Don't blame ABSD for overseas property buys

[reporter2]

http://www.businesstimes.com.sg/opinion/dont-blame-absd-for-overseas-property-buys

COMMENTARY

Don't blame ABSD for overseas property buys

Cash-rich Singaporeans need more education on the various investment options available

By Cai Haoxiang

[email protected]@HaoxiangCaiBT

12 Mar


Benvolio: "Be ruled by me, forget to think of her."

Romeo: "O, teach me how I should forget to think."

Benvolio: "By giving liberty unto thine eyes; Examine other beauties."

- William Shakespeare, Romeo and Juliet

ARGUING for a removal of the additional buyer's stamp duty (ABSD) for Singaporeans, Nee Soon GRC MP Lee Bee Wah said on Tuesday that the additional taxes have led cash-rich Singaporeans to invest in riskier foreign properties in Malaysia, Cambodia, the US and UK.

"With the influence of friends and fellow investors, coupled with the low initial downpayments and fewer restrictions in foreign properties, Singaporeans are enticed to look abroad. This not only does little benefit to our economy, but we are putting our people at risk," she argued. "I feel we should keep the total debt servicing ratio (TDSR) to encourage prudence in financial spending, but remove the ABSD for Singaporeans."

There are many things wrong with the argument to remove the ABSD, to encourage cash-rich Singaporeans to buy private residential properties here.

First, domestic properties beyond the first home are not necessarily suitable investments. They cost a lot and can be hard to sell. Much debt needs to be incurred. Getting rental income is a hassle and not guaranteed.

A Singaporean investor looking to retire will need investments that can pay out a decent yield and can be sold quickly in case of emergencies, like a medical operation. Property does not tick either box.

Most investors do not have a long-term horizon. For them, property investing is a leveraged, risky bet to make money quickly when prices are rising.

Second, the ABSD should not be blamed for pushing Singaporeans to invest abroad. For citizens, it is a 7 per cent tax on the second residential property, and a 10 per cent tax on the third and subsequent properties.

Is a 10 per cent tax so onerous as to discourage buyers from buying their third property? Not if they expect prices to go up by much more within their time horizon, such that they get a suitable rate of return for the risk they are taking.

What the ABSD discourages are speculators: those looking to make money from a quick flip. If people truly believed in the potential of a property, they would be eyeing a 30, 40 or 50 per cent increase in prices over 10 years or more. In fact, not too long ago, prices were going up 5 per cent a quarter. A 10 per cent tax won't deter anybody in that kind of environment. (Nor will rising interest rates, for that matter.)

So don't blame the ABSD for making local property unattractive to Singaporeans; blame a gambling mentality, excess capacity, and prices that have gone out of sync with incomes.

Third, overseas properties are not necessarily risky purchases. In property, as with all investments, there are riskier choices and less risky ones. Buying a centrally located property directly from an established developer here or abroad will be less risky than buying a property away from any established infrastructure. It is also not the wisest thing to go through several middlemen to buy a piece of land in the middle of nowhere, in a country with dubious rule of law.

With all overseas assets, potential investors have to carefully evaluate regulatory risks, currency risks, and counterparty risks.

Moreover, Singaporeans buy properties for many reasons, not all of them financial. Financially, there are "pull" factors, not just "push" factors. For example, currencies in Australia and Malaysia have been depreciating against the Singapore dollar, making assets there more attractive.

Meanwhile, Singaporeans might just want a home for their children to stay in should they ever study or work abroad. Some might simply desire a retirement home across the Causeway, where the pace of life is slower.

Finally, the income gap will only widen in a very visible way if cash-rich investors, Singaporeans or foreign, snap up local properties, push up their prices, and pass them on to their children. A small city-state cannot afford that kind of rift.

Dr Lee, in her speech, highlighted something important: many Singaporeans have spare cash and do not know what to do with it.

We should encourage them not to be fixated on property, but to examine traditional, liquid assets that can offer a reasonable return without leverage, like stocks and bonds. Property should be just one part of a balanced portfolio.

