New cooling measures are shaking up the real estate market in Singapore. The government has announced an increase in Additional Buyer’s Stamp Duty (ABSD) for both local and foreign buyers of residential properties, effective from April 27, 2023.
However, savvy investors from select countries, such as the U.S., can take advantage of free trade agreements, which provide these nationals with ABSD remissions the same stamp duty rates as Singapore citizens.
Foreign investors have made a comeback to the global prime property market following the pandemic-induced hiatus, but policymakers were unsettled by headlines featuring wealthy overseas property investors, prompting the announcement of the latest round of cooling measures on April 27, 2023. The measures aim to curb speculation and excessive price increases, ensuring a stable and sustainable property market.
Most foreign buyers will now face a blizzard of Additional Buyer’s Stamp Duty (ABSD) with a doubling to 60% and an increase to 65% for entities. However, recent data from the Ministry of National Development suggests that only around 10% of residential property transactions will be impacted by this increase.
Table: Adjustments to ABSD Rates
|Profile of Buyer||ABSD Rates from 16 Dec 2021 to 26 Apr 2023||ABSD Rates on or after 27 Apr 2023|
|Singapore Citizens (SC) buying first residential property||Not applicable||Not applicable|
|SC buying second residential property||17%||20%|
|SC buying third and subsequent residential property||25%||30%|
|Singapore Permanent Residents (SPR) buying first residential property||5%||5%|
|SPR buying second residential property||25%||30%|
|SPR buying third and subsequent residential property||30%||35%|
|Foreigners (FR) buying any residential property||30%||60%|
|Entities buying any residential property||35%||65%|
|Housing Developers buying any residential property||35%
Plus Additional 5% (non-remittable)
Plus Additional 5% (non-remittable)
[Source: IRAS Website]
CNA reports approximately 4,600 private residential property transactions in the first quarter of 2023. Singaporean buyers were the most active, making up around 74% of the total, followed by Permanent Residents (18%), foreign buyers (6%), and entities (1%).
Nevertheless, the significant increase in ABSD is expected to have a substantial impact on foreign transactions in the coming months and even years. The 2023 housing market has been characterized by a whirlwind of activity for buyers and sellers. After years of low housing inventory, there is now a high demand for quality prime projects, making it a developer’s market with buyers eagerly waiting for new development launches. However, the recent government measures aimed at ensuring housing remains affordable for local communities in step with economic fundamentals may discourage foreign investments.
While this may seem a hefty increase for most foreign investors, there are exemptions and ABSD remissions for foreign nationals and/or permanent residents from certain countries through free trade agreements from select countries. Citizens from the U.S. of America, Iceland, Liechtenstein, Norway, or Switzerland are afforded the same stamp duty rates as Singapore Citizens.
In addition, foreign investors enjoy equal advantages as local investors in Singapore when investing in commercial properties, where they are not subject to the same financial drawbacks as residential properties. Nonetheless, it’s crucial to note that purchasing a commercial property is a different ball game from buying a residential property, with unique considerations. We’ll be covering this topic in more detail in a future article.
Current Housing Market Insights in Singapore
In the first quarter of 2023, prices in the prime residential property market remained unaffected by the marginal increase in buyer’s stamp duty announced in February, despite the prior 30% ABSD. A wave of new developments and launches has caused a flurry of activity, with buyers continuing to show interest in the market despite previous government cooling measures.
Data from URA Realis for Q1 2023, new home sales, excluding executive condominiums, made up 33.4% of the total sales, which is a significant increase from the previous quarter’s 18.9%, according to the latest report. In contrast, resales saw a decline, dropping from 76.1% to 62.4% during the same period. The rise in non-landed property prices by 2.5%, up from 0.3%, was mainly due to a higher proportion of new home sales.
Foreign buyers have demonstrated their readiness to pay a premium for prime real estate in Singapore, according to CBRE’s analysis, which found that 12.1% of Core Central Region (CCR) private non-landed properties were purchased by foreigners in 2022, who paid a whopping 14% more per square foot than Singaporean buyers and an even higher premium of 16% more than Permanent Residents.
The increase in interest from foreign buyers, while beneficial for the industry, must be balanced with careful regulation and economic foresight to ensure the needs of the local population are not overlooked. As the housing market cools, price growth is slowing, presenting an opportunity for wealthy investors, such as those from the U.S., to make a splash in the Singapore property market.
