Evolving demographics of international property investors in Singapore
By Elizabeth Choong
/ EdgeProp Singapore |
A Chinese buyer reportedly bought 20 residential units of CanningHill Piers, which is part of an integrated development near Clarke Quay. (Picture: CDL & CapitaLand)
SINGAPORE (EDGEPROP) - Residential properties in Singapore are popular with foreign buyers due to its reputation as a safe haven for their assets. Singapore is also known for having a stable property market with strong capital appreciation, a pro-business economy as well as a transparent and corrupt-free government.
Sales caveats lodged with URA as at February 2 indicates that foreign buyers made up 19.7% of total sales for condominiums in 2002; increased to 23.9% in 2012 but dipped slightly to 22.4% last year.
Impact of ABSD and COVID-19 on foreign buyers
The Singapore government first implemented Additional Buyer’s Stamp Duty (ABSD) for foreign buyers in January 2013 at a rate of 15% of purchase price or market value of the residential property, whichever is higher. The ABSD rate for foreign buyers was increased to 20% in July 2018 and again to 30% in December 2021.
The initial implementation of the ABSD in 2013 had minimal impact on the popularity of Singapore residential properties among foreign buyers, who purchased 25.5% of all condominiums sold in 2013, up from 23.9% in 2012. After the ABSD rate was increased in mid-2018, the percentage of foreign buyers dipped slightly from 24.7% in 2017 to 23.1% in 2018. However, foreign buyers seemed to shrug off the second round of ABSD rate increase and accounted for 22.4% of all condominium sales last year, up from 19.7% in 2021 when the increase was implemented.
Singapore recorded its first case of COVID-19 in early 2020, leading the government to impose the first circuit breaker in April of the same year. Restrictions and travel curbs were gradually lifted starting from March last year.
The COVID-19 travel curbs and restrictions had a greater impact on demand from foreign buyers than the introduction and revisions of the ABSD rate. The percentage of foreign buyers of condominiums in Singapore fell below 20% for the first time since 2002 in 2020 and 2021.
However, as Singapore and other countries gradually ease their COVID-19 restrictions and travel curbs, foreign buyers seem to be returning. Despite the significant increase in the ABSD rate for foreign buyers since December 2021, foreign buyers accounted for 22.4% of total sales transactions for condominiums in Singapore last year. This renewed interest could be due to a flight to safety by high net-worth individuals.
Deep-dive into nationality of foreign buyers
The nationalities of top five foreign buyers of Singapore residential properties have seen few changes in the last 20 years. Malaysia, Indonesia, China and India are consistently in the top five list.
However, there have been some changes in the ranking of the top five foreign buyers. China and India have moved up the ranks while Malaysia and Indonesia have slipped down. The United Kingdom was previously on the list but has been replaced by USA since 2012.
American buyers have benefited from the Free Trade Agreements (FTAs) signed between Singapore and USA, which accord Americans the same stamp duty treatment as Singaporeans. Citizens from Iceland, Liechtenstein, Norway and Switzerland also benefit from similar FTAs.
No change in nationalities of top foreign buyers for the last five years
From 2018 to 2022, the top five foreign buyers collectively accounted for 13% to 17% of total sales for condominiums in Singapore. This group of foreign buyers also represented 66% to 76% of all condominiums sold to foreigners.
Among the foreign buyers, the Chinese bought the most number of condominiums in Singapore for the period between 2018 to 2021. This is followed by buyers from Malaysia, India, Indonesia and USA. Last year, the top three spots went to same countries but USA moved up a spot to fourth place, replacing Indonesia who slipped down to fifth position.
Return of the Chinese buyers?
Chinese buyers have consistently been among the top five foreign buyers of condominiums in Singapore. The number of units purchased by them have grown from 157 units (5.6% of total number of units bought by foreigners) in 2002 to 1,344 units (30.7%) last year. China has also firmly supplanted Malaysia as the top foreign buyer since 2016.
The five-year average (2013 to 2017) for the number of condominiums units purchased by the Chinese was 1,298 units, down from the previous five-year average of 1,548 units. The introduction of ABSD coupled with a weaker global economy and higher residential property prices could have dampened demand. The five-year average price (2013 to 2017) for condominiums in Singapore was $1,354 psf; $270 psf higher than the earlier five-year average of $1,084 psf.
COVID-19 seemed to have limited impact on Chinese buyers who bought 1,047 and 1,738 condominium units in 2020 and 2021 respectively. The Chinese bought 1,344 units last year representing 30.7% of all condominiums sold to foreigners, which was an improvement over 30% last year. The decline in numbers of units purchased by the Chinese is likely due to the limited number of residential properties that were available for sale last year rather than the increase in ABSD rates from 2021.
Demand from the Chinese is widely expected to strengthen after the relaxation of COVID-19 restrictions and travel curbs by the Chinese government late last year as well as projected stronger economic growth for China this year.
According to the IMF’s World Economic Outlook update in January 2023, real GDP for China grew 3% last year and is expected to rebound to an estimated growth of 5.2% this year. However, IMF cautioned that China’s economic recovery could be weaken by another COVID-19 outbreak fuelled by its persistently low vaccination rate.
The return of demand from the Chinese is expected to have a positive impact on Singapore’s residential property market because they are the top foreign buyer. Since 2014, the Chinese accounts for about 30% of all condominium sales to foreign buyers.
A number of Chinese buyers have been observed to bulk buy high-end condominiums in Singapore. It was widely reported that a Chinese buyer bought 20 units in CanningHill Piers in mid-2022 for over $85 million. This trend is expected to continue into this year, which will give a boost to demand.
Conclusion
Demand for condominiums in Singapore by foreign buyers has remained robust over the years, accounting for at least 20% of total sales transactions since 2002. However, the percentage dipped below 20% in 2020 and 2021 due to the COVID-19 pandemic, weaker global economic conditions, and geopolitical tensions.
Last year, foreign buyers returned to the market with 22.4% of all condominium sales made by foreigners, despite the increased Additional Buyer's Stamp Duty (ABSD) of 30% for foreign buyers from December 2021. The easing of pandemic restrictions and renewed interest in Singapore's residential property market from foreigners may have contributed to the rise in demand.
The Chinese are expected to lead foreign demand this year, as the relaxation of COVID-19 restrictions by the Chinese government and Singapore's reputation as a finance and education hub are expected to attract more ultra-rich Chinese to the city-state. The Chinese have consistently been the top foreign buyers of condominiums in Singapore, accounting for approximately 30% of all sales to foreign buyers in the last two years.
According to URA, 4,528 condominium units were launched for sale last year, and market observers estimate that 10,000 to 15,000 units from 40 projects will be launched this year, which should bring relief to the tight supply market and slow down the pace of price growth.
IMF's latest World Economic Outlook projects global GDP growth to ease from 3.4% last year to 2.9% this year before rebounding to 3.1% in 2024. Global inflation is expected to fall from 8.8% last year to 6.6% this year and 4.3% in 2024, higher than pre-pandemic levels.
The renewed interest from foreign buyers, especially the Chinese, in Singapore's residential properties will boost demand and prices, but the pace of price growth will be moderated by the surge in new launches, weak global economic outlook, inflation-driven high interest rates, geopolitical tensions, and ongoing pandemic.
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