Winners & Losers Of The April 2023 Property Cooling Measures

Earlier this week, the government announced an increase in the Additional Buyer’s Stamp Duty (ABSD). This increase makes it more expensive for Singapore Citizens to buy their second and subsequent residential properties, as well as Singapore Permanent Residents (PRs) and foreigners who are buying residential properties in Singapore.

ABSD: The Story So Far

ABSD was first introduced more than a decade ago in 2011 as a residential property cooling measure to curb excessive speculation in the property market and to encourage owner-occupation for residential homes.

Over the years, the ABSD has evolved and the recent increase in the ABSD rate on 26 April 2023 – the third such increase in less than 2 years – suggests that the government continues to believe that it can be an effective measure to curb excessive speculation.

As of 27 April 2023, ABSD rates are as follows.

As with all policies, there are groups that will benefit from the changes and other groups that will be negatively impacted. In this article, we look at the possible winners and losers from the April 2023 property cooling measures.

Winners: Singapore Citizen Purchasing Their First Private Property

For Singapore citizens looking to purchase their first private property, this is naturally good news. Since almost every other group of property buyers in Singapore – from Singapore citizens buying their second or subsequent properties, to PRs and foreigners buying their first property – will have to pay ABSD, this means that Singapore citizens buying their first property will be paying far lesser for the same private property compared to all other groups of buyers.

The effect of this is that if as intended, the market does soften due to higher ABSD, Singapore citizens buying their first property can purchase a property at a lower price.

Winners: Landlords

Even before the latest increase, foreigners were already in a situation where they had to pay a hefty 30% ABSD when buying a property in Singapore. As such, there is a consideration of whether or not it even makes sense for a foreigner to buy a property in the first place if they have to pay 30% more than anyone else, as opposed to renting.

Given that ABSD for foreigners is now a whopping 60% even for the first property, it makes even more sense for foreigners to consider renting instead of buying.

Here’s a hypothetical example. A foreigner looking to buy a $1 million condominium unit will now incur an ABSD of $600,000. This is on top of the Buyer’s Stamp Duty which would cost $24,600. In total, the Stamp Duty amount payable is $624,000.

Assuming a gross rental yield of 4%, this means the property will cost $40,000 to rent each year. A Stamp Duty of $624,000 would already cover 15.6 years’ worth of rent. From a financial cash flow point of view, there is simply no logic to buying a property as a foreigner in Singapore instead of renting – unless you think property prices will continue increasing which is exactly what the government is hoping to tame.

The result of this is that with more foreigners choosing to rent instead of buy, landlords will see greater demand for rental properties, and rental yield may increase as a result.

Losers: Foreigners

Previously, the 30% ABSD for any foreigners buying a residential property in Singapore was significant. However, according to Minister for National Development Desmond Lee, “in the first quarter of 2023, foreign purchases of residential property made up 7% of all private housing transactions”. He also added that “foreign interest in residential property in Singapore, as an asset class, continues to be strong.” This shouldn’t surprise anyone given the attraction of Singapore as an economically stable and safe country.

Clearly, foreigners like to buy properties in Singapore. However, with the ABSD now at 60%, this is going to be a hefty additional tax for any foreigners looking to purchase a property in Singapore.

More likely than not, it would make more sense for them, financially, to consider settling down first in Singapore by getting PR or citizenship, before committing to a property purchase. This way, the ABSD if payable, would not be as high.

Losers: Hopeful Property Investors

For Singaporeans hoping to invest in multiple residential properties, the increase in ABSD for those buying a second property (20%) or third and subsequent property (30%) will eat into any returns we hope to get. Given the high ABSD and also the Seller’s Stamp Duty (if we sell within three years), it makes lesser sense to try invest in properties because the gains we make will likely be offset by the high ABSD that we have to pay.

Losers: Property Developers

The current bull market in the Singapore property sector has seen more launches as property developers seize the opportunities to capture the high current demand. However, with the increase in ABSD, especially for foreigners, buyers will be less willing to pay higher prices for their properties especially if they also need to pay ABSD. This is in addition to the current high-interest rates in the market that buyers have to accept.

The end result is that while property prices are going to be more expensive for buyers, property developers may not be making higher profits.

Read Also: Additional Buyer’s Stamp Duty (ABSD): How Much You Have To Pay To Own Multiple Properties & 5 Ways To Avoid ABSD

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