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In a surprising move aimed at cooling the housing market, Singapore has raised taxes on private property purchases, particularly targeting foreign buyers. The tax increase includes a doubling of stamp duties for foreigners, reaching a significant 60%. Singapore's real estate market has long been a favoured investment destination for wealthy foreigners, particularly from mainland China. However, the government aims to ensure housing affordability for locals and maintain a balance with economic fundamentals.
The additional buyer's stamp duty (ABSD) for Singapore citizens and permanent residents will also face increases, albeit smaller ones and only for second and subsequent property purchases. The ABSD for Singaporeans' second home purchases will rise from 17% to 20%, while for subsequent properties, it will increase from 25% to 30%. Permanent residents, on the other hand, will experience a 5-percentage-point increase in ABSD, reaching 30% for their second property purchase and 35% for subsequent properties.
These measures are part of the government's effort to curb rising property prices, which showed renewed signs of acceleration. The authorities expressed concerns that if left unchecked, prices could surpass economic fundamentals, risking a sustained increase relative to incomes. To address this issue, the government has implemented multiple rounds of cooling measures in recent years. The latest increase in stamp duties follows the government's acknowledgment of a buoyant market and the impact of COVID-19 on the economy.
The government expects the stamp duty changes to affect approximately 10% of residential property transactions, based on last year's data. While foreign buyers make up a small proportion of overall property sales, the government's concern lies in ensuring housing affordability for locals, as high prices can lead to locals being priced out of the market. Moreover, there is a growing worry that exorbitant property prices could potentially undermine Singapore's attractiveness as an international financial centre.
Singapore's property market has experienced steady price and rent increases over the years. These upward trends have been attributed to construction delays caused by COVID-19 disruptions, along with the city-state's stability and favourable tax environment. However, the government's decision to raise property taxes indicates its commitment to maintaining a balanced and affordable housing market.
Luxury real estate agents and analysts have expressed mixed views regarding the impact of these measures. Some believe that the very top end of buyers, particularly those who have obtained permanent residency from mainland China, Hong Kong, and Taiwan, may not be significantly affected. However, others have been caught off guard by the announcement, feeling that the measure is more of a freezing action rather than a genuine cooling measure.
The market reaction to the tax increase has been notable, with shares of Singapore property developers, including City Developments and UOL, experiencing significant declines. Citigroup described the latest measures as "draconian" and predicted a temporary negative response. However, it remains to be seen how the market will stabilize and adapt to the new tax regime.
In summary, Singapore's decision to raise property taxes, particularly for foreign buyers, aims to cool the housing market and ensure housing affordability for locals. The government is taking pre-emptive measures to prevent property prices from outpacing economic fundamentals. While the impact on the very wealthy may be limited, the government's actions reflect its commitment to maintaining a balanced and sustainable real estate market. The market's response and the long-term effects of these tax increases remain to be seen.
This story was first published in Financial Times Asia
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