Additional Property Buyer Stamp Duty Effective 8th Dec 2011

Additional Buyer’s Stamp Duty effective 8th Dec 2011

The Singapore Government announced on the 7th Dec 2011 an additional Buyer’s stamp duty (ABSD) to be imposed on certain categories of residential property purchases.

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.

Luxury Condominiums targeted at foreigners to be hit by new regulation?

Additional stamp duty is being imposed to cool the RESIDENTIAL property market.

The Additional Property Buyer’s stamp duty (ABSD) from 08 Dec 2011 is: -

Foreigners and Non-individuals (Corporate entities) buying Residential property will pay an ABSD of
• 10%

Permanent Residents (PRs) owning one2 and buying the second and subsequent residential property will pay an ABSD of
• 3%

Singapore Citizens (Singaporeans) owning two2 and buying the third and subsequent residential property will pay an ABSD of
• 3%

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

The purchase of HDB properties will not be affected by this measure. Only Singaporeans and Permanent Residents are eligible to be HDB flat lessees (i.e. own a flat). Existing residential property owners who buy an HDB flat or a new unit under the Design, Build and Sell Scheme (DBSS) or the Executive Condominium (EC) Housing Scheme will not be subject to the ABSD, since the existing flat/property will have to be disposed of as part of the conditions for the purchase of the HDB/DBSS flat or EC unit.

Likely Effects of Singapore’s Additional Buyer Stamp Duty

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.

Will buyer stamp duty reduce inflation? CLICK THIS LINK

Inflation is influenced by the following equation.
{MV = PQ} = (by Irving Fisher, 1911)

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]

In short, this policy may somewhat reduce inflation attributed from Housing. However it may not stop these money from being channeled to other parts of the economy, especially commercial properties.

Singapore Recession worries

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.

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.

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.


This latest additional Buyer stamp duty policy does not apply to HDB, DBSS and ECs. What this will do is crimp demand artificially for the private market while it still does nothing much for HDB affordability with the prime culprit being DBSS, leading the price increases.

Severe Demographic effects – Singapore’s Resident Population to dramatically increase?

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 quality 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.

Property Buyer’s Proposal for the regulatory changes: -

If we were the regulator, we believe these will be more fair.

Keep the regulation simple. Refrain from using micro economic and regulation levers as these minute controls could back-fire and cause untold hardships to people.

To impose the following 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.
• Permanent Residents must wait 5 years after attaining PR status before they can buy HDB resale flat.
o PRs not meeting the 5 year wait, will pay an Additional Buyer Stamp Duty of 10% on their HDB resale flats.

Private Properties
• Corporate entities who buy residential properties will pay an additional buyer stamp duty of 10% (NO change)
o This should be especially applied to landed properties where it is scarce.
• 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 10% additional buyer’s stamp duty of 10% is applied.
• 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
• All foreign person or entities who buy residential properties to pay an additional buyer stamp duty of 10%.

SUMMARY

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 the intended thinking behind this policy is to make HDBs more affordable, then our proposed policy changes will likely be more effective.

Call us for your Property Mortgage Financing Needs, Free Mortgage advice. 9782-8606.
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Related posts:

1. Singapore Property investor: Singapore Property Stamp Duty
2. Property Buyer Spins Off Home Loans Consultancy to http://www.SingaporeHomeLoan.net