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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?
Additional stamp duty is being imposed to cool the RESIDENTIAL property 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 (PR) owning one and buying the second and subsequent residential property will be liable to an Additional buyer stamp duty
• 3%
Singapore citizens owning 2 and buying the third and subsequent residential property will pay an additional buyer stamp duty
• 3%
Permanent Residents owning 1 and buying the 2nd and subsequent residential property will pay an additional buyer stamp duty
• 3%
Singapore Citizens (Singaporeans) owning two2 and buying the third and subsequent residential property will pay an ABSD of
• 3 percent
Accoring to URA, Foreigners account for 19% of all Private residential property purchase in 2nd half of 2011, up from 7% in 1st Half 2009.
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 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 DutyWhat is the effect of the Additional Buyer Stamp Duty (ABSD)?
We praise the URA for making this additional cooling measure. This measure will further cool the market. This cooling measure is also timely as it prevents foreign owned corporate entities from cheaply buying up private properties. There is currently a lot of Money supply in the world as the M2 money growth has often outpaced the growth of the GDP, especially since 2009 when the US has printed more money via quantitative easing. This may be a preemptive move against possible asset inflation. (Appendix 1: US M2 Money Supply and European M2 Money Supply).
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.
In recent years, money supply has grown largely faster than GDP growth. What this tells you is, the money velocity is slow. People are not spending. Even in Singapore, although inflation is 5.4% in 2011, it is still fairly stable and controllable in view of looming recession in Europe.
However there is risk as money supply is ample. Once there is light at the end of the tunnel, confidence returns, velocity of money will pick up. And at that time, the Quantity (Supply) will have to pick quickly to control price rises. As far as property is concerned, the lead time to complete a unit is 2 to 4 years and this will lead to imbalance in prices.
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.
This policy can reduce inflation for residential housing in the private sector. However it does nothing much for HDB, DBSS and EC housing as well as 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?
Is the policy right in targeting only Private residential and not HDB?
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 price index is likely to continue rising into 2012 and maybe even into 2013 as long as European crisis is contained.
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.
Spill over may soon be seen in Executive Condominium (EC) with some ECs approaching prices of Mass Market condominium prices. This supports the prices of mass market condominium to be launched in large volumes.
This latest additional Buyer stamp duty policy does not apply to HDB, DBSS and ECs. What this will do is crimp demand artificially for the private market while it still does nothing much for HDB affordability with the prime culprit being DBSS, leading the price increases.
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.
Will this policy encourage more expatriates in Singapore to become Permanent residents so as to qualify for buying a HDB resale flat?
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: -
Housing Development Board 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 stops existing HDB home owner from owning a HDB and staying elsewhere and making money by renting out their HDB flats.
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 All PRs to pay additional buyer stamp duty of 10% on 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%.
Regulation for Commercial Properties
• All foreign person or entities who buy residential properties to pay an additional buyer stamp duty of 10%.
SUMMARY
The general direction of the URA policy is commendable as it recognizes the dangers of M2 money supply growth worldwide and can act as a pre-emptive strike against possible future hyper inflation. It also did the right thing in restricting Corporate entities and foreigners buying residential properties by imposing a 10% duty. However money velocity is very slow, and European debt crisis is still unfolding, the timing of this policy may not be right.
This policy seems like another political knee jerk reaction, while it hides dangerous and possible side effects of massively increasing the Singapore Citizen population and PR population through lower tier foreigners.
This policy does not solve the HDB affordability issue (as it does not crimp demand) as it does not stop speculation in HDBs and opens HDBs to PRs and Citizens in the same way.
If it is the intention to cool the property market by additional buyer stamp duty, then our proposed policies will work better as it potentially frees up HDB flats into the market and at the same time blocks demand from PR for HDB resale flat in the short term, easing pressures on HDB flats prices.
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Email : loans@propertyBUYER.com.sg
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