Foreigner Investors Eligible for ABSD Remission under Free Trade Agreements
Foreign buyers have demonstrated their readiness to pay a premium for prime real estate in Singapore, but policymakers have sought to strike a balance between foreign investments and the needs of the local population, which is crucial in ensuring a stable and sustainable property market.
Investors who plan to expand their property portfolio will be affected by the higher ABSD rates. As economic growth is anticipated to weaken in 2023, China’s reopening, along with low unsold inventory and elevated construction costs, makes it unlikely that developers will reduce prices. This creates an opportunity for select foreign buyers to enhance their investments in Singapore.
In the U.S., low housing inventory and increasing federal fund hikes lead many economists to predict a correction in the housing market from the double-digit jumps seen in home prices in recent years. This, combined with a strong dollar, has given wealthy U.S. investors renewed interest in overseas housing markets, especially in havens like Singapore where financial transparency and government regulations safeguard financial interests.
Investors from the U.S., Iceland, Liechtenstein, Norway, and Switzerland benefit from the same stamp duty rates as Singapore citizens under free trade agreements. Additionally, investors can find comfort in knowing they will be in good company.
Investors often turn to hard assets such as real estate as a reliable store of value. Unlike digital currencies or stocks, real estate is a tangible and physical asset that can insulate one’s wealth. With several rich economies experiencing a housing market slowdown, including the U.S., investors are increasingly looking to purchase property overseas for better returns on investment.
According to PropNex.com, in 2022, the top nationalities of foreign buyers (non-PR) for two consecutive years (2021 and 2022) were Americans, ranking second for non-landed and landed home sales at 248 properties, compared to 260 buyers from China, who took the top position.
Investing in overseas property is often considered a fundamental component of a well-diversified investment strategy. It serves as a hedge against market turbulence, economic uncertainties, and political instabilities while also providing the potential for capital appreciation and cash flow across diverse currencies.
As ABSD rates increase for most foreign nationals and the launch of quality new property launches in Singapore is set to rise by the end of 2023, this presents a unique opportunity for investors from exempt nations to take advantage of the divergent global standards when it comes to residential properties.
Commercial Investment Expected to Rise
While residential properties remain a mainstay for individual investors, most institutional and family office real estate investors turn to commercial investments to diversify their portfolios. Foreign investors can also benefit from this trend and explore the opportunities available in Singapore’s commercial property market.
Unlike residential properties, commercial properties in Singapore are not subject to the ABSD hike, which may make them more attractive to foreign buyers seeking to diversify their portfolios through Singapore real estate.
The Residential Property Act allows foreigners to invest in various types of commercial properties in Singapore, including commercial shophouses, industrial properties, and registered hotels under the Hotels Act. This means that foreign investors can enjoy the same privileges as local investors when it comes to commercial property investments.
“The recent hike in ABSD rates for certain categories of residential property purchases has also made commercial property investments more appealing for investors looking to diversify their portfolios”, says Kaizar Karkaria, CEO & co-founder of Singapore Luxury Homes. He heads investments for SLH and has closed more than $2 billion in combined sales and leases to date comprising luxury residential, offices, restaurants, hotels and industrial spaces.
“By offering foreign investors the same investment privileges as local investors, Singapore provides a stable market for foreign investors to allocate their capital and explore new opportunities in the commercial sector”.
The Singapore government’s latest round of cooling measures will have a significant impact on foreign transactions in the property market, with most foreign buyers facing a doubling of stamp duties. However, despite the government’s cooling measures, the prime residential property market in Singapore is expected to thrive due to a wave of new developments and launches, and foreign investors from select countries eligible for ABSD remission.
Investing in overseas property, especially in havens like Singapore, is considered a fundamental component of a well-diversified investment strategy, serving as a hedge against market turbulence, economic uncertainties and political instability.
At Singapore Luxury Homes, our real estate advisors help foreign and domestic clients with high-end residential, commercial properties and real estate investment portfolios. We have access to a wealth of market data and insights and leverage our suite of real estate solutions from finance & remittance partners to corporate advisory and wealth management partners to help our clients navigate the complexities of their property investments in this structured market.