New Reporter
12-05-23, 09:51
Despite low yields and high taxes, Singapore properties still a draw for foreigners
May 08, 2023
Leslie Yee
SINGAPORE welcomes foreign investment. When foreign electronics, finance, chemicals, consumer goods, pharmaceutical and technology firms grow their operations here, jobs are created. Opportunities also open for knowledge transfer as well as for local businesses to be suppliers and service providers.
However, an area where foreign investment brings questionable benefits is foreigners buying properties here.
Generally, only Singapore citizens can buy private landed homes here. Typically, foreigners can buy non-landed private homes as well as various types of non-residential properties such as commercial buildings.
By number of caveats, foreigners without permanent resident (PR) status accounted for about 4.3 per cent and 7.3 per cent of new sale of private apartments and condominiums in 2021 and 2022 respectively.
https://i.imgur.com/n8X0xi8.png
The absolute number of new sale of apartments and condominiums to non-PR foreigners was lower in 2022 versus 2021.
In the first quarter of 2023, the proportion of new sales of apartments and condominiums to PRs and non-PR foreigners was 15.1 per cent and 11.3 per cent respectively. Non-PR foreigners accounted for about 17.4 per cent of such sales in the Core Central Region or prime districts.
The most active foreign nationals among private home buyers in Q1 were persons from China, Malaysia, India and the United States.
Impact of foreign participation
Government coffers gain from non-PR foreigners paying Additional Buyer’s Stamp Duty (ABSD) for buying any homes here. Recently, the ABSD rate for foreigners doubled from 30 per cent to 60 per cent.
Moreover, Buyer’s Stamp Duty (BSD) is payable for purchases of residential and non-residential properties.
The higher ABSD rates may douse foreign interest in Singapore homes. Still, non-PR foreigners bought several condo units at Blossoms by the Park, which was launched following the unveiling of higher ABSD rates.
Even if foreigners account for a small share of residential property purchases, they add to overall demand and possibly upward pressure on prices. This can make it more challenging for locals to buy private homes.
Foreigners who buy non-residential properties do not incur ABSD. When buying commercial shophouses or office properties, foreigners do not compete with locals looking for homes for owner-occupation.
Thus, many locals may be indifferent towards foreigners buying non-residential properties.
Still, small businesses could pay higher rental rates, should competition for non-residential properties among foreigners and locals push up prices. Property owners may then feel pressured to drive rentals hard to justify their investments.
Also, local investors eyeing non-residential properties may face stiffer competition from foreigners shifting their attention from homes to non-residential properties because of the higher ABSD rates.
For a foreign buyer, Singapore properties typically offer unexciting yields. With private homes, transaction costs are high.
Entry net yield on an office building in the Central Business District could be just over 3 per cent per annum – below the cost of borrowing and the cut-off yield on the six-month Singapore Treasury bill.
Assume a non-PR foreigner buys a S$4 million home at a net yield of 2.2 per cent per annum and their net income grows at 3.5 per cent annually.
It takes about 13 years and 21 years of net income for them to recoup the transaction-related costs incurred on BSD, ABSD, and professional fees based on ABSD rates of 30 per cent and 60 per cent respectively. The above analysis excludes potential capital gains.
Nonetheless, reasons exist for foreigners to buy Singapore properties.
Robust demand
First, demand in many property segments is supported by strong fundamentals. There is leasing demand for homes from foreign talent who work here.
Singapore has upped the ante to lure top overseas talent. With applications starting this year, the Overseas Networks and Expertise Pass allows workers with fixed monthly salaries of S$30,000 to stay for five years and concurrently start, run or work for multiple companies here. If Singapore draws top foreign talent, there will be people with big rental budgets looking to lease homes here.
Demand for office space comes from diverse businesses growing their operations here. Factors such as stability, good infrastructure, connectivity, sound legal framework, access to skilled labour and competitive taxes underpin Singapore’s draw as a business hub.
