Private residential properties are seen near Orchard Road in Singapore on April 13. The government’s efforts to rein in speculative demand would be more effective if numerous tax loopholes were closed. Photo: Reuters
Opinion
The View
by Nicholas Spiro
The View
by Nicholas Spiro
Why Singapore’s targeting of foreigners to cool property market makes no sense
Until recently, Singapore had chosen a more judicious approach and rejected draconian measures taken by countries like New Zealand and Canada
Singapore is now on board, though, with stamp duty for foreigners buying property doubling to 60 per cent – even though locals are driving the price surge
Singapore’s attempts to cool its residential property market are a recurring theme in Asian housing policy. In recent years, they have taken on added significance as governments around the world move to address mounting concerns about affordability.
Some countries have resorted to draconian and indiscriminate measures. In 2018, New Zealand prohibited most foreigners from buying existing properties unless they had secured the approval of the nation’s Overseas Investment Office. Canada announced a similar ban last year – albeit for a two-year period and with more exemptions – that caused such confusion the government was forced to clarify that it did not apply to commercial real estate.
Until recently, Singapore had taken a more judicious approach. Rather than singling out foreigners, the government targeted sources of speculative demand regardless of their origin.
In December 2021, additional stamp duties for Singaporean citizens and permanent residents buying second homes were raised to 17 per cent and 25 per cent respectively. Rates for purchasing third and subsequent homes were increased to between 25 and 30 per cent. Non-residents, meanwhile, were charged 30 per cent for their first and subsequent purchases.
However, the latest round of cooling measures, introduced on April 26, penalise foreigners much more severely. While additional stamp duties for Singaporean citizens and permanent residents buying second and subsequent homes were increased modestly, the rate for foreigners buying any residential property was doubled to a staggering 60 per cent.
01:37
Singapore government doubles residential property tax for foreigners to 60 per cent
Singapore government doubles residential property tax for foreigners to 60 per cent
Even Singapore’s property market, which has grown accustomed to successive attempts by the government to take the heat out of the housing market, was taken aback by the harshness of the measures. Real estate agency OrangeTee & Tie said “cooling measures have turned into ‘freezing measures’ for foreign buyers”.
In a report published on April 27, Nicholas Mak, chief research officer at property portal MOGUL.sg, questioned whether the government had overreacted. “Do foreign property buyers exert such a powerful influence on our local market that they should be feared as the ancient Romans feared the ‘barbarians at the gate’?” he asked.
There is certainly cause for concern. Prices for private residential properties in the city state rose 3.3 per cent in the first quarter of this year to an all-time high, having surged nearly 20 per cent in 2021-22. Moreover, the proportion of foreign purchases hit a five-year high, with the share of luxury flats bought by non-residents in Singapore’s core central region reaching 15.5 per cent, up from 7.8 per cent two years ago, according to data from OrangeTee & Tie.
Mainland Chinese buyers – both foreign nationals and those with permanent residency – were far and away the largest group of non-resident purchasers, fuelling concerns that China’s reopening will accelerate the influx of Chinese money pouring into Singapore because of its safe haven appeal.
Yet, for all the headlines they grab, purchases of Singapore properties by mainland Chinese buyers contribute comparatively little to demand. This is particularly true for the investment demand the government says it wants to pre-emptively dampen to “prioritise housing for locals buying for owner-occupation”.
In the past 18 months, foreigners accounted for just over 5 per cent of purchases of private non-landed properties – flats and condominiums foreigners can buy without restrictions and which account for the bulk of private sales – compared with shares of 77 per cent and 18 per cent for Singaporean citizens and permanent residents respectively, according to data from MOGUL.sg.
Even the high-end market is dominated by locals, who accounted for about two-thirds of sales worth between S$5 million and S$10 million (US$3.7 million and US$7.4 million), and more than half of sales worth more than S$10 million, according to data from OrangeTee & Tie.
“Singaporeans are the driving force behind the surge in house prices,” Mak said. The sharpest increase in prices, moreover, has been in fringe and suburban locations, areas where foreigners are less likely to buy. Between 2013 and 2022, prices in the core central region rose just 3.6 per cent compared with 32.2 per cent in the rest of central region and 37.3 per cent in the outside central region, according to Cushman & Wakefield.
A two-storey property with a pool in Singapore. Even the high-end market is dominated by local buyers. Photo: EdgeProp Singapore
The government’s efforts to rein in speculative demand would be more effective if numerous tax loopholes were closed. One is “decoupling”, when one partner of a married couple who jointly own a property sells their share to the other, allowing the first partner to buy another home at a stamp duty rate close to zero.
By continuing to raise taxes for purchases of second or subsequent properties, the government is increasing the incentive to evade the levy, helping sustain investment demand. Mak said the tax regime in Singapore’s residential property market had reached a point of “diminishing returns”.
Fortunately for Singapore, 80 per cent of residents live in public housing, 90 per cent of whom own their flats. Moreover, efforts to stabilise prices also include measures to ramp up supply following pandemic-induced delays in completions. The government expects 40,400 private units to be delivered between 2023 and 2025, twice the number in the past three years. This should help restrain the growth in prices, which is already showing signs of slowing.
Still, it is a pity that Singapore, which had previously taken a more sensible approach to curbing speculative demand, is disproportionately targeting foreigners despite knowing full well that domestic buyers have a much stronger impact on prices. Singapore’s property cooling measures need a rethink.
