[UPDATE] Foreigners face sky-high ABSD: Developers, investors and home buyers feel the impact
By Cecilia Chow
/ EdgeProp Singapore |
Among the market segments, demand in the CCR or prime districts will be more affected due to a higher proportion of foreigners and investment buyers (Photo: Samuel Isaac Chua/EdgeProp Singapore)
SINGAPORE (EDGEPROP) - This weekend (April 29) was supposed to mark the debut of the 246-unit Newport Residences, City Development's (CDL) freehold luxury condo development on the former Fuji Xerox Towers site on Anson Road in the Tanjong Pagar area. It was one of the most anticipated new launches of 2023, as it would have been the first freehold residential project launch in the area since Onze @ Tanjong Pagar in 2013.
However, CDL has postponed the preview of Newport Residences following the latest slate of property cooling measures announced just before midnight on April 26, which took effect the next day.
"With the latest property-related measures released by the government [on April 26], the market will need time to absorb the news," a CDL spokesperson said in a statement on April 27. "In view of this, we will be rescheduling the preview for Newport Residences, which was originally slated to commence this weekend."
Artist's impression of the 246-unit Newport Residences, originally slated for preview on April 29 (Picture: CDL)
EL Development is going ahead with its scheduled Blossoms By The Park launch on April 29. The 275-unit, 99-year leasehold condo is located at Slim Barracks Rise in one-north. "Most potential buyers are expected to be first-timers anyway, so the impact of the cooling measures should not be too great," says Lim Yew Soon, managing director of EL Development.
At Blossoms By The Park, prices range from $1.291 million ($2,352 psf) for a one-bedroom-plus-study unit to upwards of $3.335 million ($2,213 psf) for a four-bedroom premium.
Likewise, Koon Wai Leong, director of Hoi Hup Realty, says that the developer and its joint-venture partner, Sunway Property, will be going ahead with the scheduled launch of the upscale 816-unit The Continuum on May 6. The freehold condominium project at Thiam Siew Avenue in prime District 15 previewed on April 21. Prices will start from $2,583 psf for the Signature Collection units and $2,688 psf for the Prestige Collection.
EL Development is going ahead with its launch of the 275-unit Blossoms By The Park on April 29 (Photo: Samuel Isaac Chua/EdgeProp Singapore)
Foreigners bear the brunt
The latest round of cooling measures has been directed primarily at foreign home buyers, with additional buyer's stamp duty (ABSD) doubling to 60% from 30% before. For entities and trustees buying any residential property, ABSD rates increased to 65% from 35% a year ago.
Investors will also have to pay higher ABSD too. Singapore citizens buying their second residential property must pay 20% ABSD, up from 17%. Those buying their third and subsequent properties must pay 30% ABSD, from 25% before.
Permanent residents (PRs) buying their second residential property will now pay 30% ABSD, up from 25% before, while those buying their third or subsequent properties will see a hike to 35% from 30%.
Source: Huttons Asia
Singaporeans buying their first home need not pay ABSD, and PRs buying their first home will see ABSD remain unchanged at 5%.
The government wants to "prioritise Singaporeans who are buying for owner-occupation, but also pre-emptively dampen demand by local and foreign investors for residential property", says Desmond Lee, Minister for National Development, at a media doorstop on the property measures on April 27.
The timing of the measures comes at a point where the property price index (PPI) appears to have re-accelerated – increasing by 3.3% in 1Q2023, says DBS Group Research in its flash report on April 27. It came after a more moderate quarterly increase of 0.4% in 4Q2022 and 0.2% in 3Q2022, following two rounds of tightening measures levied in December 2021 and September 2022.
ABSD — ‘the price of a luxury car’
For the purchase of a $2 million property, for example, the hike in ABSD for a Singaporean buying a second property would be $400,000 (20% ABSD) and $600,000 (30% ABSD) for the third and subsequent properties. For a PR buying a $2 million second property, the ABSD would be $600,000 (30% ABSD) and $700,000 (35% ABSD) for the third and subsequent properties. (See table above).
A foreigner buying a $2 million residential property must pay $1.2 million in ABSD (60%). According to the DBS Group Research report, the ABSD alone is equivalent to the price of a luxury car in Singapore (excluding the Certificate of Entitlement).
"The ABSD rate of 60%, based on our understanding, is one of the highest rates globally and will likely cool foreigners' and investors' interest in Singapore property in the immediate term," says the DBS report.
Setting up living trusts to purchase properties for beneficiaries (primarily children) has been increased from 35% to 65%, says Lee Liat Yeang, senior partner of Dentons Rodyk Real Estate practice group. "In my view, this will create a cash flow issue and act to deter people from this route unless they are extremely cash-rich with much idle money to deploy," he says. For a $2 million property, the ABSD (for a trust) is $1.3 million. The ABSD (Trust) is refundable. However, it could take two to three months to refund the ABSD paid once the trust deed is approved by the Inland Revenue Authority of Singapore, he adds.
