China Solutions

Singapore’s Latest Cooling Measures: An Opportunity for Foreign Developers

March 24, 2024

Just minutes before midnight on April 26, the Singapore government announced a fresh round of cooling measures to “promote a sustainable property market”, the third round of such moves in the past 16 months.

Buyers of their second or more residential properties now must fork out more for the Additional Buyer’s Stamp Duty (ABSD). Singapore citizens buying their second residential property will now have to pay 20 per cent in ABSD, up from 17 per cent previously; for their third and subsequent property, ABSD is now at 30 percent, up from 25 per cent previously.

Foreigners eyeing residential property in Singapore were the most affected by the news. The ABSD rate for this group was doubled from 30 per cent to a whopping 60 percent. For a $2 million condo, this would mean paying an additional $1.2million.

Impact on Buyers

The increase in ABSD will likely have a dampening effect on the market, said National Development Minister Desmond Lee, as local investors are “very sensitive” to these adjustments compared to their overseas counterparts. This adds to other challenges Singaporean homebuyers face, including increasing interest rates, which result in more expensive home and renovation loans.

According to Bloomberg, Singapore now has the highest property tax rate for foreign buyers among major global markets, making London and New York “look cheap”. For reference, $12 million in ABSD paid for a $20 million home here could purchase a luxury home elsewhere.

“Foreign purchasers will be deterred from buying as they are the worst hit,” said Dr Tan Tee Khoon, country manager for Singapore at PropertyGuru, adding that smaller units and the Core Central Region (CCR)market could see slower sales.

This may change in the long term, according to Winston Lee, Director of Special Projects at PropertyGuru. He said that foreigners who are truly interested in living among Singapore's high-net-worth individuals may consider renting a home or applying for Permanent Residency to avoid the increased ABSD rates.

Buyers, whether local or foreign, may thus be driven away from the Singapore market toother markets.

Opportunities for Developers

But while the demand for Singapore property is likely to cool, the love affair that Singaporeans have with property is unlikely to continue unabated.

There has been a growing trend of Singaporeans purchasing units in major cities like London, New York, Los Angeles, Perth and Melbourne for their children’s education in these places, or as holiday homes.

There is also increased attention to markets closer to home – in Malaysia, for example. Observers have noted an uptick in interest in properties up north, with factors such as proximity, planned transport infrastructure and value playing a big role.

PropertyGuru’s Consumer Sentiment Study in 2020 showed that nearly 40 per cent of Singaporeans surveyed indicated plans to purchase overseas homes in the short-term. Besides Australia and Malaysia, Thailand was also a popular choice. Bangkok’s steady property prices have lent it a reputation as a safe option, and beachfront villas on the Kingdom’s islands also have a strong appeal as holiday home investments.

The interest in foreign properties is partly due to the rising sophistication of Singaporean property investors but the rising trend has also coincided with the timing of the uptick in cooling measures.

Obstacles

There is a ready pool of high-net-worth consumers here with more reason to take the plunge overseas due to the latest cooling measures. Opportunities abound for foreign developers, said Lee.

"The recent cooling measures implemented in Singapore may lead to a decrease in demand for local properties, but they could also provide foreign developers with a chance to tap into the country's pool of well-capitalised and discerning investors," he said.

So what is stopping foreign developers from tapping this customer base to market overseas developments? As with any overseas expansion, getting a foothold into the market is the most crucial step. In particular, building brand awareness is important to grow trust among buyers.

This is especially critical since buying a property overseas is a big financial decision. Buyers will want and need to trust the brand before investing a chunk of their funds in it.

Another consideration is simply that Singaporeans may not be fully aware of the potential of the development. While Singaporeans may be familiar with London’s Kensington or Bangkok’s Sukhumvit, many may not know about Hanoi’s Nam Tu Liem.

Whether itis a lack of familiarity with local regulations or limited access to consumers here, it can be challenging for developers to make headway in the Singapore market.

To overcome these challenges, developers should consider partnering with local real estate agents as a gateway to consumers in Singapore or taking part in events such as the Invest Asia Property Show. The two-day trade show in July will offer developers a chance to showcase projects to potential buyers as well as learn more about topics such as property market outlook and real estate tax.

Tying up with trusted brands such as PropertyGuru will also go a long way to reassure investors that investing overseas can be both an exciting and enriching experience.

Now is The Time

With demand in Singapore homes expected to taper with the introduction of the higher ABSD, both local and foreign property investors are expected to direct their funds elsewhere. Whether they are well-heeled Singaporeans or expatriates, the search is on for the next property gem to add as a holiday home or boost the portfolio.

This- presents a unique opportunity for developers, especially those with projects in Southeast Asia, to market their properties to an eager, well-capitalised, and sophisticated group of investors.

Interested to reach Singapore-based investors with your projects? Be part of our upcoming Invest Asia Property Show, get in touch to find out more.

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