Imagining a Housing Market Without ABSD

Imagining a Housing Market Without ABSD

CONDOsingapore.com

A world where the private homes market has fewer restrictions and all locals can buy new HDB flats.

ABSD was first introduced in December 2011. It does not apply to Singapore citizens buying their first home. However, it affects many other buyers. For example, locals buying a second home pay 20 per cent ABSD, while non-permanent resident foreigners pay 60 per cent on any home purchase.

Is there a case for abolishing ABSD?

Possibly. ABSD can reduce government revenue and distort investment decisions. It suppresses demand from Singaporeans and permanent residents who want to buy multiple properties, as well as from foreigners. With lower demand, developers tend to bid less aggressively for private housing sites. This means the government receives less from land sales, with proceeds going into past reserves.

While ABSD does generate tax revenue from buyers who pay it, a removal of the tax could lead to more homes being built and sold at higher volumes. This would create greater economic activity through increased construction and related sectors. Additionally, higher transaction volumes could boost collection of the standard Buyer’s Stamp Duty (BSD), which ranges from 1 to 6 per cent.

ABSD Distorts Choices

ABSD can push locals into less ideal investment decisions. Some Singaporeans may choose to buy properties overseas, where they face unfamiliar regulations, currency risks, and legal uncertainties. Others may turn to non-residential properties such as commercial or industrial strata units, which can be difficult to manage or lease. This can also inflate prices of office, retail, and industrial spaces, hurting small businesses.

Furthermore, many local couples currently register homes under one person’s name to avoid ABSD, instead of the joint ownership they would prefer.

Singapore works hard to attract foreign investment in many areas. However, high ABSD rates deter foreigners from buying homes here, causing the country to miss out on associated tax revenue and economic benefits.

With ABSD in place, local developers may also channel more capital overseas rather than investing in Singapore projects, due to demand suppression and strict remission clawback rules. A more vibrant domestic market could encourage them to invest more at home.

There is also a risk that the current system could lead to a future shortage of good quality private homes available for lease to foreign talent, which Singapore needs to attract for economic growth.

Prudent Safeguards Remain

Of course, removing ABSD could cause private home prices to rise sharply. However, existing cooling measures such as the Total Debt Servicing Ratio (TDSR) and Loan-to-Value (LTV) limits would continue to promote prudent borrowing and market stability.

Public Housing for All Locals

Singapore already enjoys a high homeownership rate, largely through HDB flats. Without ABSD, private homes might become even less affordable for many. To address this, abolishing ABSD could be paired with allowing all Singaporeans the opportunity to buy new HDB flats for owner-occupation.

Currently, couples exceeding the S$14,000 monthly income ceiling cannot buy new subsidised HDB flats. Expanding access, with possible clawback mechanisms on resale profits for higher-income buyers, could ensure broader access to public housing.

In essence, the private market could operate with fewer restrictions while the HDB system fully meets the housing needs of locals. Mixing residents from different socio-economic backgrounds in HDB towns also promotes social cohesion. At the same time, building well-designed, well-located HDB homes with good amenities could reduce the strong desire for private condominiums.

Although building more HDB flats is expensive, the government could offset these costs through higher revenue and economic activity from a more active, ABSD-free private housing market.

While a housing market without ABSD may seem like a fantasy today — as removing it could cause short-term price volatility — it is worth considering what a better-balanced system could look like. A freer private housing market alongside a strong and inclusive HDB segment could be both plausible and desirable for Singapore’s future.