Impact on developers
Housing developers will see no change to their ABSD rate: 40% overall, of which 5% is non-remittable and 35% remittable but subject to conditions.
"Nonetheless, the sharp curtailment of investment demand, especially from foreigners, in the near term will compel a very deliberate and competitive pricing strategy from developers," says Lam Chern Woon, head of research & consulting at Edmund Tie.
Lam adds that the overall pie has shrunk, and achieving a healthy reception at launch will trump an overly bullish pricing strategy. "Sales volumes could be softer in the near term, as some potential buyers await possible price adjustments from developers, especially for projects approaching ABSD deadlines in the Core Central Region [CCR]," he says. Given the challenging economic and financing climate, he adds that the secondary market's price momentum has been softening. "Vendors will be increasingly open to further price negotiations in the months ahead."
Developers will need to consider the impact on the end-user market and rethink their land-buying strategy, says Tricia Song, head of research for Southeast Asia, CBRE. "We expect bidding prices and activity at upcoming Government Land Sales [GLS] tenders to be more muted."
Song sees developers favouring mass market and even leasehold sites over prime and freehold locations, as the former is "more affordable and caters to the owner-occupier market". She expects GLS sites to continue to be "the favoured supply channel for developers", while collective sales of residential properties may continue to be challenging.
The recent government land sale (GLS) and en bloc sale tenders have seen a lacklustre response. "Many developers are mindful of the higher land costs, changes in the definition of GFA [gross floor area] and other costs like interest and construction costs," says Dentons' Lee. "Developers have been prudent, so there is little need to temper this segment."
Penalties are still hefty if developers cannot complete and sell their housing development within five years of the land acquisition, says Andy Wong, senior research analyst at Bank of Singapore, in his sector update report on April 27. Hence, he adds that developers will remain cautious in land tenders, and land price growth will likely be tempered.
For developers who want to set up a special-purpose vehicle to purchase unsold units in a residential development, the consideration will be 65% ABSD, compared to 35% before. "In this regard, it might make more sense for developers to cut prices to move the balance units," reckons Dentons' Lee, "unless they have too many to sell quickly."
Non-landed residential property purchases*
* Source: URA, Huttons Research (data downloaded on 27 Apr 2023)
Proportion of foreign buyers highest since 1Q2018
According to Minister Lee, these measures will impact about 10% of all private residential property transactions, based on 2022 URA data. The figure includes foreigners and those buying their second and subsequent properties.
Notably, interest by local and foreign investors has returned, remarked Minister Lee, despite the global market uncertainty, elevated mortgage interest rates and a dimmer economic outlook.
Lee Sze Teck, senior director of research at Huttons Asia, notes that the proportion of foreign buyers in Singapore's residential market has increased from 3.1% in 1Q2022 to 6.9% in 1Q2023. "This is the highest since 1Q2018 when the proportion was 7.3%," he says.
Non-landed residential property purchases by nationality*
Notes: 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.
Source: URA, Huttons Research (data downloaded on 27 Apr 2023)
The reopening of Singapore's international travel borders last year contributed to the increase in the number of foreigners relocating here, says Huttons' Lee. Another reason for the spike in the number of foreigners, especially the Chinese, could be due to the reopening of China's borders in January 2023.
"There has been an increase in enquiries from Chinese corporates and ultra-high-net-worth individuals (UHNWIs) looking to set up their headquarters and family offices in Singapore in recent months," adds Huttons' Lee.
Another reason fuelling the increase in the proportion of foreign purchases is geopolitical tensions, continues Huttons' Lee. According to reports, there is an increase in enquiries from Taiwanese UHNWIs looking to manage and preserve their wealth in Singapore. He adds that there has also been a significant increase in the number of Taiwanese buying residential property in Singapore.
The number of family offices in Singapore has increased from 400 in 2020 to 843 approved by April 2022, says Loh Kia Meng, co-head of private wealth and family offices at Dentons Rodyk. Loh expects the full-year figure for 2022 to be between 1,200 and 1,500. He adds that the highest number of enquiries to set up a family office in Singapore are from the Chinese, followed by Taiwanese, Indonesians and Indians, respectively.
"While this is a positive development, the substantial ABSD imposed on foreign buyers could discourage some of the wealthy from setting up homes in Singapore," says Chia Siew Chuin, head of residential research at JLL.
Foreign buyers looking to buy luxury homes in Singapore may seek alternative avenues, adds Chia. For instance, those who qualify for the Global Investor Programme could seek permanent residency in Singapore. If they meet all the criteria, they can purchase their homes as a permanent resident and pay a lower ABSD.
"This avenue presents a double-win outcome that not only allows foreign buyers to set up homes in Singapore but also benefits the country by directing investments into the local start-up ecosystem and the broader financial sector and generating more jobs for Singaporeans," says Chia.