We also need more education on the topic of investing itself, on how to get a financial return suited to one's time horizon, liquidity requirement, wealth, and risk tolerance.

This message would be better heard in a property downturn.

[teddybear]

This journalist below don't know what he is talking about! He don't understand what is ABSD for? ah lah mak!
ABSD is to discriminate foreigners from buying Singapore properties, that is why only foreigners need to pay 15% ABSD!

"First, domestic properties beyond the first home are not necessarily suitable investments. They cost a lot and can be hard to sell. Much debt needs to be incurred. Getting rental income is a hassle and not guaranteed."

In response to his above comment, I have to ask him whether is it the government's job to ensure whether people invest in what instrument and made money or not? If Singaporeans are happy to invest in property, who has the right to say "No"?

"Second, the ABSD should not be blamed for pushing Singaporeans to invest abroad. For citizens, it is a 7 per cent tax on the second residential property, and a 10 per cent tax on the third and subsequent properties.

Is a 10 per cent tax so onerous as to discourage buyers from buying their third property? Not if they expect prices to go up by much more within their time horizon, such that they get a suitable rate of return for the risk they are taking."

Again, why ABSD should not be blamed for pushing Singaporeans to invest abroad? Didn't our MP said so too that Singaporeans invest in overseas properties when they have been deterred back home?

"What the ABSD discourages are speculators: those looking to make money from a quick flip. If people truly believed in the potential of a property, they would be eyeing a 30, 40 or 50 per cent increase in prices over 10 years or more. In fact, not too long ago, prices were going up 5 per cent a quarter. A 10 per cent tax won't deter anybody in that kind of environment. (Nor will rising interest rates, for that matter.)"

Oh No, he don't know what he is saying! When did ABSD become being used to discourage speculators? Didn't the government already said clearly that SSD is to discourage speculators from flipping property within 4 years? If like that what is SSD for???!

"So don't blame the ABSD for making local property unattractive to Singaporeans; blame a gambling mentality, excess capacity, and prices that have gone out of sync with incomes."

Come on, face the FACT! ABSD add additional costs to the buyers, and make local property unattractive to Singaporeans buying 2nd properties, and unattractive to PRs and foreigners too! Didn't we see that CCR private property prices already crashed! Didn't he read the news that a CCR property sale made the seller suffer $15.8 MILLIONS loss!
Soon, OCR private property prices will also CRASH!

"Third, overseas properties are not necessarily risky purchases. In property, as with all investments, there are riskier choices and less risky ones. "

Why not? Didn't MAS sound warning about buying overseas properties???! Now this reporter telling us buying overseas properties not necessarily risky?

"Dr Lee, in her speech, highlighted something important: many Singaporeans have spare cash and do not know what to do with it.

We should encourage them not to be fixated on property, but to examine traditional, liquid assets that can offer a reasonable return without leverage, like stocks and bonds. Property should be just one part of a balanced portfolio.

We also need more education on the topic of investing itself, on how to get a financial return suited to one's time horizon, liquidity requirement, wealth, and risk tolerance."

So easy? That means all Singaporeans should be able to take back all their CPF money (including retirement account money and Medisave money) at age 55 since education on investing is enough? :dog:

"Finally, the income gap will only widen in a very visible way if cash-rich investors, Singaporeans or foreign, snap up local properties, push up their prices, and pass them on to their children. A small city-state cannot afford that kind of rift."

Actually, income gap will NOT widen only if government and the Ministers set an example to peg their pay to a <30x multiple of the lowest 10% income salaries, like that sure income gap will never grow too wide right? Didn't the reporters hear a lot rumbling about those people being out of touch with the general population because they don't take MRT and bus to work? Still say MRT and bus services in Singapore are world-class when they are breaking down numerous times every month?



http://www.businesstimes.com.sg/opinion/dont-blame-absd-for-overseas-property-buys

COMMENTARY

Don't blame ABSD for overseas property buys

Cash-rich Singaporeans need more education on the various investment options available

By Cai Haoxiang

[email protected]@HaoxiangCaiBT

12 Mar


Benvolio: "Be ruled by me, forget to think of her."

