New Reporter
04-09-23, 14:51
Managing distortions from people parking money in Singapore property
Leslie Yee
Aug 28, 2023
IN DENSELY populated Singapore, living in a detached home in a Good Class Bungalow (GCB) Area can offer one a haven – a luxurious abode sitting on land of over 15,000 square feet, ensconced in leafy enclaves in prime locations.
Living in a GCB also confers social status. These homes can be great for entertainment, personal wellness, family gatherings and business meetings.
By affording privacy, these houses might also be useful for those engaging in shady activities who want to avoid nosy neighbours – or law enforcement.
Recently, the Singapore Police Force conducted a blitz that nabbed several foreigners for their alleged involvement in a billion-dollar money-laundering case. Ten foreign nationals, who were living in GCBs, a Sentosa Cove bungalow and luxury condos, have been charged over their suspected involvement in offences including forgery, money laundering and resisting arrest.
Properties feature large in this money-laundering case with alleged links to a Fujian, China, syndicate. Prohibition-of-disposal orders have been issued on 105 properties here with an estimated worth of S$831 million. The properties comprise multiple Sentosa Cove bungalows, condo units, and commercial or industrial spaces.
Parking money
It’s unsurprising that money launderers targeted buying properties here. Local property is attractive to people looking to park large sums of money, especially monies made from risky activities, in something safe. Think of people who have profited from trading in volatile assets such as cryptocurrencies, or enjoyed a windfall from a commodity boom, or prospered due to links with politically powerful persons.
Many properties here are worth several million dollars or tens of millions of dollars each, or more. The local currency is strong. Property prices across various segments have been resilient over the Covid pandemic. Between Q4 2019 and Q2 2023, private home prices rose 27 per cent, according to data from the Urban Redevelopment Authority (URA). There is healthy leasing demand for homes, offices, retail spaces, warehouses and industrial facilities.
https://i.imgur.com/HAWP7cB.png
Political stability, excellent infrastructure and good urban planning also give investors confidence in the local property market.
While yields across different property types here may be low, many buyers expect capital gains. There is also ample liquidity for physical property, and there is zero capital gains tax on the sale of physical properties.
One might consider buying listed equities instead. But one may find difficulty buying large chunks of shares in some companies that are tightly held. A solely-owned property also gives greater control versus being a minority investor in a listed entity.
Today, transaction costs are high for many homebuyers here. Singapore citizens pay Additional Buyer’s Stamp Duty (ABSD) of 20 per cent for buying a second home, and 30 per cent for buying a third and subsequent home. Non-permanent resident foreigners buying any home pay ABSD of 60 per cent.
But transaction costs are generally much lower for buyers of non-residential properties – ABSD does not apply. The Buyer’s Stamp Duty for non-residential properties is between 1 per cent and 4 per cent for the first S$1.5 million of the price, and 5 per cent for amounts over S$1.5 million.
Anti-money laundering
In reality, Singapore has many attributes to its credit, and these are the same factors that may draw money launderers. It is a hub for finance and professional services. It is known for the ease of doing business. It enjoys good connectivity to many countries and is a cosmopolitan society with a large population of foreigners. For a price, one can live very well in Singapore, with its many luxury homes, high-end boutiques, luxury car dealers, art galleries, country clubs, marinas and Michelin-star restaurants.
However, persons looking to launder money through Singapore property should take heed. Anti-money laundering laws here are tough, and enforcement action is strong.
The Monetary Authority of Singapore (MAS) is firmly committed to safeguarding Singapore as a clean and trusted financial centre. Combating money laundering, terrorism financing and proliferation financing are priorities for MAS, and financial institutions are required to have sufficiently robust controls to detect and deter such illicit activities. MAS also partners the industry to bolster their defences, by engaging them on emerging risks, evolving criminal typologies and industry best practices.
With effect from Jun 28, the Urban Redevelopment Authority has implemented new requirements for developers against money laundering and terrorism financing.
Developers are required to conduct customer due diligence checks on all transactions of uncompleted residential and non-residential properties regulated under the Housing Developers (Control & Licensing) Act and Sale of Commercial Properties Act.
Real estate agents also have onerous obligations to comply with to prevent money laundering and terrorism financing.
Given the huge sums of money involved, there is much work to do to prevent money laundering through real estate. Agents and developers must not be tempted to close deals, however lucrative, if they are doubtful over the source of buyers’ funds.
By being vigilant in fighting money laundering, Singapore can maintain a good reputation as a financial and wealth management centre, so that these key economic sectors continue growing.
Apart from reputational damage, money laundering has another important effect – interest from looking to recycle outsized or illicit gains into something safe may distort the property market here.
Shophouse prices could be bid up such that a local business owner cannot afford to buy such a property to house his operations. Centrally-located strata office spaces may be snapped up at lofty prices to the detriment of local services firms looking to buy space for their own use. Hot money may pay a crazy price for a home, thereby generating hype and potentially some irrational market exuberance.
A well-funded party could enter the property development market here with relative ease and bid aggressively to buy land. This may drive up land prices and selling prices of properties.
There are possible ways to better protect the private housing and commercial property markets from distortions. Tightening who can buy what type of property is one way, just like how strict eligibility conditions apply to buyers of Housing and Development Board flats in the primary and secondary markets.
Some possible regulations are to restrict foreigners from buying commercial shophouses or foreign non-listed entities from undertaking property development, and limit the number of properties that individuals can own.
