Foreigners and expats in Singapore to pay additional stamp duty for Singapore properties
The Singapore Government announced on the 7th Dec 2011 an additional Buyer’s stamp duty (ABSD) to be imposed on certain categories of residential property purchases.
Currently the stamp duty for purchasing a residential property is:
• 1% of the selling price for the first $180,000
• 2% of the selling price for the next $180,000
• 3% of the selling price for the from $360,000 onwards.
Will Luxury Condominiums targeted at foreigners to be hit by new regulation?
Will this additional stamp duty cool the private residential market?
The Additional Property Buyer stamp duty (ABSD) from 08 Dec 2011 is:
Foreigners and Non-individuals (Corporate entities) buying Residential property will pay an ABSD of
• 10%
Permanent Residents (PRs) owning one and buying the second and subsequent residential property will pay an ABSD of
• 3%
Singapore Citizens (Singaporeans) owning two and buying the third and subsequent residential property will pay an ABSD of
• 3%
Permanent Residents (PRs) owning one and buying the second and subsequent residential property will pay an ABSD of
• 3%
Singapore citizens owning 2 and buying the 3rd and more residential property will pay an additional buyer stamp duty of
• 3%
Foreign purchases account for 19% of all private residential property purchases in 2H 2011, up from 7% in 1H 2009. (URA)
For joint purchases where one or more party is a PR or Foreigner, the higher additional buyer stamp duty will apply.
However For HDB property buyers| HDB Property Buyers not affected| URA clarified that HDB property buyers are not affected
Buyers for HDB properties are not affected by Additional Buyer stamp duty. Only Singaporeans and PR are eligible to buy a HDB flat. Someone buying into HDB flat or a new unit under the DBSS or EC will not be subjected to Additional buyer stamp duty since they will have dispose of their current property as part of the conditions for the purchase of the HDB, DBSS or EC units.
Buying property in singapore is becoming a complicated affair.
Likely Effects of Singapore’s Additional Buyer Stamp Duty|What is the effect of the Additional Buyer Stamp Duty (ABSD)?
URA’s cooling measures makes sense for cooling inflation and may be pre-emptive against inflation in view of the large supply of M2 and M3 money in the world. However the timing is questionable given the debt crisis in Europe.
What this means is, if these money is to be put to use to buy up assets, 10% of additional buyer stamp duty won’t entirely stop them from buying into Singapore properties, but only slow them down.
Can it reduce inflation?
Inflation is influenced by the following equation.
[MV = PQ] = (by Irving Fisher, 1911)
Where
• M is the total dollars in a Nation’s money supply (generally the M3 or M2)
• V is the number of times per year each dollar is spent (Velocity of money)
• P is the avg. price of all the goods and services sold during the year.
• Q is the quantity of Assets, goods and services sold during the year.
When M2 or M3 increase, where V and Quantity stays the same, then P increase. The rate of P’s increase is inflation.
Right now, we are seeing M2 or M3 increasing faster than GDP in many nations, while prices are fairly stable at ~5.4% (in 2011) in Singapore and production (Quantity) is rather stable, this means that V, the velocity of money has yet to pick up. In other words, people are not yet spending.
Once Velocity of money V picks up, in order to control price rise, Quantity will have to pick up dramatically as well. Not all quantity can be ramped up quickly enough.
[M2 or M3 increase] x [V] = [P] x [Q]
Imposing a stamp duty has the effect of reducing the foreign owned portion of M2 or M3 from the Singapore property market.
In short, this policy may somewhat reduce inflation attributed from Housing. However it may not stop these money from being channeled to other parts of the economy, especially commercial properties.
Recession worries are real
With the European crisis still unfolding and probably getting more severe, and the property market in Singapore has cooled considerably. Is this policy really timed correctly?
Should the policy target run away prices in HDB instead?
In view of the massive under-supply of HDB’s physical stock given the massive mass increase in population, it will still take several years to balance the supply and demand. Currently demand far outstrip supply.
HDB pricing index will likely continue to rise into 2012 and 2013 as imbalance is gradually more balanced.
