Pay for privilege

May 22, 2023

Leslie Yee

Rich people sometimes do seemingly crazy things - splurge on fine art, premium wine, fancy cars, or a yacht - just because they can.

Maybe a wealthy foreigner will pay S$9 million in Additional Buyer’s Stamp Duty (ABSD) when buying a luxury apartment in the Orchard Road belt costing S$15 million.

Barely seven months after a round of property cooling measures were introduced, the private residential property market here was jolted by further cooling measures that see higher ABSD rates for many buyers effective Apr 27.

For example, ABSD rates for foreigners buying any homes double from 30 per cent to 60 per cent. Singapore citizens and permanent residents (PRs) buying second homes pay ABSD of 20 per cent and 30 per cent respectively, up from 17 per cent and 25 per cent respectively.

In short, foreigners and local investors have to pay more in taxes to buy safe Singapore homes, which may grow in value as the economy transforms and infrastructure improves.

Are the latest cooling measures necessary?

Minister for National Development Desmond Lee said the ABSD hikes are a “pre-emptive measure” put in place to curb the renewed interest in property investment.

The higher ABSD rates affect about 10 per cent of transactions based on 2022 data. Singapore citizens and PRs buying their first homes are unaffected - they continue to pay zero per cent and 5 per cent in ABSD respectively.

In a commentary, I note the latest measures further tilt the playing field in favour of locals buying their first private homes.

Moreover, I argue that reducing demand from foreigners and local investors may cause private home prices, which are already facing headwinds from higher interest rates and economic uncertainties, to correct. I wonder, too, if locals should give up on the idea of buying multiple homes as part of retirement planning and pursue alternatives instead.

Possibly, the sales volume of private homes will slow as the market reacts to the latest measures. Property giant City Developments Ltd postponed the preview of its Newport Residences, a 246-unit freehold luxury development at Anson Road.

Market observers see the prime residential segment, which is more reliant on foreign demand, bearing the brunt of the latest cooling measures. Also, market observers expect more muted participation by developers in sales of housing sites.

Time will tell if the highly resilient private homes market here survives the latest cooling measures unscathed. As it is, the launch of Blossoms by the Park in Buona Vista, post the cooling measures, drew a healthy response from home buyers.

Still, some property agents could feel the heat from the cooling measures. Agents who were banking on an increase in demand from China clients may be dismayed by the hefty ABSD hike for foreigners.

But, is the agency business ripe for disruption given technology is eliminating the need for the middleman in many areas? I explore in The Level Ground whether the sales commissions of property agents can be squeezed to benefit consumers.

Perhaps developers should get out of the clutches of big agencies by boldly launching new housing projects without using sales agents. Any displaced agents can contribute productively in other parts of the economy.

The latest round of property cooling measures were unveiled prior to the release of Q1 2023 real estate statistics by the Urban Redevelopment Authority (URA).

Based on URA’s data, private home prices in Q1 rose 3.3 per cent from the previous quarter and 11.4 per cent from a year ago. Landed homes posted bigger quarterly increases in prices as well as rents, compared with non-landed homes in Q1.

Meanwhile, central office rents in Q1 jumped 5.1 per cent from the previous quarter as net demand increased by 21,000 square metres in the latest quarter.

Separately, the Housing and Development Board (HDB) said prices of HDB resale flats inched up by 1 per cent quarter-on-quarter in Q1. The number of deals rose 5.8 per cent to 6,979 units in the latest quarter, from 6,597 units in Q4 2022.

Following the latest cooling measures, maybe more investor interest will shift to non-residential property.

Recently, three floors of freehold office project Solitaire on Cecil in the Central Business District (CBD) were sold for S$162.8 million or S$4,300 per square foot (psf) - a record psf price for strata office space in the CBD.

Several shophouse deals have also been struck, including 8M Real Estate’s S$29 million buy of 28 Stanley Street in the Chinatown area.

Investors eyeing real estate proxies can consider listed real estate investment trusts (Reits). Singapore’s largest Reit, CapitaLand Integrated Commercial Trust, reported an 11.3 per cent year-on-year (yoy) rise in net property income for Q1. The trust secured rental reversions of 6 per cent for its retail portfolio and 4.2 per cent for its office portfolio in Q1.

Mapletree Pan Asia Commercial Trust’s Vivo City – Singapore’s largest mall – performed well with tenant sales surpassing S$1 billion in year ended March 2023, exceeding pre-pandemic levels. However, the lacklustre performance of assets in China and Hong Kong took the shine off the trust’s full-year numbers.

Hospitality trusts posted strong numbers. Frasers Hospitality Trust’s distribution per stapled security rose 79.7 per cent yoy for its half-year ended Mar 31, 2023.

Still, listed trusts are facing higher borrowing and operating costs. Suntec Reit’s distribution per unit fell 27.4 per cent in Q1 amid higher financing costs as well as the weakening of the Australian dollar and British pound against the Singapore dollar. The trust owns commercial properties in Singapore, Australia and the United Kingdom.

Many locals love residential property, and some foreigners love Singapore homes. Do look out to see if crowds will continue thronging fancy show galleries for new homes.