Romeo: "O, teach me how I should forget to think."

Benvolio: "By giving liberty unto thine eyes; Examine other beauties."

- William Shakespeare, Romeo and Juliet

ARGUING for a removal of the additional buyer's stamp duty (ABSD) for Singaporeans, Nee Soon GRC MP Lee Bee Wah said on Tuesday that the additional taxes have led cash-rich Singaporeans to invest in riskier foreign properties in Malaysia, Cambodia, the US and UK.

"With the influence of friends and fellow investors, coupled with the low initial downpayments and fewer restrictions in foreign properties, Singaporeans are enticed to look abroad. This not only does little benefit to our economy, but we are putting our people at risk," she argued. "I feel we should keep the total debt servicing ratio (TDSR) to encourage prudence in financial spending, but remove the ABSD for Singaporeans."

There are many things wrong with the argument to remove the ABSD, to encourage cash-rich Singaporeans to buy private residential properties here.

First, domestic properties beyond the first home are not necessarily suitable investments. They cost a lot and can be hard to sell. Much debt needs to be incurred. Getting rental income is a hassle and not guaranteed.

A Singaporean investor looking to retire will need investments that can pay out a decent yield and can be sold quickly in case of emergencies, like a medical operation. Property does not tick either box.

Most investors do not have a long-term horizon. For them, property investing is a leveraged, risky bet to make money quickly when prices are rising.

Second, the ABSD should not be blamed for pushing Singaporeans to invest abroad. For citizens, it is a 7 per cent tax on the second residential property, and a 10 per cent tax on the third and subsequent properties.

Is a 10 per cent tax so onerous as to discourage buyers from buying their third property? Not if they expect prices to go up by much more within their time horizon, such that they get a suitable rate of return for the risk they are taking.

What the ABSD discourages are speculators: those looking to make money from a quick flip. If people truly believed in the potential of a property, they would be eyeing a 30, 40 or 50 per cent increase in prices over 10 years or more. In fact, not too long ago, prices were going up 5 per cent a quarter. A 10 per cent tax won't deter anybody in that kind of environment. (Nor will rising interest rates, for that matter.)

So don't blame the ABSD for making local property unattractive to Singaporeans; blame a gambling mentality, excess capacity, and prices that have gone out of sync with incomes.

Third, overseas properties are not necessarily risky purchases. In property, as with all investments, there are riskier choices and less risky ones. Buying a centrally located property directly from an established developer here or abroad will be less risky than buying a property away from any established infrastructure. It is also not the wisest thing to go through several middlemen to buy a piece of land in the middle of nowhere, in a country with dubious rule of law.

With all overseas assets, potential investors have to carefully evaluate regulatory risks, currency risks, and counterparty risks.

Moreover, Singaporeans buy properties for many reasons, not all of them financial. Financially, there are "pull" factors, not just "push" factors. For example, currencies in Australia and Malaysia have been depreciating against the Singapore dollar, making assets there more attractive.

Meanwhile, Singaporeans might just want a home for their children to stay in should they ever study or work abroad. Some might simply desire a retirement home across the Causeway, where the pace of life is slower.

Finally, the income gap will only widen in a very visible way if cash-rich investors, Singaporeans or foreign, snap up local properties, push up their prices, and pass them on to their children. A small city-state cannot afford that kind of rift.

Dr Lee, in her speech, highlighted something important: many Singaporeans have spare cash and do not know what to do with it.

We should encourage them not to be fixated on property, but to examine traditional, liquid assets that can offer a reasonable return without leverage, like stocks and bonds. Property should be just one part of a balanced portfolio.

We also need more education on the topic of investing itself, on how to get a financial return suited to one's time horizon, liquidity requirement, wealth, and risk tolerance.

This message would be better heard in a property downturn.