However, on balance, keeping some parts of Singapore’s property market largely open to whoever has buying power, provided the source of funds is not illicit, makes sense in a city that lives from being a connector to many parts of the world.
https://www.businesstimes.com.sg/opinion-features/managing-distortions-people-parking-money-singapore-property
Leslie Yee
Aug 28, 2023
IN DENSELY populated Singapore, living in a detached home in a Good Class Bungalow (GCB) Area can offer one a haven – a luxurious abode sitting on land of over 15,000 square feet, ensconced in leafy enclaves in prime locations.
Living in a GCB also confers social status. These homes can be great for entertainment, personal wellness, family gatherings and business meetings.
By affording privacy, these houses might also be useful for those engaging in shady activities who want to avoid nosy neighbours – or law enforcement.
Recently, the Singapore Police Force conducted a blitz that nabbed several foreigners for their alleged involvement in a billion-dollar money-laundering case. Ten foreign nationals, who were living in GCBs, a Sentosa Cove bungalow and luxury condos, have been charged over their suspected involvement in offences including forgery, money laundering and resisting arrest.
Properties feature large in this money-laundering case with alleged links to a Fujian, China, syndicate. Prohibition-of-disposal orders have been issued on 105 properties here with an estimated worth of S$831 million. The properties comprise multiple Sentosa Cove bungalows, condo units, and commercial or industrial spaces.
Parking money
It’s unsurprising that money launderers targeted buying properties here. Local property is attractive to people looking to park large sums of money, especially monies made from risky activities, in something safe. Think of people who have profited from trading in volatile assets such as cryptocurrencies, or enjoyed a windfall from a commodity boom, or prospered due to links with politically powerful persons.
Many properties here are worth several million dollars or tens of millions of dollars each, or more. The local currency is strong. Property prices across various segments have been resilient over the Covid pandemic. Between Q4 2019 and Q2 2023, private home prices rose 27 per cent, according to data from the Urban Redevelopment Authority (URA). There is healthy leasing demand for homes, offices, retail spaces, warehouses and industrial facilities.
https://i.imgur.com/HAWP7cB.png
Political stability, excellent infrastructure and good urban planning also give investors confidence in the local property market.
While yields across different property types here may be low, many buyers expect capital gains. There is also ample liquidity for physical property, and there is zero capital gains tax on the sale of physical properties.
One might consider buying listed equities instead. But one may find difficulty buying large chunks of shares in some companies that are tightly held. A solely-owned property also gives greater control versus being a minority investor in a listed entity.
Today, transaction costs are high for many homebuyers here. Singapore citizens pay Additional Buyer’s Stamp Duty (ABSD) of 20 per cent for buying a second home, and 30 per cent for buying a third and subsequent home. Non-permanent resident foreigners buying any home pay ABSD of 60 per cent.
But transaction costs are generally much lower for buyers of non-residential properties – ABSD does not apply. The Buyer’s Stamp Duty for non-residential properties is between 1 per cent and 4 per cent for the first S$1.5 million of the price, and 5 per cent for amounts over S$1.5 million.
Anti-money laundering
In reality, Singapore has many attributes to its credit, and these are the same factors that may draw money launderers. It is a hub for finance and professional services. It is known for the ease of doing business. It enjoys good connectivity to many countries and is a cosmopolitan society with a large population of foreigners. For a price, one can live very well in Singapore, with its many luxury homes, high-end boutiques, luxury car dealers, art galleries, country clubs, marinas and Michelin-star restaurants.
However, persons looking to launder money through Singapore property should take heed. Anti-money laundering laws here are tough, and enforcement action is strong.
The Monetary Authority of Singapore (MAS) is firmly committed to safeguarding Singapore as a clean and trusted financial centre. Combating money laundering, terrorism financing and proliferation financing are priorities for MAS, and financial institutions are required to have sufficiently robust controls to detect and deter such illicit activities. MAS also partners the industry to bolster their defences, by engaging them on emerging risks, evolving criminal typologies and industry best practices.
With effect from Jun 28, the Urban Redevelopment Authority has implemented new requirements for developers against money laundering and terrorism financing.
Developers are required to conduct customer due diligence checks on all transactions of uncompleted residential and non-residential properties regulated under the Housing Developers (Control & Licensing) Act and Sale of Commercial Properties Act.
Real estate agents also have onerous obligations to comply with to prevent money laundering and terrorism financing.
Given the huge sums of money involved, there is much work to do to prevent money laundering through real estate. Agents and developers must not be tempted to close deals, however lucrative, if they are doubtful over the source of buyers’ funds.
By being vigilant in fighting money laundering, Singapore can maintain a good reputation as a financial and wealth management centre, so that these key economic sectors continue growing.
Apart from reputational damage, money laundering has another important effect – interest from looking to recycle outsized or illicit gains into something safe may distort the property market here.
Shophouse prices could be bid up such that a local business owner cannot afford to buy such a property to house his operations. Centrally-located strata office spaces may be snapped up at lofty prices to the detriment of local services firms looking to buy space for their own use. Hot money may pay a crazy price for a home, thereby generating hype and potentially some irrational market exuberance.
A well-funded party could enter the property development market here with relative ease and bid aggressively to buy land. This may drive up land prices and selling prices of properties.
There are possible ways to better protect the private housing and commercial property markets from distortions. Tightening who can buy what type of property is one way, just like how strict eligibility conditions apply to buyers of Housing and Development Board flats in the primary and secondary markets.
Some possible regulations are to restrict foreigners from buying commercial shophouses or foreign non-listed entities from undertaking property development, and limit the number of properties that individuals can own.
However, on balance, keeping some parts of Singapore’s property market largely open to whoever has buying power, provided the source of funds is not illicit, makes sense in a city that lives from being a connector to many parts of the world.
https://www.businesstimes.com.sg/opinion-features/managing-distortions-people-parking-money-singapore-property