Singapore imposes Additional Buyer stamp duty from 8th Dec 2011
Singapore government imposes an additional buyer stamp duty on private residential properties effective 8th Dec 2011.
Currently the stamp duty for purchasing a residential property is:
• 1% of the selling price for the first $180,000
• 2% of the selling price for the next $180,000
• 3% of the selling price for the from $360,000 onwards.
Will Luxury Condominiums targeted at foreigners to be hit by new regulation?
Will this additional stamp duty cool the private residential market?
The Additional Property Buyer stamp duty (ABSD) from 08 Dec 2011 is:
Foreigners and Corporate entities buying Residential private property have to pay an additional buyer stamp duty of
10 percent
Permanent residents (PR) owning one and buying the second and subsequent residential property will be liable to an Additional buyer stamp duty
• 3 percent
Singapore Citizens (Singaporeans) owning two and buying the third and subsequent residential property will pay an ABSD of
• 3%
Permanent Residents (PRs) owning one and buying the second and subsequent residential property will pay an ABSD of
• 3%
Singapore Citizens (Singaporeans) owning two2 and buying the third and subsequent residential property will pay an ABSD of
• 3%
Accoring to URA, Foreigners account for 19% of all Private residential property purchase in 2nd half of 2011, up from 7% in 1st Half 2009.
For joint purchases where one or more party is a PR or Foreigner, the higher additional buyer stamp duty will apply.
However For HDB property buyers| HDB Property Buyers not affected| URA clarified that HDB property buyers are not affected
The purchase of HDB properties will not be affected by this measure. Only Singaporeans and Permanent Residents are eligible to be HDB flat lessees (i.e. own a flat). Existing residential property owners who buy an HDB flat or a new unit under the Design, Build and Sell Scheme (DBSS) or the Executive Condominium (EC) Housing Scheme will not be subject to the ABSD, since the existing flat/property will have to be disposed of as part of the conditions for the purchase of the HDB/DBSS flat or EC unit.
Buying property in singapore is becoming a complicated affair.
Likely Effects of Singapore’s Additional Buyer Stamp Duty|What is the effect of the Additional Buyer Stamp Duty (ABSD)?
URA’s cooling measures makes sense for cooling inflation and may be pre-emptive against inflation in view of the large supply of M2 and M3 money in the world. However the timing is questionable given the debt crisis in Europe.
All these money supply in the world is ample and an additional 10% of stamp duty may not entirely stop them. It may simply be re-directed into other segments.
Can it reduce inflation?
What affects inflation?
[MV = PQ] = (by Irving Fisher, 1911)
Where
• M is the total dollars in a Nation’s money supply (generally the M3 or M2)
• V is the number of times per year each dollar is spent (Velocity of money)
• P is the avg. price of all the goods and services sold during the year.
• Q is the quantity of Assets, goods and services sold during the year.
When M2 or M3 rises and where Velocity and Quantity stays the same, this will lead to price increases. The rate of increase of Price is inflation.
In recent years, money supply has grown largely faster than GDP growth. What this tells you is, the money velocity is slow. People are not spending. Even in Singapore, although inflation is 5.4% in 2011, it is still fairly stable and controllable in view of looming recession in Europe.
Once Velocity of money V picks up, in order to control price rise, Quantity will have to pick up dramatically as well. Not all quantity can be ramped up quickly enough.
[M2 or M3 increase] x [V] = [P] x [Q]
Imposing a stamp duty has the effect of reducing the foreign owned portion of M2 or M3 from the Singapore property market.
This policy can reduce inflation for residential housing in the private sector. However it does nothing much for HDB, DBSS and EC housing as well as commercial properties.
Singapore Recession worries
With the European crisis still unfolding and probably getting more severe, and the property market in Singapore has cooled considerably. Is this policy really timed correctly?
Should the policy only target private properties and Not HDB?
HDB’s supply is still in short supply in terms of physical stock. (Although HDB is ramping up construction and release of land.) However, a balance of supply and demand of HDB flats is not met yet. It may take another 2 years to balance the supply and demand. (as the Minister of National development said, the housing problem won’t be solved immediately), as it is a major slip up in managing of supply and demand (property buyer’s view).
