Published October 29, 2012

ABSD reins in foreigners' foray into private homes

Non-PRs' share of market plunges; Singaporeans' jump, PRs' up slightly

By Kalpana Rashiwala

[SINGAPORE] The introduction of the additional buyer's stamp duty (ABSD) last December has had its intended effect of shrinking non-permanent resident foreigners' share of total private-home purchases in the first three quarters of this year.

Conversely, Singaporeans have seen a 10.6-percentage point jump in their share of the home-buying pie. PRs' share has risen slightly.

According to Knight Frank's analysis of URA Realis caveats data, foreigners who were not Singapore PRs accounted for just 6.2 per cent of the 23,312 caveats lodged for private homes excluding executive condos in the first nine months - down from their 17.5 per cent share in full-year 2011. In 2010, they accounted for 11.9 per cent of home purchases.

PRs' share has risen slightly in Jan-Sept this year to 15.6 per cent from 13.4 per cent in 2011 and 13.1 per cent in 2010. PRs pay 3 per cent ABSD when buying their second and subsequent residential property here.

For non-PR foreigners, a 10 per cent ABSD rate is payable on all residential property purchases. The same applies to companies.

Singapore citizens also foot 3 per cent ABSD, but only on their third and subsequent residential property. Between January and September this year, they bought 77.4 per cent of private homes transacted, a significant increase from their 66.8 per cent share in 2011 and also surpassing their 72.1 per cent share in 2010.

Knight Frank's analysis also showed that companies picked up just 0.8 per cent of private homes sold in the first three quarters of this year - down from 2.3 per cent in 2011 and 2.8 per cent in 2010.

Commenting on the findings, International Property Advisor CEO Ku Swee Yong said: "The ABSD is doing its job." He also noted that following its introduction, some developers held back launches of luxury residential projects and that may also have led to the thinning in foreign buying this year.

Mr Ku argues that, with the 10 per cent ABSD, the numbers often don't stack up in terms of investing in Singapore property even for foreigners with deep pockets.

"I had a foreigner who told me that paying an additional 10 per cent on the price is equivalent to renting a luxury property, where rental yields are around 2 per cent, for five years. So he continued to rent a GCB instead of buying a luxury condo. He's in Singapore most of the time."

BT Weekend reported recently that in the Sentosa Cove upscale waterfront housing district - the only place in Singapore where non-PR foreigners may buy a landed home, albeit with government approval - some prospective buyers have asked sellers for long option periods of several months in the hope of becoming a Singapore PR and thus qualifying for the lower 3 per cent ABSD rate. Or they would not even have to pay any ABSD if they don't own any other existing residential property here.

Looking ahead, IPA's Mr Ku hopes that the ABSD will soon be terminated by the authorities "now that it has done its job", or at least the 10 per cent ABSD rate for non-PR foreigners will be trimmed to 3 per cent, in sync with the rate for PRs and Singaporeans.

However, Knight Frank chairman Tan Tiong Cheng reckons that the authorities are unlikely to head this way anytime soon as the original intention of introducing ABSD - to prevent runaway housing prices by curbing foreign buying driven by the large pool of external liquidity - still remains today.

"Interest rates are still low and, with QE3, liquidity has increased. Moreover, Singapore remains an attractive safe-haven for foreigners, at least for now," he added. "So unless an oversupply situation develops or the property market goes into a slump, I don't think the Government will be in a hurry to remove ABSD."

He also argues that for foreign buyers who believe in Singapore's mid-term prospects, ABSD will not be a deal breaker.

Knight Frank's analysis, which was based on URA Realis data downloaded on Oct 19, showed that 6,881 caveats were lodged for private home purchases in Q3 2012, down 28.9 per cent from 9,676 in the preceding quarter and 9.1 per cent lower than the 7,566 in Q3 last year. The final figure for Q3 2012 is expected to be higher as more caveats stream in over the next few weeks.

Singaporeans acquired 5,190 homes in July-Sept 2012, down 31.3 per cent Q-on-Q but up 5.1 per cent y-on-y. PRs bought 1,159 units in Q3, down 19.2 per cent quarter on quarter but up 12.4 per cent y-on-y. As for non-PR foreigners, the 451 units they acquired in Q3 is down 29.6 per cent q-on-q. It was also just about 32 per cent of the 1,415 units they bought in Q3 last year.

Non-PR foreigners' share of private home purchases was 6.6 per cent in Q3, unchanged from the preceding quarter. As for PRs, their contribution to the home-buying pie rose from 14.8 per cent in Q2 to 16.8 per cent in Q3.

Singaporeans' share fell from 78 per cent to 75.4 per cent. Companies' share rose from 0.5 per cent to 1.2 per cent.