Commercial shophouses in central areas attract demand from investment firms, family offices and professional services outfits. Shophouses that can be used for food and beverage businesses lure many upmarket outlets, which open to cater to growing affluence here. Conservation shophouses enjoy scarcity value due to limited supply.
Given the demand drivers across various property segments, buyers can be confident in getting steady rental income plus potential capital gains.
Strong currency
Second, investments in Singapore property are protected by a robust legal framework that gives investors peace of mind.
For foreigners, buying properties here offers an added advantage of exposure to the Singapore dollar.
A strong Singapore dollar makes overseas travel compelling for many locals and helps keep inflation under control. The strong local currency also draws foreigners to Singapore-dollar denominated assets as stores of value.
Between end-2012 and end-2022, the Singapore dollar rose against its Malaysian and Indonesian counterparts by around 34 per cent and 48 per cent respectively. Versus currencies of developed economies, the Singapore dollar strengthened against the British pound and the Australian dollar by about 22 per cent and 40 per cent respectively.
As physical properties are seen as long-term investments, for foreigners, appreciation of the Singapore dollar versus one’s home currency helps compensate somewhat for the taxes they pay when buying a home here.
Also, a strong Singapore dollar boosts the recurrent rental income that a foreigner earns, when translated into their home currency.
In an increasingly volatile world, Singapore’s safe-haven premium with the global rich may rise. More wealthy foreigners may look to buy property here.
If foreigners help push up property prices, some local property owners benefit. Additionally, property agents gain when more foreigners hunt for properties here.
But higher property prices can hurt the private homeownership aspirations of locals.
In some cities, purchases of homes by foreigners can arouse political sensitivities. Hopefully, foreign buying of properties here does not strain Singapore’s social fabric.
One possible tax tweak for the future may be to levy different property tax rates on foreigners and locals. Another could be to have higher stamp duties apply to foreigners buying some types of non-residential properties.
Going forward, let rich foreigners get safe-haven exposure to Singapore properties – so long as they pay hefty taxes.
https://www.businesstimes.com.sg/opinion-features/despite-low-yields-and-high-taxes-singapore-properties-still-draw-foreigners
May 08, 2023
Leslie Yee
SINGAPORE welcomes foreign investment. When foreign electronics, finance, chemicals, consumer goods, pharmaceutical and technology firms grow their operations here, jobs are created. Opportunities also open for knowledge transfer as well as for local businesses to be suppliers and service providers.
However, an area where foreign investment brings questionable benefits is foreigners buying properties here.
Generally, only Singapore citizens can buy private landed homes here. Typically, foreigners can buy non-landed private homes as well as various types of non-residential properties such as commercial buildings.
By number of caveats, foreigners without permanent resident (PR) status accounted for about 4.3 per cent and 7.3 per cent of new sale of private apartments and condominiums in 2021 and 2022 respectively.
https://i.imgur.com/n8X0xi8.png
The absolute number of new sale of apartments and condominiums to non-PR foreigners was lower in 2022 versus 2021.
In the first quarter of 2023, the proportion of new sales of apartments and condominiums to PRs and non-PR foreigners was 15.1 per cent and 11.3 per cent respectively. Non-PR foreigners accounted for about 17.4 per cent of such sales in the Core Central Region or prime districts.
The most active foreign nationals among private home buyers in Q1 were persons from China, Malaysia, India and the United States.
Impact of foreign participation
Government coffers gain from non-PR foreigners paying Additional Buyer’s Stamp Duty (ABSD) for buying any homes here. Recently, the ABSD rate for foreigners doubled from 30 per cent to 60 per cent.
Moreover, Buyer’s Stamp Duty (BSD) is payable for purchases of residential and non-residential properties.
The higher ABSD rates may douse foreign interest in Singapore homes. Still, non-PR foreigners bought several condo units at Blossoms by the Park, which was launched following the unveiling of higher ABSD rates.
Even if foreigners account for a small share of residential property purchases, they add to overall demand and possibly upward pressure on prices. This can make it more challenging for locals to buy private homes.