HDB pricing index will likely continue to rise into 2012 and 2013 as imbalance is gradually more balanced.
DBSS flats are also adding to the supply. Rather than rejoice, we should be cautious, as it adds a huge cost to the masses. DBSS developers buy expensive land the Singapore government and hence pass on the cost to Singaporeans and Singapore Permanent Residents via higher selling prices, acting involuntarily as the “Revenue collector” for the Singapore government.
We expect to see HDB, DBSS and Executive condominium (EC) approaching the prices of Mass Market Condominium prices. While mass market condominiums may fall in prices or volume or both for the short term, when EC prices rise, the mass market condominium prices will be supported.
In addition, the Singapore government has successfully imposed additional tax in the guise of cooling the market, thereby raising revenues and hence the salaries of the capable Singapore ministers.
Unfortunately this additional buyer stamp duty (ABSD) does not apply to HDB, Design, Build and Sell (DBSS) and Executive Condominium (EC). This ABSD affects Private property while what it should have done is to manage HDB price rises, especially the Run-away prices of DBSS flats. It’s unfortunately for Singaporeans.
Will this policy change the immigration patterns in Singapore?
Could more PR become Singaporeans so as to buy more private property (a third or more)?.
More foreigners holding employment pass will apply to become Permanent residents to qualify for buying HDB flats, leading to more housing demand pressures.
We are worried that this policy has an unintended effect of increasing the Permanent resident population, putting more Singaporeans out of reach of their first homes, especially those expatriates who are not genuinely considered Foreign Talent (FT).
Our Proposal for the regulatory changes:
If we cannot keep regulations simple, then perhaps this regulations could be considered.
To impose the following regulations on: – Proposal to Impose regulations on:
Housing Development Board Flats
- · HDB flat owner who own a Private resident property must stay in their HDB flat regardless of whether they meet the minimum occupation period (MOP) or not. (effective immediately, a grace period of 2 years will be given for HDB flat owners to move back into their HDB flats, else sell their HDBs in the open market.)
o (This frees up some vacant HDB houses and returns HDB to it’s roots of providing affordable housing and stop it from being a profit engine for some)
o We should not force this group to sell their HDBs, but at least they should not make profit from a public housing. HDB flats is not an asset, it is a roof over your heads.
• To prevent new Permanent Residents from competing in the HDB market, all Permanent Residents (PR) must wait 5 years upon attaining PR before qualifying to buy a HDB flat. (This is to prevent lower tier foreign talents from speculating in the public HDB Singapore property market).
o PRs not meeting the 5 year wait, will pay an Additional Buyer Stamp Duty of 10% on their HDB resale flats.
Proposed regulation on Private Properties
• Corporate entities who buy residential properties will pay an additional buyer stamp duty of 10% (As URA proposed)
o This should be especially applied to landed properties where it is scarce.
• All New PRs must wait 5 years before being eligible to buy a landed property.
o PRs not meeting the 5 year waiting period shall be rejected by the Land Dealings Approval Unit (LDAU), else a 15% additional buyer’s stamp duty of 15% is applied.
For Foreigners or PR purchase of private property (non landed): -
o NO additional buyer stamp duty, but
o Loan to value from Singapore banks to be reduced to 50%.
Commercial Properties
• All foreign person or entities who buy residential properties to pay an additional buyer stamp duty of 10%.
Summary of URA policy changes
The general direction of the URA policy is commendable as it recognizes the dangers of M2 money supply growth worldwide and can act as a pre-emptive strike against possible future hyper inflation. It also did the right thing in restricting Corporate entities and foreigners buying residential properties by imposing a 10% duty. However money velocity is very slow, and European debt crisis is still unfolding, the timing of this policy may not be right.
Possible side effects, this policy can encourage lower tier expatriates to become Permanent Residents (PR) to buy HDB resale flats as they cannot afford Private properties. A number of these people eventually become citizens and are thankful to the Singapore political ruling party. We cannot rule out that this policy has political implications for Singapore.
This policy does not solve the HDB affordability issue (as it does not crimp demand) as it does not stop speculation in HDBs and opens HDBs to PRs and Citizens in the same way.
If the intended thinking behind this policy is to make HDBs more affordable, then our proposed policy changes will likely be more effective.
