6 Effects of the Recent ABSD Hikes

The Singapore government’s recent announcement to increase the Additional Buyer’s Stamp Duty (ABSD) rates for residential properties has created some concerns and speculations on how this would impact the property market and the economy in the country.

The ABSD rates for Singaporean citizens will increase to 20% and 30% for their second and third or subsequent property purchases, respectively. Meanwhile, Permanent Residents (PRs) will see an ABSD rate increase to 30% and 35% for their second and third or subsequent property purchases, respectively.

Foreigners and entities or trusts purchasing residential properties will experience ABSD rate increases to 60% and 65%, respectively, excluding housing developers. This article will discuss the five effects of the recent ABSD rise in Singapore.

  1.  Xenophobia

Coffee Shop talk’s first reaction is simply that the effect of the ABSD rate increase is the promotion of xenophobia.

But the truth is probably a lot further away.  If anything, the converse might be closer to the truth.

However, the aim of the ABSD is to deter property speculation and ensure that housing prices remain affordable for Singaporeans. The ABSD policies are not targeted at foreigners but rather affect Singaporeans who purchase additional properties. Despite this, the ABSD policies may lead to a reduction in foreign investment in Singapore’s property market, which could have negative implications for Singapore’s economy.

2.  Investing in Other Assets

The second effect of the ABSD rate increase is that some potential property investors may invest in other assets. For example, some investors may invest indirectly in real estate through real estate investment trusts or securities of property developers.

We’ve also seen a rise in Family Office.  Check out our article on the 4 Effects of Family Offices in Singapore.

Furthermore, developers may build smaller residential units to keep the price quantum affordable, which is a method commonly used to increase the property price in terms of dollar per square foot without turning off buyers.

3.  The Rise in Commercial Real Estate 

The third effect of the ABSD rate increase is the rise in commercial real estate. Commercial real estate offers several advantages over residential real estate, including higher rental yields, longer lease terms, and lower vacancy rates.

A foreigner will buy Commercial Real Estate exactly like a Local!

Commercial real estate also provides investors with a stable income stream and a hedge against inflation. As businesses require physical spaces to operate, commercial real estate tends to be less affected by economic fluctuations than other asset classes.

A recent articles has already showed that shop house owners are already raising prices.  

The recent ABSD rate increase is likely to drive more investors towards commercial real estate, helping investors diversify their portfolios and reduce risks associated with investing solely in residential properties.

4.  Slowdown in Economic Growth due to Lowering FDI 

The fourth effect of the ABSD rate increase is a slowdown in economic growth due to the lowering of Foreign Direct Investment (FDI). Foreign investors may be discouraged from investing in residential properties due to the higher ABSD rates, but this may lead to increased interest in commercial properties, as discussed earlier.

Commercial properties have lower ABSD rates, making them a more attractive option for foreign investors. Singapore remains an attractive destination for foreign investment due to its political stability, strong economic fundamentals, and business-friendly policies.

However, the higher ABSD rates may reduce FDI in Singapore, which may impact the broader economy negatively.

5.   Impact on the Rental Market and Supply

The fifth effect of the ABSD rate increase is the impact on the private rental market and the supply of housing. The number of homes bought for rental income may reduce in the long run, further impacting the private rental market.

When the volume is low, and purchase sentiment declines, supply in the market may also decrease as sellers and developers withhold their sales and wait for a better opportunity to sell, leading to stable home prices.

The ABSD rate hikes will also dampen bids from developers for sites, particularly for prime Districts 9,10, and 11 sites, where the new launches typically target a higher percentage of foreign buyers who are most impacted by the higher ABSD. This strategy could further increase the price

6.  Potential for Collective Sales

The rise in ABSD rates may also have implications for collective sales in Singapore.

Collective sales involve a group of property owners selling their properties jointly, often to a developer, who may redevelop the site into a new development.

However, the ABSD rates may deter developers from participating in collective sales, as the higher ABSD rates could make the purchase price too high.

The Conundrum:  Will Property Prices still go up? 

Moreover, the ABSD rate adjustments could also discourage property owners from selling their properties, as they may need to pay a higher stamp duty if they purchase a new property.

This could lead to a decrease in the supply of properties in the market, potentially driving up prices in the long run.

On the other hand, some property owners may be more motivated to sell their properties in a collective sale in the current market environment, as they may be concerned about future ABSD rate hikes or further cooling measures.

This could result in an increase in collective sales activity in the short run.

 

Conclusion

The recent changes to the ABSD rates for residential properties in Singapore have a wide range of impacts on the real estate market, the economy, and society.

While the changes aim to cool down investment demand and ensure that housing prices remain affordable for Singaporeans, they also have implications for foreign investment, collective sales, and the commercial real estate market.

It remains to be seen how these changes will play out in the coming months and years, and the government may need to consider further measures to mitigate any potential negative impacts on the economy and society.

Ultimately, it is crucial to strike a balance between protecting the interests of Singaporeans and maintaining Singapore’s position as a global hub for investment and talent.

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