Singapore's ABSD rate hike: The winners and the losers

Singapore increased the ABSD for all residential statuses by 3% to 30%.

Real estate experts are calling the recent Additional Buyer Stamp Duties (ABSD) rate hike "punitive," having more negative than positive impact on the property market.

Christine Sun, OrangeTee's senior vice president of research & analytics, even said that the government's cooling measures have already turned to "freezing measures" at this point, especially for foreign buyers.

The losers

The government increased ABSD for foreigners to 60%, double the previous rate of 30%. 

"With the ABSD rate adjustments, we can expect purchases of (foreigners) to drop further. Foreigners tend to buy condos in the CCR (Core Central Region) or luxury segment," Sun said.

"Therefore, luxury home sales may experience more impact and a temporary pullback in demand from these buyers," Sun added.

Catherine He, head of research at Colliers, echoed this: "These measures would also have the greatest impact on CCR projects and the luxury segment, where investors and foreigners are most active."

"There is likely to be more muted bidding for upcoming GLS sites, especially those in the CCR and RCR, such as the Marina Gardens Lane and Jalan Tembusu sites...It might be harder for some collective sales to go through, as it would be more costly for some owners, especially foreigners to get a replacement property," He added.

Mohan Sandrasegeran, senior analyst at One Global Group, said the rate hike will "inevitably lead to a slowdown in foreign demand, which will have a knock-on effect on the overall demand for properties,"

Colliers' He had a similar sentiment, adding that sales volumes will likely fall.

"There will be some knee-jerk reactions which may see volumes falling over the next few months. Price gains may also slow down when demand contracts," Sun commented.

The hike is also likely to affect investment demand in Singapore.

"The hike in the ABSD rates will undoubtedly curtail investment demand, which accounted for 10% of property transactions in 2022. Foreigners, who are slapped with a doubling of ABSD rates (from 30% to 60%), accounted for about 5% of property transactions last year, and will bear the brunt of the latest measure," Lam Chern Woon, head of Research & Consulting at EDMUND TIE, said.

"The consequent negative impact on demand will be felt most keenly for homes in the prime segments with a higher traditional foreign interest. Investment demand by Singaporeans and foreigners will also moderate to some extent, given the more palatable 3-5 percentage points hike in ABSD rates," Lam added.

Sun also warned that the hike may eventually affect Singapore's competitiveness as an investment hub.

"Some foreign investors and super-rich may divert their wealth to other countries, especially since our currency is already very strong. Moreover, the increase in ABSD will reduce investment demand. In the long run, the number of homes bought for rental income may reduce, further impacting the private rental market," Sun said.

"However, other asset classes may benefit as investors may divert their money to non-residential investments," she added.

Sandrasegeran said foreign homebuyers might divert their attention to other countries with more favourable policies and market conditions, such as the UK and
Australia.

In terms of property types,  Lee Sze Teck, senior director for research at Huttons, said interest may flow over to the commercial, industrial and shophouse sectors as they are not subject to ABSD. 

The winners

Since foreigners will have to pay more to buy properties in Singapore, experts believe they will choose to rent instead.

"Foreigners are likely to rent for the moment while they apply for their permanent residency or citizenship. Anecdotally there are foreigners who rent with an option to purchase the home once they become PR or citizens. The rental market will pick up in the coming months and rents are estimated to grow around 10% in 2023," said Lee.

As foreigners opt to rent, Lee said the rental and EC markets are likely to see more demand after the hike.

"It is getting too expensive for Singaporean buyers to buy a second home. Hence most of them are likely to sell off their first property and rent in the interim.  For example, HDB upgraders buying a $1.5 million private residential property will have to pay 20% or $300,000 in ABSD. If they were to rent an HDB flat for $40,000/year for 4 years, this works out to $160,000 in rent paid and a savings of $140,000," Lee said.

"ECs have become even more attractive as they are given upfront remission on ABSD. The upcoming EC, Altura along Bukit Batok West Ave 8 may see overwhelming interest. This may also push developers to bid for the EC sites at Tengah Plantation Loop and Tampines Street 62 (Parcel B)," Lee added.

Lee said the HDB resale market will also likely see an increase in the supply of flats for sale if upgraders choose to sell before buying their next home. 

"This increase may moderate prices in HDB resale flats. The HDB resale market is likely to trend towards stabilisation and see not more than a 5% increase in 2023. HDB resale flat transactions are estimated to be in the range of 24,000 to 26,000 in 2023," Lee said.