Foreigners who buy non-residential properties do not incur ABSD. When buying commercial shophouses or office properties, foreigners do not compete with locals looking for homes for owner-occupation.
Thus, many locals may be indifferent towards foreigners buying non-residential properties.
Still, small businesses could pay higher rental rates, should competition for non-residential properties among foreigners and locals push up prices. Property owners may then feel pressured to drive rentals hard to justify their investments.
Also, local investors eyeing non-residential properties may face stiffer competition from foreigners shifting their attention from homes to non-residential properties because of the higher ABSD rates.
For a foreign buyer, Singapore properties typically offer unexciting yields. With private homes, transaction costs are high.
Entry net yield on an office building in the Central Business District could be just over 3 per cent per annum – below the cost of borrowing and the cut-off yield on the six-month Singapore Treasury bill.
Assume a non-PR foreigner buys a S$4 million home at a net yield of 2.2 per cent per annum and their net income grows at 3.5 per cent annually.
It takes about 13 years and 21 years of net income for them to recoup the transaction-related costs incurred on BSD, ABSD, and professional fees based on ABSD rates of 30 per cent and 60 per cent respectively. The above analysis excludes potential capital gains.
Nonetheless, reasons exist for foreigners to buy Singapore properties.
Robust demand
First, demand in many property segments is supported by strong fundamentals. There is leasing demand for homes from foreign talent who work here.
Singapore has upped the ante to lure top overseas talent. With applications starting this year, the Overseas Networks and Expertise Pass allows workers with fixed monthly salaries of S$30,000 to stay for five years and concurrently start, run or work for multiple companies here. If Singapore draws top foreign talent, there will be people with big rental budgets looking to lease homes here.
Demand for office space comes from diverse businesses growing their operations here. Factors such as stability, good infrastructure, connectivity, sound legal framework, access to skilled labour and competitive taxes underpin Singapore’s draw as a business hub.
Commercial shophouses in central areas attract demand from investment firms, family offices and professional services outfits. Shophouses that can be used for food and beverage businesses lure many upmarket outlets, which open to cater to growing affluence here. Conservation shophouses enjoy scarcity value due to limited supply.
Given the demand drivers across various property segments, buyers can be confident in getting steady rental income plus potential capital gains.
Strong currency
Second, investments in Singapore property are protected by a robust legal framework that gives investors peace of mind.
For foreigners, buying properties here offers an added advantage of exposure to the Singapore dollar.
A strong Singapore dollar makes overseas travel compelling for many locals and helps keep inflation under control. The strong local currency also draws foreigners to Singapore-dollar denominated assets as stores of value.
Between end-2012 and end-2022, the Singapore dollar rose against its Malaysian and Indonesian counterparts by around 34 per cent and 48 per cent respectively. Versus currencies of developed economies, the Singapore dollar strengthened against the British pound and the Australian dollar by about 22 per cent and 40 per cent respectively.
As physical properties are seen as long-term investments, for foreigners, appreciation of the Singapore dollar versus one’s home currency helps compensate somewhat for the taxes they pay when buying a home here.
Also, a strong Singapore dollar boosts the recurrent rental income that a foreigner earns, when translated into their home currency.
In an increasingly volatile world, Singapore’s safe-haven premium with the global rich may rise. More wealthy foreigners may look to buy property here.
If foreigners help push up property prices, some local property owners benefit. Additionally, property agents gain when more foreigners hunt for properties here.
But higher property prices can hurt the private homeownership aspirations of locals.
In some cities, purchases of homes by foreigners can arouse political sensitivities. Hopefully, foreign buying of properties here does not strain Singapore’s social fabric.
One possible tax tweak for the future may be to levy different property tax rates on foreigners and locals. Another could be to have higher stamp duties apply to foreigners buying some types of non-residential properties.
Going forward, let rich foreigners get safe-haven exposure to Singapore properties – so long as they pay hefty taxes.
https://www.businesstimes.com.sg/opinion-features/despite-low-yields-and-high-taxes-singapore-properties-still-draw-foreigners