Over a single weekend in August, close to 90 per cent of the apartments in a 36-storey condominium in Singapore’s upscale River Valley were sold — even though the site is not expected to be completed for four years.
With prices ranging from S$1.2mn ($900,000) to S$3.5mn for one-to four-bedroom flats, buyers were drawn to the development’s riverside views, 50-metre pool, clubhouse and gym.
More than 900 off-plan apartments were sold overall in Singapore that weekend. New home sales hit a nine-month high in August, despite a series of government efforts to cool the booming property sector.
The city-state now has among the world’s highest property transaction taxes, mainly hitting foreigners, as the government tries to suppress property price inflation, which hit 3.9 per cent last year and 6.8 per cent the year before.
“Property prices are still rising despite the increases in stamp duty,” said Christine Sun, chief researcher and strategist at Singapore property group Realion. “There is still a lot of demand for luxury properties, especially among locals.”
Real estate investment is a national obsession in Singapore, which has a home-ownership rate of 91 per cent that traces its roots back to the country’s founding six decades ago.
As a small island nation surrounded by suspicious neighbours, newly independent Singapore’s leaders encouraged citizens to buy their homes at the same time that national service was introduced. The government regularly sells off parcels of land for development as a means of encouraging the supply of new homes.
“They wanted Singaporeans to own their homes, to have a stake in Singapore so that they would defend the nation,” said Alan Cheong, executive director of research and consultancy at Savills Singapore.
Over time, Singapore’s political stability and strengthening economy attracted wealthy foreigners, who looked to buy properties and put down roots. First came immigrants from Indonesia in the 1970s, and later waves from across Asia — especially China — as well as Europe and the US.
Home Economics
This is the second in a series exploring the economics of buying a home across the globe, looking at how taxes and fees on purchases vary dramatically depending where you buy.
But the influx of foreign capital — combined with Singaporean baby boomers investing much of their savings in real estate — drove up property prices.
Average prices have surged more than 150 per cent over the past 20 years and the government is wary of exacerbating cost of living concerns that were the top issue among voters at this year’s general election.
“The government has tried to calm demand — especially foreign demand — by adding additional transaction costs and preventing an overshooting of prices,” Cheong said.
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In 2011, the government introduced the “additional buyers’ stamp duty” (ABSD) on top of the existing 1 to 3 per cent stamp duty. Singaporeans were initially charged ABSD of 3 per cent on their third and subsequent property purchases, while foreigners paid 10 per cent on any purchase.
But as prices continued rising, the government has kept hiking the rates. Foreigners now must pay 60 per cent ABSD on all purchases, while Singaporeans face a 20 per cent tax on their second homes and 30 per cent on subsequent ones.
The changes have driven a big shift in buying patterns, even if property prices have kept climbing.
“The measures have been very effective at curbing foreign demand,” said Eugene Lim, key executive officer at real estate company ERA. “We see very few foreigners buying these days.”
Until two years ago, foreign buyers mainly came from either China, Indonesia, Malaysia or India, Lim said. But since the 60 per cent rate came in, many are holding off while applying to become permanent residents — when they would be charged 5 per cent ABSD on their first property and 30 per cent after that.
“For the very few foreigners who are prepared to pay 60 per cent stamp duty, they have accepted that it is a cost of owning a property in Singapore,” said Lim. “They typically have very long-term plans to be in Singapore and base their family here.”
However, people are exempt from paying the full 60 per cent if their countries have free trade agreements with Singapore that predate the tax rises. As a result, citizens from the US, Iceland, Liechtenstein, Norway and Switzerland are not subject to the tax.
This has led to Americans overtaking Chinese as the biggest foreign buyers in the past two years. “US citizens now make up around 40 to 50 per cent of foreign buyers of Singapore property — that’s a big change,” said Sun.
Meanwhile, affluent Singaporeans are trying to work around the higher tax by buying second and third properties under family members’ names.
In a further bid to cool the market in July, the government returned to a measure it had previously relaxed that is aimed at stopping investors quickly flipping properties.
If an owner sells within a year of buying, they are now subject to 16 per cent duty. The charge drops over subsequent years, falling to 4 per cent for sales made between three and four years after the purchase. There is no duty on properties sold after more than four years.
The toughener new measures this year reflect the government’s struggle to keep a lid on rising prices, Cheong said.
“There’s still speculative behaviour because of the weight of money that is in the market,” he said.
