More wealth may turn to Singapore commercial real estate on ABSD hikes

But high-net-worth-investors won’t completely shun buying homes here, market watchers say

May 07, 2023

MORE high-net-worth wealth could be headed for commercial real estate assets in Singapore, as investors recalibrate portfolios following the government’s hike in Additional Buyer’s Stamp Duty (ABSD) rates for residential property.

Even so, market watchers say, high-net-worth investors (HNWIs) and family offices may not be deterred by the 60 per cent ABSD – double the previous 30 per cent rate – that foreigners now have to pay for any residential property purchase. Stamp duty rates were raised on Apr 26 in an intervention aimed at curbing investment buying in residential property and reining in rising prices. Commercial property is not subject to any ABSD.

The high-end residential market, in which HNWIs typically park money, may see a pause. But wealthy foreigners who have chosen to relocate here will continue to look for homes, analysts said.

Others may defer their buying until they obtain permanent residency or citizenship, noted Savills Singapore chief executive officer Marcus Loo. The property purchase of a permanent resident or Singapore citizen would be subject to relatively much lower ABSD.

The shophouse sector, a market that had heated up in the past five years, is already turning more active, said Richard Tan, PropNex senior associate group district director who oversees shophouse sales at the agency.

Since the new ABSD regime was announced, Tan and his team have closed four shophouse deals at prices ranging from S$10 million to more than S$20 million.

One 999-year leasehold shophouse in Singapore’s central business district (CBD) was sold to a local company for more than S$4,000 per square foot (psf). The other three deals include a 99-year leasehold shophouse in Little India, one in Orchard with a 999-year leasehold tenure, and one freehold unit in the East Coast.

Tan also saw an uptick in calls from agents and buyers inquiring about shophouses in the last week. Many shophouses sit on 999-year leasehold or freehold land, and supply is limited, with around 6,700 units in the whole of Singapore and less than 1,200 in the CBD, added Tan.

In Tan’s experience, around 50 per cent of buyers are HNWI or family offices from Hong Kong, Malaysia, Indonesia, the Philippines and mainland China. “They generally don’t take loans, paying the full amount in cash,” he noted.

CBRE head of research for South-east Asia Tricia Song highlighted that interest in strata-titled offices has been surging in recent months.

“We have seen renewed interest in strata offices, since the sharp interest-rate hikes reduced institutional investment activities in H2 2022, while cash-flush individuals or families are still able to pick up high-quality strata office units,” she said.

Notable transactions in Q1 2023 include five floors of strata-titled units at upcoming freehold office project Solitaire on Cecil, sold to HNWI and family offices at prices ranging from S$3,865 psf to S$4,325 psft, said Tay Huey Ying, JLL head of research and consultancy.

Tay predicts that interest will remain strong following the ABSD adjustments. This is mainly due to the “constricted future supply” of such properties, she said, after the government barred in March 2022 the commercial components in properties located in prime areas in the CBD from being strata subdivided into individual units.

The hotel sector, too, has been stirring. Knight Frank Singapore’s head of private office Nicholas Keong pointed to interest in boutique hospitality assets rising on the recent rebound in travel and tourism.

Figures from the Singapore Tourism Board showed that tourist arrivals grew in January to a new high of 931,530 since the onset of the pandemic. An estimated 12 to 14 million visitors are anticipated to bring in S$18 billion to S$21 billion in tourism receipts – around two-third to three-quarters of 2019 levels.

“This is not quite a direct result of the ABSD hike… There’s a momentary pause in the residential sector, so buyers naturally turn to the non-residential sector,” said Keong.

JLL head of residential research, research and consultancy Chia Siew Chuin noted that family offices typically invest across various segments of Singapore’s real estate market.

“With the higher ABSD, some family offices could see impetus in diversifying into non-residential property investments or other favoured non-property investments, such as private equity and venture capital, but are unlikely to totally disregard real estate,” she said.

Those who are resolute in relocating or setting up family offices here would continue to do so, since other considerations could outweigh the costs, she added.

Some might seek to obtain permanent residency or citizenship from countries that are accorded the same stamp duty treatment as Singapore citizens under various free trade agreements, she said. These countries include the United States, Iceland, Liechtenstein, Norway and Switzerland.

Whether investors remain in the residential sector depends also on their broad investment mandates and allocation, noted Lam Chern Woon, Edmund Tie’s head of research and consulting.

“If the residential asset fits their legacy and diversification requirements, some may still choose to bite the bullet and hold it as a safe store of value,” he said.

Based on a net yield of 3 per cent from the property, CBRE’s Song noted that it will take investors 10 years to recover the additional 30-percentage-point increase in ABSD, and up to 20 years compared to non-foreigners.

But investors who view Singapore as a safe haven with long-term capital appreciation in mind might see the 60 per cent ABSD as a “palatable premium to pay for safety and peace of mind”, she added.

Still, Savills’ Loo said the 60 per cent ABSD has “heavily impacted” clients’ decisions in purchasing residential properties.

“Extremely wealthy people may not bat an eyelid even if they have to fork out such a significant tax liability, but many have expressed it is absurd and making a mockery out of them,” he said.

Loo pointed to the balance between protecting local residents’ property ownership aspirations and attracting foreign capital.

“Over the years, we cannot deny the fact that Singapore requires foreign talent at multiple levels,” he said. “The doubling of ABSD to 60 per cent is akin to saying ‘foreign capital is not welcome here’. Will foreigners now look at other cities that rank above Singapore in terms of liveability to park their capital?”

In the Economist Intelligence Unit’s latest Global Liveability Index – which assesses key indicators such as stability, infrastructure, legal framework, the healthcare system and opportunities for culture and entertainment – Singapore’s ranking had slipped to 37th in 2022, from 34th in the previous year.

On the home front, analysts noted that the higher stamp duties may not change the behaviour of local buyers significantly.

For one, Singaporean investors are unlikely to be affected by the ABSD revision – of 20 per cent from 17 per cent – since most are buying their first residential property after “decoupling”, said PropNex chief executive officer Ismail Gafoor.

This is when one co-owner of a property transfers their share in the property to the other co-owner. The outgoing owner would then be eligible to buy a second home without having to pay ABSD on the new purchase.

“It is also possible that for investors who are prepared to pay the 17 per cent ABSD, the increase... may not be a big leap and would not deter them from buying,” he said.

Keong from Knight Frank added that the residential sector is one most local investors understand best. It has performed well historically and is also more accessible to the masses, he said.

Edmund Tie’s Lam said the impact (of the higher ABSD rates) on average annual returns from housing investments is “considerably limited” for local investors taking an “adequately long horizon”.

“The investment case for mass market properties has also strengthened from a long-term capital appreciation perspective, as (they appeal) largely to owner-occupiers who are not impacted by the recent hikes,” he said.

“Most locals and permanent resident investors are thus likely to continue with their investment plans, although some might choose to wait on the sidelines to see how the market unfolds.”

Even so, Loo from Savills pointed out that some local investors are now venturing abroad, with Savills seeing more inquiries from Singaporeans looking to buy a second home in London.

Based on the cost of buying and holding a S$2 million property for use as a second home over a five-year period, London now ranks 14th among other global cities, based on a Savills report issued on the increase in stamp duty. This makes London more attractive for owning a second home than Singapore, Hong Kong, New York, Madrid, Berlin and Tokyo.

https://www.businesstimes.com.sg/pro...ate-absd-hikes