[UPDATED] ANALYSIS: The 60% ABSD shifted foreign buyers’ preference

By Elizabeth Choong

/ EdgeProp Singapore |

July 14, 2023 2:56 PM SGT

Scale model of The Reserve Residences (Photo: Samuel Isacc Chua/EdgeProp Singapore)

SINGAPORE (EDGEPROP) – Despite the pandemic, prices for residential properties in Singapore continue to be on an upward trajectory. However, the pace of growth is starting to weaken due to a series of cooling measures introduced in recent years and an overall weaker economy. The Ministry of Trade and Industry projected that Singapore's GDP will grow by 0.5% to 2.5% this year, down from last year's GDP growth of 3.6%.

The most recent round of cooling measures was announced in April, which adjusted the additional buyer's stamp duty (ABSD) rate upwards. The rate doubled from 30% to an unprecedented 60% for foreign buyers. Singaporean and permanent residents (PRs) buying their first property continue to pay ABSD rates of 0% and 5%, respectively. However, the ABSD rate was increased for Singaporeans and PRs buying their second or more properties.

According to URA's flash estimates, the private residential property price index fell 0.4% q-o-q in 2Q2023, following a 3.3% q-o-q gain in the first quarter. The decrease in the second quarter is the first quarterly decline after 12 consecutive quarters of growth.

Impact on foreign buyers

In this article, we will analyse data to determine if the increase in ABSD rates for foreign buyers has any significant impact on the number and type of condo units purchased by them.

From 2012 to 2019, foreign buyers (including PRs) purchased more than 20% of the condo units that were sold during the respective years. However, foreign and PR buyers accounted for 19.5% and 19.7% of the total condo sales volume in 2020 and 2021, respectively, before rebounding to 22.4% last year and inching up to 23.1% in 1H2023.

If PRs are excluded, the percentage of sales to non-Singaporeans is 6% to 10.1% from 2012 to 2019. From 2020 to 2022 foreign buyers accounted for 3.8% to 4.7% of total condo sales; a decline which could be attributed to travel curbs during the pandemic. It is notable that foreign buyers seem to be more active this year despite the recent increase in ABSD rate. They accounted for 5.4% of the total condo sales.

The increase in the proportion of condo units purchased by foreign buyers (including PRs) could be due to an increase in sales to these buyers before the upward adjustment in ABSD rates. An examination of data on condo sales for each month of this year indicates that foreign and PR buyers account for over 20% of total sales for the first four months before declining to 18.8% in May and increasing to 21.1% in June.

Although the proportion of condo sales transactions by foreign buyers has increased in June, the actual number of transactions has declined significantly. Foreign buyers (including PRs) accounted for 383 condo sales in May and only 212 units in June.

If PR buyers are excluded, foreign buyers only accounts for 6% to 8.8% for all condo sales for the first four months of this year. The percentage dipped to 3.2% and 2.6% in May and June, respectively.

Where are foreign buyers buying?

From 2018 to 2022, over 40% of the condo units purchased by foreigners and PRs were in the Outside Central Region (OCR), while the Rest of Central Region (RCR) accounted for about 30% of the transactions. However, interest from non-Singaporeans seems to be shifting from OCR towards RCR during the first half of this year.

In 1H2023, condo units in OCR accounted for 37.5% of the total number of units bought by foreigners and PRs, compared to 42.8% last year. In contrast, sales of condos in RCR accounted for 33.8% of condo sales to foreigners and PRs this year, up from 31.8% last year.

The successful launches of a number of condo projects in RCR could have contributed to the increased interest in RCR by non-Singaporean buyers. Examples of new launches in RCR include The Reserve Residences, Tembusu Grand, and The Continuum.

If the data for PRs were excluded, a different picture emerges. Condos in CCR were the top pick for foreign buyers in 2023, accounting for more than half of sales to foreign buyers. However, interest may be shifting towards RCR. In June, foreign buyers bought the same number of units in CCR and RCR.

Preferred price range for foreign buyers

From 2018 to 2021, over 70% of the condo units purchased by foreign and PR buyers were for units that cost under $2 million. However, the sales volume for such units to these buyers declined to 64.3% and 60.4% in 2022 and 1H2023, respectively.

Moreover, sales transactions to foreigners and PRs for condo units priced between $2 million and $3 million were under 15% from 2018 to 2021, but rose to 15.6% and 18.2% in 2022 and 1H2023, respectively.

The percentage of transactions of condo units priced under $2 million increased after the upward adjustment of the ABSD rates in April. Condo units that sold for under $2 million made up 60.7% and 64.6% of all units bought by foreigners and PRs in May and June, respectively, representing an increase from 57.8% in April.

