Wednesday, December 7, 2011

New Singapore property cooling measures targeting non resident foreign investors

In a surprise overnight move, Singapore government introduced new property market cooling measures by introducing additional stamp duty taxes for foreigners, Permanent Resident second timers and Singaporean third timers. All foreigners buying their first home will have to pay 10 per cent stamp duty based on purchase price or market value, whichever is higher. 10 per cent tax also will be imposed to corporate entities. This is over existing standard stamp duties. Singapore PRs buying their second and subsequent property will have to pay additional 3 per cent and Singaporeans buying third and subsequent property will pay additional 3 per cent stamp duty. Currently,  stamp duty rates are 1 per cent on the first 180,000 SGD, 2 per cent on the next 180,000 SGD and 3 per cent on the remaining amount.

Singapore’s latest steps “will curb investment demand for private residential properties drastically, especially demand from non-resident foreigners,” said Nicholas Mak, an executive director at SLP International Property Consultants in Singapore. “In the next one to two months or so, the home-buying demand from non-resident foreigners will almost dry up.”
Share of foreigners in Singapore property has been increasing for a while and in 2011, it increased from 16.22 per cent in Q1 2011 to 16.55 per cent in Q2 2011 and jumped to 19.17 per cent in Q3 2011. Meanwhile Singaporean share in private property has declined from 69.64 per cent in Q1 2011 to 66.54 per cent  Q3 2011. Historically, foreigners has been the large portion of investors in high end market but recently they have been increasing their shares in mass market private property market.

Share of Foreigners, Singapore PRs and Singaporeans in 2011
Singapore residential property buying numbers by foreigners, Singaporeans and Singapore PRs
"Even with the current economic uncertainties, the demand for private residential property remains firm. Given the uncertainty in stock markets and with interest rates remaining low, private property in Singapore continues to attract investors, local and foreign." says the Ministry of Finance and the Ministry of National Development in a joint press statement to explaining the move. "Excessive investment demand will however make the property cycle more volatile, and thus increase the risks to our economy and banking system."

Artificially lowered zero interest rates in the West caused a dangerous asset bubble in Singapore property following the 2008 financial crisis. Money flowing to Asia and near-zero interest rates are creating a lot of bubbles which would end up very bad:
  • Near-zero interest rates are artificially making property prices "affordable" for many.
  • Near-zero interest rate + high inflation in Asia is a perfect saver punishing environment, pushing many people to risky assets.
Singapore price index currently rose 13 per cent above the bubble peak in the second quarter of 1996 and 16 per cent above the more recent bubble peak in the second quarter of 2008.  Property prices crashed both from 1996 and 2008 peaks severally and only recovered from 2009 because of artificially created money flowing to Asia from West. Since it seems European's and American's have no will to get the pain to solve their structural economic problems, they will probably try to print money which would inflate property prices more in here.
The property measures announced on Wednesday will hit developers aiming for the luxury market but mass-market builders will not escape either, said analysts. High-end developers such as SC Global and Wing Tai could see demand slip as foreigners, who generally account for more than half of the sales in the upper-price brackets, will be hit by the additional 10 per cent stamp duty. This is over and above the existing buyer's stamp duty of 3 per cent.
Independent research firm Sabio Global director Alan Lok said: 'Traditionally, the Chinese buyers come here because Singapore is considerably cheaper than Hong Kong, but a stamp duty of 13 per cent is quite drastic.
See also : Private property prices may fall 30% in 2012

1 comment:

  1. My blog explains why Americans and EFTA nationals are exempted from the ABSD at