Impact of latest 2023 ABSD on property market

Impact of latest 2023 ABSD on property market

Table of Contents

Introduction

With the latest April 2023 ABSD increase announcement, there have already been 16 rounds of cooling measures implemented by the government since 2009.

As a property owner or a prospective home buyer, it is only natural that you would want to seek clarity on how the property market reacts.

For owners with plans on selling your property, your consideration would be finding the right time to start marketing your property with hope of securing an optimal sale price.

Where else for prospective buyers you would be looking to buy into potential price dips as cooling measures dampens buyer sentiments, resulting in lower asking prices.

Objective

In this article, we will focus on discussing the potential impact of the latest April 2023 ABSD increase on the property market moving forward.

To provide meaningful insights, we will segment our analysis into two sections. In the first section, we will discuss the effect of cooling measures on the broader property market prices.

In the second section, we will dive into which segment of the market will be most impacted by the latest ABSD announcement.

What is ABSD and Cooling Measure ?

To set the context, let’s quickly establish what is ABSD and what are government cooling measures.

Additional buyer stamp duty (ABSD) is a tax levied on top of the usual buyer stamp duty (BSD) when a property is being purchased. In short, when you purchase a property you would have to pay both BSD and ABSD to the government, when applicable.

ABSD falls within the broader tool set that the government used to influence property prices in the market. This assortment of tool sets used is known as property market cooling measures.

As a overview the tools with government’s property cooling measure includes

  • Additional buyer stamp duty – tax levied on top of buyer stamp duty
  • Buyer stamp duty – tax levied on buyer purchasing a property
  • Seller stamp duty – tax levied on seller selling property
  • Loan to valuation limits – limit on the quantum of loan that can be taken for a property
  • Property tax – tax differences on non owner occupied property and owner occupied property

Recap of April 2023 cooling measures

April 2023 cooling measures consist of an increase in ABSD rates. The key changes will be as follows.

  • Singapore citizen buying second property to see ABSD increase from 17% to 20%
  • Permanent citizen buying second property to see ABSD increase from 25% to 30%
  • Foreigner purchasing any property to see ABSD increase from 30% to 60%

In summary, the main intent of the cooling measure is to prevent a surge in property prices caused by foreign investors, looking towards Singapore’s real estate as a safe haven for their funds.

Secondary impact to be faced by local aspiring property investors looking to own their second property or third property.

Impact of latest ABSD increase on general property price trend in Singapore

Having established the context for our discussion, let’s dig deeper to understand the impact of cooling measures and ABSD increases on the broader property market price. To do this we will refer to the movement of the Singapore property price index, inline with the cooling measures announcement.

At a high level overview, it is important to analyse the price movements and cooling measures from the following perspectives.

  • What is the intent of the cooling measure and which segment of property owners or buyers does it impact the most.
  • The significance of the impact, how significant is the magnitude of the tax increase.

With this in mind, we shall review the impact of past historical cooling measures and its impact on property prices.

Review – 2013 Cooling measures and its impact on property prices

2013 marks a significant round of cooling measure releases, this was the year when both Singaporean citizens and PRs see significant increase in ABSD being levied on second property purchase.

Singaporean citizens see ABSD on second property increase from 3% to 7% and PR’s ABSD on second property increase from 3% to 10%. And tightening of loan criteria to reduce loan quantum for second property.

It is clear that the policy intent was meant to target investors, aspiring second property owners.

With the cooling measure in play, property prices trended sideways from 2014 to 2015, but as buyers got accustomed to the higher ABSD and with the proliferation of methods to assist property investors in legally avoiding ABSD being introduced by property agents into the market, prices trended upwards again in 2017.

Review – 2018 Cooling measures sees a lesser impact on property prices

In July 2018, sees another round of major cooling measures being implemented. Again the policy intent focuses on detering property owners from acquiring multiple properties.

ABSD for Singaporeans purchasing their second property was raised from 7% to 12% and third property from 10% to 15%.

PRs sees ABSD on second property raised from 10% to 15%, and foreigners see ABSD for any property purchase, increasing from 15% to 20%.

The interesting point to note for this is that the effect of the policy on dampening property prices lasted for a shorter duration of less than 2 years. Property trended sideways and recovered with an up trend in Sep 2020.

Extrapolating to the latest April 2023 ABSD increase and its impact on property prices

Reviewing the difference between both 2013 and 2018 cooling measures versus 2023 cooling measures.

The main policy intent of the April 2023 cooling measure focuses on deterring foreign buyers purchasing property in Singapore instead of targeting Singaporean citizens and PRs.

To put things into perspective, based on latest 2023 transaction data, foreign buyers form a mere 6% of the total buyer pool, while Singaporean and PR forms 74% and 18% respectively.

Hence it can be safe to say, Singaporeans and PRs form the bulk of the market demand, and given the targeted impact of April 2023 measures. We could expect broad property prices to remain relatively unaffected by the latest cooling measures.

If there are any factors that could put a dampener on property prices moving forward it would most lightly be the following two factors.

One, the high interest rate environment that increases the cost of financing a property for all buyers in the market.

Next, the 2022 cooling measure that mandates a 15 month wait period for private property owners to purchase resale HDB. This reduces the capital gain for resale HDB owners, which in turn dampens demand for resale condos.

