Park Nova Hero

When the prices of private homes in Singapore begin to climb, there is a trend to focus on selling to buyers from other countries.

For example, we were subjected to a flurry of news headlines about Chinese purchasers coming into the Singapore market during the Covid-19 conference, and veterans of the property market will remember similar anxieties in the wake of the 2008–2009 global financial crisis.

 

About Current Singapore Property Market

Average Prices

The average price of new launch properties reached $2,518 psf as of the end of August this year. This is a significant increase from the average price of $1,794 psf in August 2021.

End-of-August resale prices averaged $1,493 psf, which is an increase from $1,352 psf in August of the previous year.

Resale Price

As of the second quarter of this year, the prices of privately owned homes had increased by around 3.2 percentage points quarter-on-quarter. Now the last low point in the first quarter of 2020, when the housing crisis first began, private house prices have since increased by around 18.6 percent on average.

The majority of real estate companies anticipate that by the end of 2022, house prices will have increased by three to five percent from the previous year, if the rate of rise continues as it is.

These statistics are beginning to trigger warning signals in my head. As things stand, we are seeing a growing propensity for HDB upgraders, who make up the majority of present purchasers, to be gradually priced out of newly launched condominiums.

Even new developments in outlying areas, such as the recently opened AMO Residence and Lentor Modern, offer family-sized residences that cost upwards of $2 million.

Having said that, based on the sales data from the opening weekend (AMO Residence came close to selling out, while Lentor Modern sold 84% of its units), it is possible that some individuals are perplexed by these contradictory messages.

Since before Covid-19, the percentage of customers from outside the country has decreased.
In spite of the fact that there has been talk on the ground about foreign purchasers “coming back” following Covid, the numbers don’t really support that claim.

 

Propotion of Foreign Buyers Purchasing Singapore Property

Foreigner Buyer

In a recent answer to a question from the House of Commons, Minister Desmond Lee said that during the last two years, just around three percent of transactions involving private real estate included individuals from outside the country. This is a significant decrease from the pre-pandemic years, when it was around 5%.

A recent article that was published in the Straits Times presented a breakdown that demonstrates a significant decrease in the number of international buyers:

Even at the peak of the Covid market, it would seem that the percentage of customers from other countries has not seen a significant uptick.

This is owing, in part, to the cooling measures that were taken in December of the previous year. The Additional Buyers Stamp Duty (ABSD) was increased for everyone, however one of the groups who was negatively impacted the most was international purchasers. The Additional Buyer Stamp Duty (ABSD) on international purchasers of residential real estate has been increased to 30 percent of the purchase price or value, whichever is greater. The increase in the tax rate from before by ten percent is considerable.

To put this into perspective, this indicates that the cost of ABSD rates will add another cool $3 million to the total cost of a home that is valued at $10 million.

Our conversation with a real estate agent who often works with customers from other countries revealed that Singapore’s ABSD is now much higher than other options available in the area. According to her, the stamp duty for foreign purchasers in Australia is just 8%, however in Hong Kong it is 15%. She also said that the stamp duty in Hong Kong is for foreigners.

She also said that current difficulties in China’s real estate market, although not immediately relevant to Singapore’s situation, might have long-term repercussions:

“The bulk of our international customers are from China, and many of the most prominent property developers in Singapore are owned by Chinese corporations… Now there is a generation of people who have grown up seeing their parents lose their homes and who may be more wary of real estate as an investment asset as a result.”

 

Foreigners buying into Luxury Market

The majority of real estate agents in Singapore that we talked to were of the opinion that foreign purchasers do not have a significant influence on the country’s private real estate market. Rather, the influence of foreign purchasers is often limited to a single market sector, namely the luxury or prime area property markets.

Common instances are the selling of the ultra-luxurious Swire Eden, which the Tsai family acquired for a total of $293 million, or the sale of an apartment at The Nassim for the price of $20 million (the buyer was a Chinese national, who was not deterred by 30 per cent ABSD). After this, a recent bulk acquisition of 20 apartments at CanningHill Piers for around $85 million came shortly after.

Realtors were of the opinion that the news on these transactions could be giving the reader an incorrect impression. According to one real estate agent: “However, when it comes to these buyers, you can count the number of transactions on one hand. When people see the numbers are so high, their initial instinct is to jump to conclusions and say that these foreigners are so wealthy that they will buy at any price, which is pricing locals out of the market.

These purchasers are not in competition with Singaporeans when it comes to the purchase of mass-market condominiums in the Rest of Central Region (RCR) or Outside Central Region (OCR), since they are only interested in purchasing ultra-luxury homes (OCR). Even if all of these purchasers with very high net worth suddenly vanish tomorrow, Singaporeans would not perceive a significant decline in the value of their condominiums.”

Even allowing purchases from outside the country could make the complete privatization of ECs less appealing. This is something to keep in mind.

After the 10th year, an Executive Condominium (EC) is able to be completely privatized, at which time individual units may even be sold to residents of other countries. However, even if we assume that foreign purchasers will be interested in purchasing ECs (despite the fact that they are not luxury homes), it is possible that recent changes to the ABSD have rendered privatization irrelevant.

 

Foreigners in buying Fully Privatisation EC

After the privatization, the most notable change is that the EC is now available for purchase by foreigners, corporations, and even developers.

However, if you look into the increases in the ABSD rate, you will find that the purchasers who fall into these three groups (foreigners, entities, and developers) are now subject to the highest stamp duties.

As a result of this, there is a significant probability that you will make a profit if you sell an EC after its Minimum Occupation Period (MOP), which is five years (since future purchasers are not bound by MOP).

But at the pace that outsiders and companies are being discriminated against, we can no longer say with absolute certainty how favorable things will become after complete privatization.

It is more probable that increasing housing prices are the result of a limited supply of homes and an increase in the overall cost of development.

Despite the fact that there are fewer foreign buyers in the market today, one real estate agent in Singapore highlighted that property prices have continued to rise (see above). Simply taking this into account ought to be enough to prompt us to rethink ideas that suggest foreigners are pushing up costs.

It is expected that a restricted supply, increased demand from homeowners, and rising expenses faced by developers will have the greatest influence on property prices.

It is more important to keep a tight eye on the possibility for an energy crisis in Europe next winter, as well as imported inflation, than it is on the tiny number of foreign investors.