Core Central Region most affected
Among the market segments, demand in the CCR or prime districts will be more affected due to a higher proportion of foreigners and investment buyers, says CBRE's Song.
CBRE's analysis of caveats shows that 12.1% of CCR private non-landed transactions in 2022 were by foreigners compared to 4.4% in the Rest of the Central Region (RCR) or city fringe, and 1.7% in the Outside Central Region (OCR) or suburbs.
"Hence there may be more pressure on developers with CCR projects to rethink their product and pricing strategies," says Song. "For those CCR launches which are nearing completion or ABSD deadline with unsold inventory, buyers may expect some discounts."
Song expects residential transaction volume to decrease by 10% in 2023, in line with the proportion the measures would impact. "In the near term, there could also be a wait-and-see stance by potential buyers unaffected by these measures as they watch for any price correction," she says.
Still, Singaporeans and PRs account for a large share of the big-ticket purchases above $10 million, too, notes Ismail Gafoor, CEO of PropNex. In the year to April 18, Singaporeans purchased 64% of private homes sold for at least $10 million, while PRs purchased 17%, foreigners 14% and companies 5% (see table).
The higher ABSD for Singaporeans and PRs buying their second and subsequent properties should "cool sentiment", notes Gafoor. "But we think the impact on sales could be measured, as many property purchasers today are first-time buyers, including those who have decoupled and are buying a property separately."
The additional 3% increase in ABSD for the second property "may not be too onerous" for some Singaporeans, says Gafoor. "We anticipate housing demand from Singaporeans and PRs to remain fairly intact," he adds. He expects the take-up rate for the upcoming launch of Blossoms by the Park to be "healthy".
Decline in private home sales projections
With locals and PRs still dominating the residential market, Gafoor expects other upcoming project launches to proceed as scheduled.
"Developers will price units sensitively, taking into consideration their cost burdens and prevailing market conditions," he adds.
DBS Group Research analysts expect some delays in project launches in the pipeline in the near term. According to the report, developers' home sales will remain "flattish" at an average of 8,000 to 8,500 units this year.
Bank of Singapore's Wong is lowering his new private home sales projections from 7,000 to 8,000 in 2023 to 6,000 to 6,800 units. He sees sell-through rates of projects in 2H2023 as "likely to decline, as we believe developers would be reluctant to reduce their asking prices too significantly given high land and construction costs".
Edmund Tie's head of research, Lam Chern Woon, expects home prices to rise by 4–6% this year. Primary home sales could end the year with 7,000 to 8,000 units. According to Lam, secondary market sales will slow to 8,000 to 10,000 units this year from 14,800 units last year.
Meanwhile, Knight Frank's head of research Leonard Tay expects private residential prices for 2023 to soften to 3%–5%, from 5%–7% earlier.
Collective sales may face another hurdle: Foreigners may be even more reluctant to support en bloc sale initiatives "as their replacement cost would increase drastically", says Tay. "As such, collective sale launches might taper off in the year ahead."
More foreigners could shift their focus to shophouses in light of higher ABSD for residential property purchases (Photo: Samuel Isaac Chua/EdgeProp Singapore)
Which segments could benefit
The rental and executive condo (EC) markets will likely see more demand after this announcement, according to Huttons' Lee. "It is getting too expensive for Singaporean buyers to buy a second home," he says. "Most will likely sell off their first property and rent in the interim."
For example, HDB upgraders buying a $1.5 million private residential property must pay 20% or $300,000 in ABSD. If they were to rent a HDB flat for $40,000 a year for four years, this would work out to $160,000 in rent paid and a savings of $140,000. (Find HDB flats for rent or sale with our Singapore HDB directory)
"ECs have become even more attractive as they are given upfront remission on ABSD," says Huttons' Lee. The upcoming EC by Qingjian Realty — Altura, on Bukit Batok West Ave 8 — is likely to see "overwhelming interest", he adds.
The latest property measures could push more developers to bid for the EC sites at Tengah Plantation Loop and Tampines Street 62 (Parcel B).
Foreigners will likely rent first while applying for their permanent residency or citizenship, says Huttons' Lee. "There are foreigners who rent with an option to purchase the home once they become PR or citizen," he adds. "The rental market will pick up in the coming months, with rents estimated to grow by around 10% in 2023."
More foreigners could shift their focus to "opportunities in the commercial property and shophouse segments", notes PropNex's Gafoor.
Conservation shophouses in the CBD are said to have crossed $7,000 psf. At Solitaire on Cecil, three strata floors at the 20-storey, freehold office tower were sold recently at $162.8 million or a record price of $4,325 psf.
While the doubling of ABSD for foreigners may pose temporary challenges, "they are expected to pave the way for a more resilient residential real estate market in the long run", says Marcus Chu, CEO of APAC Realty and ERA Asia Pacific.
Check out the latest listings near Newport Residences, Blossoms by the Park, The Continuum, Fuji Xerox Towers, Onze @ Tanjong Pagar, Slim Barracks Rise
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