<h1> Foreigners and expats in Singapore to pay additional stamp duty for Singapore properties </h1>
Urban redevelopment authority, a statutory board of Ministry of National Development – Singapore announced an additional Buyer’s stamp duty (ABSD) to curb speculation on the 7th Dec 2011 and with effect from 8th Dec 2011.
<b>Currently the stamp duty for purchasing a residential property is: -</b>
• 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?
Additional property buyer stamp duty, can it cool the Residential Singapore property market?
<b> The regulation mandates the imposition of additional buyer stamp duty from 08 Dec 2011 -</b>
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
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Singapore Citizens (Singaporeans) owning two and buying the third and subsequent residential property will pay an ABSD of
• 3 percent
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Permanent Residents (PRs) owning one and buying the second and subsequent residential property will pay an ABSD of
• 3%
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Singapore Citizens (Singaporeans) owning two2 and buying the third and subsequent residential property will pay an ABSD of
• 3 percent
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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.
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For joint purchases where one or more party is a PR or Foreigner, the higher additional buyer stamp duty will apply.
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<h2> HDB Property Buyers not affected URA clarified that HDB property buyers are not affected</h2>
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Buyers for HDB properties are not affected by Additional Buyer stamp duty. Only Singaporeans and PR are eligible to buy a HDB flat. Someone buying into HDB flat or a new unit under the DBSS or EC will not be subjected to Additional buyer stamp duty since they will have dispose of their current property as part of the conditions for the purchase of the HDB, DBSS or EC units.
Buying property in singapore is becoming a complicated affair.
<h2>Likely Effects of Singapore’s Additional Buyer Stamp DutyWhat is the effect of the Additional Buyer Stamp Duty (ABSD)?</h2>
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.
Inflation reduction?
<b> What affects inflation? </b>
MV = PQ = (by Irving Fisher, 1911)
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Where
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• 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.
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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.
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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.
However there is risk as money supply is ample. Once there is light at the end of the tunnel, confidence returns, velocity of money will pick up. And at that time, the Quantity (Supply) will have to pick quickly to control price rises. As far as property is concerned, the lead time to complete a unit is 2 to 4 years and this will lead to imbalance in prices.
M2 or M3 increase x V = P x Q
So by taking out Foreign M2, M3 as well as M2 in Singapore attributed to foreign ownership by imposing a 10% Additional buyer stamp duty, Singapore has effectively reduced the M2, M3 money supply from the 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.
<h2>Recession worries are real</h2>
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Now, with the European debt crisis looming, we wonder whether this is the right time to impose such a regulatory measure. After all the property market has already cooled dramatically. Moreover, this policy hurts the mid tier private property markets and entry level luxury more.
<h2> Is the policy right in targeting only Private residential and not HDB?</h2>
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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).
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HDB pricing index will likely continue to rise into 2012 and 2013 as imbalance is gradually more balanced.
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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.
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Spill over may soon be seen in Executive Condominium (EC) with some ECs approaching prices of Mass Market condominium prices. This supports the prices of mass market condominium to be launched in large volumes.
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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.
<h2>Will this policy lead to massive increase in population?</h2>
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More Permanent residents may become Singapore Citizens so as to qualify to buy a 3rd private property, adding to the already strained infrastructure.
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More foreigners holding employment pass will apply to become Permanent residents to qualify for buying HDB flats, leading to more housing demand pressures.
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We are worried that this policy is aimed at MASSIVELY increasing Singapore’s resident population (Citizens as well as PRs) at the lower end of the salary scale. <br>
<h2>Here is our proposal</h2>
If we cannot keep regulations simple, then perhaps this regulations could be considered.
<b>To impose the following regulations on: – Proposal to Impose regulations on: -</b>
<b>Housing Development Board Flats</b>
- · 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 stops existing HDB home owner from owning a HDB and staying elsewhere and making money by renting out their HDB flats.
o No force to be applied to them to sell their HDB flats, but they cannot make money via renting out their HDB flats while owning other Private residential properties and staying in private residential properties.
• 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.
<b>Proposed regulation on Singapore Private Properties</b>
• Corporate entities who buy residential properties will pay an additional buyer stamp duty of 10% (NO change)
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• 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 Foreigner purchase of private property
o NO additional buyer stamp duty, but
o Loan to value from Singapore banks to be reduced to 50%.
Commercial Properties
• Apply the additional property buyer stamp duty of 10% on Foreigners buying commercial properties.
<h2>Summary of URA policy changes</h2>
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.
This policy seems like another political knee jerk reaction, while it hides dangerous and possible side effects of massively increasing the Singapore Citizen population and PR population through lower tier foreigners.
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 it is the intention to cool the property market by additional buyer stamp duty, then our proposed policies will work better as it potentially frees up HDB flats into the market and at the same time blocks demand from PR for HDB resale flat in the short term, easing pressures on HDB flats prices.