While DBSS is being added to the supply, these Design, Build and sell housing by private developers of HDB houses lead to a even more severe rise in HDB housing prices.
DBSS developers buy expensive land from the Singapore government, add on their profit and then pass on these costs to helpless Singaporeans and Permanent citizens.
Singapore government is the ultimate winner in terms of the good price for the land.
We expect to see HDB, DBSS and Executive condominium (EC) approaching the prices of Mass Market Condominium prices. While mass market condominiums may fall in prices or volume or both for the short term, when EC prices rise, the mass market condominium prices will be supported.
In addition, the Singapore government has successfully imposed additional tax in the guise of cooling the market, thereby raising revenues and hence the salaries of the capable Singapore ministers.
Unfortunately this additional buyer stamp duty (ABSD) does not apply to HDB, Design, Build and Sell (DBSS) and Executive Condominium (EC). This ABSD affects Private property while what it should have done is to manage HDB price rises, especially the Run-away prices of DBSS flats. It’s unfortunately for Singaporeans.
Will this policy lead to massive increase in population?
More Permanent residents may become Singapore Citizens so as to qualify to buy a 3rd private property, adding to the already strained infrastructure.
More foreigners holding employment pass will apply to become Permanent residents to qualify for buying HDB flats, leading to more housing demand pressures.
We are worried that this policy has an unintended effect of increasing the Permanent resident population, putting more Singaporeans out of reach of their first homes, especially those expatriates who are not genuinely considered Foreign Talent (FT).
Our Proposal for the regulatory changes:
If we were the regulator, we believe these will be more fair.
Keep the regulation simple. Refrain from using micro economic and regulation levers as these minute controls could back-fire and cause untold hardships to people.
To impose the following regulations on: – Proposal to Impose regulations on:
HDB Flats
- · HDB flat owner who own a Private resident property must stay in their HDB flat regardless of whether they meet the minimum occupation period (MOP) or not. (effective immediately, a grace period of 2 years will be given for HDB flat owners to move back into their HDB flats, else sell their HDBs in the open market.)
o (This frees up some vacant HDB houses and returns HDB to it’s roots of providing affordable housing and stop it from being a profit engine for some)
o No force to be applied to them to sell their HDB flats, but they cannot make money via renting out their HDB flats while owning other Private residential properties and staying in private residential properties.
• To prevent new Permanent Residents from competing in the HDB market, all Permanent Residents (PR) must wait 5 years upon attaining PR before qualifying to buy a HDB flat. (This is to prevent lower tier foreign talents from speculating in the public HDB Singapore property market).
o PRs not meeting the 5 year wait, will pay an Additional Buyer Stamp Duty of 10% on their HDB resale flats.
Proposed regulation on Private Properties
• Corporate entities who buy residential properties will pay an additional buyer stamp duty of 10% (As URA proposed)
o
• All New PRs must wait 5 years before being eligible to buy a landed property.
o PRs not meeting the 5 year waiting period shall be rejected by the Land Dealings Approval Unit (LDAU), else a 15% additional buyer’s stamp duty of 15% is applied.
For Foreigners or PR purchase of private property (non landed): -
o NO additional buyer stamp duty, but
o Loan to value from Singapore banks to be reduced to 50%.
Commercial Properties
• Apply the additional property buyer stamp duty of 10% on Foreigners buying commercial properties.
Summary of additional buyer stamp duty
URA’s imposition of the additional buyer stamp duty is generally correct in pre-emptive prevention of inflation given the massive money supply, however the timing is questionable as European debt crisis is still unfolding and money velocity is still slow.
Possible side effects, this policy can encourage lower tier expatriates to become Permanent Residents (PR) to buy HDB resale flats as they cannot afford Private properties. A number of these people eventually become citizens and are thankful to the Singapore political ruling party. We cannot rule out that this policy has political implications for Singapore.
This additional buyer stamp duty should stop speculation in HDB instead and leave the private residential property market alone.
If the intended thinking behind this policy is to make HDBs more affordable, then our proposed policy changes will likely be more effective.