However, if data for only foreign buyers were examined, the bulk of their purchases this year are for condo units priced between $1 to $3 million. In June, 26.9% and 23.1% of their purchases were for units priced between $3 to $4 million and $5 to $10 million, respectively, which is an uptick from 12.1% and 16.7% in May.

Deep dive into the top five foreign buyers

Buyers from China, Malaysia, India, USA, and Indonesia have consistently accounted for the highest number of condo purchases since 2018, making them the top five foreign buyers of condos in Singapore.

Collectively, the top five foreign buyers accounted for 74.6% of all condo sales to foreigners and PRs or 16.7% of all condo sales last year. For the first six months of this year, this group of buyers bought 68.4% of all condos sold to foreigners and PRs, equivalent to 15.8% of all condo sales.

The decline in condo purchases by Chinese buyers after the increase in ABSD rate in April could have contributed to the overall decrease in purchases by them this year. From January to April, foreign and PR buyers from China bought an average of 116 units per month, but the numbers dropped to merely 82 and 57 units in May and June, respectively.

Since 2018, the top five foreign buyers (including PRs) have consistently favoured condos in the OCR, with over 40% of condo sales by non-Singaporeans being units in that region. Condo units in the RCR account for about 30%, while units in the Core Central Region (CCR) account for the remaining 20%. This trend has remained unchanged even after the increase in ABSD rates this year.

Condo units priced from $1 to $2 million hit the sweet spot for the top five non-local buyers, with approximately 40% of their purchases falling within that price range.

However, it is notable that the top five non-local buyers did not purchase any units priced above $20 million this year. Furthermore, this group of buyers did not buy any condo units above $15 million in May and above $10 million in June. The increase in ABSD rates could have eaten into their budget, compelling them to seek out properties that are priced lower.

Comparing buyers from China and USA

According to the Inland Revenue Authority of Singapore, nationals of the USA, as well as nationals and PRs of Iceland, Liechtenstein, Norway, and Switzerland, will be accorded the same stamp duty treatment as Singaporeans due to Free Trade Agreements with their respective countries.

Among the countries mentioned above, only buyers from the USA are among the top five foreign buyers of condos in Singapore. We conducted a quick comparison between buyers from the USA and China, who are the top foreign buyers of condo units in Singapore.

It is notable that Americans account for only a small fraction of the condo units purchased by foreigners, despite their exemption from ABSD. From 2012 to 2018, the Chinese (excluding PRs) purchased over 500 condo units. In contrast, American buyers purchased an average of 100 units per year during the same timeframe. However, the number of condo units purchased by Americans and the Chinese are almost on par since last year. For 1H2023, Chinese buyers bought 158 condo units, marginally higher than 117 condo units purchased by the Americans.

From 2018 to 2022, 22.2% to 32.1% of the condo units purchased by the Chinese (including PRs) were priced under $1 million, while only 5.8% to 12.5% of the purchases made by Americans (including PRs) fell within that price range. Furthermore, only 9.4% to 13.8% of the condo units bought by the Chinese (including PRs) were priced between $2 to $3 million. In contrast, 20.1% to 26.2% of condo units bought by their American counterparts were within that price range.

Summary

Foreign and PR buyers from China are the top foreign buyers of condo units in Singapore, and the increase in ABSD rates has had an impact on the number of purchases made by them. This group of Chinese buyers bought 82 units in May and 57 units in June, significantly lower than the average of 116 units per month during the first four months of this year.

The increase in ABSD has affected not only Chinese buyers but also foreign buyers of other nationalities. Foreigners (including PRs) bought 5,792 condo units in 2021 and 4,394 condo units last year, but only 1,999 units during the first six months of this year. Excluding PRs, the number drops to 924 units last year and 469 units in the first half of this year. However, the bulk of purchases made by PR and foreign buyers remain units on OCR and are priced under $2 million. Excluding PRs, the bulk of the purchase by foreigners are for condos in CCR which tend to be at a higher price range.

Foreign and PR buyers from China, Malaysia, India, USA, and Indonesia make up the top five foreign buyers of condos in Singapore. Among this group of buyers, only nationals from the USA are accorded the same stamp duty treatment as Singaporean buyers. Despite the lower purchase cost for American buyers, the number of units purchased by them is a small fraction compared to the number of units bought by the Chinese. However, if PRs are excluded, the number of condo purchased by the Americans have been on par with the Chinese since last year. It is notable that PR and foreign buyers from USA tend to purchase units that are priced at a higher range compared to their Chinese counterparts.

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