Effective 8th Dec 2011 – Singapore’s URA imposes additional buyer stamp duty
Singapore government imposes an additional buyer stamp duty on private residential properties effective 8th Dec 2011.
Currently the stamp duty for purchasing a residential property is:
• 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 stamp duty is being imposed to cool the RESIDENTIAL property market.
The regulation mandates the imposition of additional buyer stamp duty from 08 Dec 2011
Foreigners and Corporate entities buying Residential private property have to pay an additional buyer stamp duty of
• 10%
Permanent Residents (PRs) owning one and buying the second and subsequent residential property will pay an ABSD of
• 3 percent
Singapore citizens owning 2 and buying the third and subsequent residential property will pay an additional buyer stamp duty
• 3 percent
Permanent Residents owning 1 and buying the 2nd and subsequent residential property will pay an additional buyer stamp duty
• 3 percent
Singapore Citizens (Singaporeans) owning two2 and buying the third and subsequent residential property will pay an ABSD of
• 3 percent
Foreign purchases account for 19% of all private residential property purchases in 2H 2011, up from 7% in 1H 2009. (URA)
For joint purchases where one or more party is a PR or Foreigner, the higher additional buyer stamp duty will apply.
However For HDB property buyers| HDB Property Buyers not affected| URA clarified that HDB property buyers are not affected
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.
Likely Effects of Singapore’s Additional Buyer Stamp Duty|What is the effect of the Additional Buyer Stamp Duty (ABSD)?
We praise the URA for making this additional cooling measure. This measure will further cool the market. This cooling measure is also timely as it prevents foreign owned corporate entities from cheaply buying up private properties. There is currently a lot of Money supply in the world as the M2 money growth has often outpaced the growth of the GDP, especially since 2009 when the US has printed more money via quantitative easing. This may be a preemptive move against possible asset inflation. (Appendix 1: US M2 Money Supply and European M2 Money Supply).
What this means is, if these money is to be put to use to buy up assets, 10% of additional buyer stamp duty won’t entirely stop them from buying into Singapore properties, but only slow them down.
Inflation reduction?
Inflation is influenced by the following equation.
[MV = PQ] = (by Irving Fisher, 1911)
Where
• 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.
When M2 or M3 increase, where V and Quantity stays the same, then P increase. The rate of P’s increase is inflation.
Right now, we are seeing M2 or M3 increasing faster than GDP in many nations, while prices are fairly stable at ~5.4% (in 2011) in Singapore and production (Quantity) is rather stable, this means that V, the velocity of money has yet to pick up. In other words, people are not yet spending.
Once Velocity of money V picks up, in order to control price rise, Quantity will have to pick up dramatically as well. Not all quantity can be ramped up quickly enough.
[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.
Recession worries are real
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.
Should the policy only target private properties and Not HDB?
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).
HDB pricing index will likely continue to rise into 2012 and 2013 as imbalance is gradually more balanced.
While DBSS is being added to the supply, these Design, Build and sell housing by private developers of HDB houses lead to a even more severe rise in HDB housing prices.
DBSS developers buy expensive land from the Singapore government, add on their profit and then pass on these costs to helpless Singaporeans and Permanent citizens.
Singapore government is the ultimate winner in terms of the good price for the land.
We expect to see HDB, DBSS and Executive condominium (EC) approaching the prices of Mass Market Condominium prices. While mass market condominiums may fall in prices or volume or both for the short term, when EC prices rise, the mass market condominium prices will be supported.
In addition, the Singapore government has successfully imposed additional tax in the guise of cooling the market, thereby raising revenues and hence the salaries of the capable Singapore ministers.
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.
Will this policy change the immigration patterns in Singapore?
More Permanent residents may become Singapore Citizens so as to qualify to buy a 3rd private property, adding to the already strained infrastructure.
More foreigners holding employment pass will apply to become Permanent residents to qualify for buying HDB flats, leading to more housing demand pressures.
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>
Here is our proposal
If we cannot keep regulations simple, then perhaps this regulations could be considered.
To impose the following regulations on: – Proposal to Impose regulations on:
HDB Flats
• HDB flat owners who own a private property must stay in their HDB regardless of whether they meet the minimum occupation period (MOP), within 2 years of this announcement. Else these HDB home owners must sell their HDBs in the resale market.
o (This frees up some vacant HDB houses and returns HDB to it’s roots of providing affordable housing and stop it from being a profit engine for some)
o We should not force this group to sell their HDBs, but at least they should not make profit from a public housing. HDB flats is not an asset, it is a roof over your heads.
• 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.
Proposed regulation on Singapore Private Properties
• Corporate entities who buy residential properties will pay an additional buyer stamp duty of 10% (As URA proposed)
o
• Permanent Residents must wait 5 years after attaining PR status before they can 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 Foreigners or PR purchase of private property (non landed): -
o NO additional buyer stamp duty, but
o Loan to value from Singapore banks to be reduced to 50%.
Commercial Properties
• All foreign person or entities who buy residential properties to pay an additional buyer stamp duty of 10%.
Summary of additional buyer stamp duty
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 additional buyer stamp duty should stop speculation in HDB instead and leave the private residential property market alone.
If the intended thinking behind this policy is to make HDBs more affordable, then our proposed policy changes will likely be more effective.
