the next 3 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. What was observed previously during 2018 was that prices consolidated before it went on a run for 15 quarters. Developers are estimated to sell around 8,000 units with prices increasing up to 5% in 2023 due to higher construction costs and interest rates.

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.

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