Singapore property prices would continue to trend upwards in the long run

Assuming the following foundational factors remain unchanged Singapore property prices should still remain on an uptrend.

Firstly from a macro standpoint

  • Singapore was to remain as a regional hub for businesses, investment and R&D.
  • Singapore was to remain politically stable, a desirable place for high income executives to work and live in.
  • Property and land to remain scarce.

Next from a property market specific perspective, a common understanding to establish is that the existing property supply in Singapore comprises 75% HDB, 20% Private condos and 5% Luxury home.

The prices for each of this category of property are correlated to a large extent. Prices of private condos are propped up by the demand from HDB upgraders. Whereas prices of luxury homes are in turn propped up by demand from private condo owners that manage to sell their current property with a decent price appreciation.

As long as market dynamic remains conducive for this cycle and cooling measures remain friendly to first time homeowners, the upwards trajectory for Singapore property price should remain strong.

Impact of latest ABSD increase on specific area in the property market

Having covered the impact of the latest ABSD increase on the overall property prices in the longer run. Let’s proceed to discuss its impact on specific areas in the market.

Impact #1 – CCR property to see less foreigner buyer demand

Amongst properties in the three URA planning regions, prices of properties located in the core central region (CCR) are most impacted by demand from foreign buyers.

Given the latest round of ABSD increase features a hike of ABSD from 30% to 60%, foreign buyers’ demand for properties in the core central region are expected to be dampened. This could lead to a potential decrease in prices for CCR properties.

Referring to the table below, based on URA’s data. We can see a significant drop in property transactions made by Chinese and Indonesian buyers that previously made up a good proportion of purchases in previous periods before the April 2023 ABSD increase.

Whereas, buyers from the USA remain largely unchanged as US citizens enjoy the same ABSD treatment as a Singaporean Citizen due to free trade agreements.

Impact #2 – CCR rental market to improve

With the latest ABSD rates, foreign buyers would have to fork out a hefty 60% on a 2 million property. This would come up to 1.2 million in taxes without even including buyer stamp duty.

For many foreign buyers, it could now make more sense to rent a property in the CCR region instead of purchasing one. Hence, we could potentially see a surge in rental for CCR properties, driving up the rental rates for properties in the region.

Impact #3 – Foreigner to shift interest to commercial properties, industrial and shophouses

Given that a hefty 60% ABSD is levied on foreign buyers purchasing residential property. Foreign buyers could start shifting their attention to commercial and industrial properties that are free from ABSD.

Commercial properties in Singapore remain attractive to foreign investors due to its high rental yield and the healthy demand for commercial properties driven by businesses looking for retail and office space.

Heritage shophouses would be another asset class that foreign investors will shift their attention to. It features many attractive attributes, firstly it is scarce in supply and offers investors an opportunity to own an asset in prime locations in Singapore.

Impact #4 – OCR property prices to remain strong

As CCR property prices are impacted by demand from foreign buyers, properties in the RCR and OCR regions are mainly influenced by demand from local buyers.

Particularly for properties in the OCR region, its demand is mainly fueled by HDB upgraders looking to purchase a property for homestay purposes.

Given the latest and previous rounds of ABSD increases mainly focused on deterring investors from purchasing properties, we would expect demand for OCR property prices to remain strong moving forward.

Impact #5 – More property owners will look to decoupling and Sell one buy two

As a secondary effect of the latest ABSD increase, Singapore citizens see an increase in ABSD levied on their second property purchase from 17% to 20%.
This increase in cost of getting their second property, will drive more Singaporean citizens with aspiration to own multiple properties to consider decoupling and sell one buy two as options to legally avoid these ABSD charges.

Check out our recent article on the most practical way on how to buy second property in singapore without absd.

Final Words

This sums up our article on the latest impact of ABSD on property prices in the market.

While this round of ABSD increase mainly targets foreign buyers, the ABSD levied on second property purchase still remains as a significant hurdle for many Singaporean citizens in acquiring their second property.

Hence it is important to ensure you make plans to minimise the cost of ABSD.

As a side note, if you are looking to do some quick calculation on the stamp duties that you will need to pay for on your 2nd property purchase, head over to the 2nd property stamp duty calculator.

More reads, more gains ?

Kudos on making it this far. The fact that you have invested the last 5 mins reading this article. We believe you are a like minded real estate investor looking to beat the rat race by getting more out of your real estate investment.

If so, do check out the following articles.

Author

  • Jue Wen

    Jue Wen is the content marketing lead. This means he spend his waking hours researching and writing all things real estate. He believes life is a hustle and there is no joy in grinding away daily in our little rat races. He believes making wise moves in real estate investment can be a game changer. Aside from writing all things real estate, you can find him in your nearest bouldering gym.

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Jue Wen

Author

Jue Wen is the property analyst and content marketing lead at decoupling expertise.
He specialises in helping clients overcome the complexities involved in owning their second private property in Singapore.
He had over 10 years of experience in real estate investing and have written over 40 detail guides on decoupling and minimising ABSD. He is a licensed real estate consultant and holds a Bachelor degree in Business Management from the Nanyang Technological University.

Kenji

Co-Author

Kenji is the Group Division Director of ERA Realty Network.
He have got over 20 years of experience in real estate and have successfully helped over 50 couples purchased their second property. He specialises in helping client achieve the best approach towards acquiring their ideal investment properties while minimising ABSD.