Singapore still cost competitive for luxury home buys despite ABSD: Study

Singapore still cost competitive for luxury home buys despite ABSD: Study

EVEN after factoring in the hefty additional buyer's stamp duty (ABSD) of 15 per cent on foreign property buyers, Singapore is still cost competitive compared to London and Sydney for luxury home purchases.

This was among key conclusions stemming from an inaugural Global Tax report by Knight Frank and Ernst & Young.

The report found that Singapore's tax costs and property costs are lower compared to London and Sydney for a foreigner buying a property worth US$10 million and holding it for five years before selling it.

For a US$1 million(S$1.4 million) property, however, Singapore's tax costs for a foreigner buying, holding and selling it over the same period is higher compared to the other two gateway cities, though the property costs are relatively lower.

The ABSD has, however, been a key deterrent to foreigners buying into high-end homes here in the last two years, with foreigners (excluding permanent residents) accounting for only 12.5 per cent of private home purchases in the Core Central Region (CCR) last year, said Knight Frank head of research and consultancy Alice Tan.

Macro-prudential tools used in Asian economies such as Singapore, China and Hong Kong to rein in exuberance in their property markets brought about by cheap credit have been increasingly used in some other Western countries.

Knight Frank head of residential for Asia-Pacific Sarah Harding noted that despite new property taxes being introduced in the UK and Australia, they have not quashed foreign appetite for properties in London and Sydney as these cities' appealing factors such as education, capital appreciation and security continue to hold.

In computing property costs and tax costs, the study assumes that an individual buys a property in August 2015 in a foreign country fully in cash, and does not factor in inheritance, estate or gift taxes.

It also kept certain conditions constant - capital growth and rental growth of 5 per cent and 3 per cent per annum respectively, and year-one gross yield of 4 per cent.

Given the divergence of price trends between Singapore and the other two gateway cities London and Sydney, Knight Frank Singapore executive director Tay Kah Poh felt that value has emerged for Singapore's residential market, even after accounting for tax.

Prices of private non-landed homes in Singapore's CCR slipped 2.5 per cent last year after a 4.1 per cent fall in 2014, based on data from the Urban Redevelopment Authority. Industry players have flagged steeper double-digit declines in certain luxury projects.

"We are not suggesting that prices (in CCR) will shoot up in the near term," Mr Tay said, conceding that the outlook for high-end homes remain patchy. While there has been some level of interest from foreign buyers, particularly the Indonesians, it remains to be seen whether there is a trend.

Ms Tan noted that prices of high-end homes have trended down to a "sweet spot", which offers the prospect of potential capital gains in the medium to long term as the government rolls out a series of economic plans for Singapore in the long term.

One reassuring sign has been a gradual paring down of unsold inventory in Singapore's CCR. Of the nearly 25,000 unsold units islandwide as at end-2015, some 26 per cent are located in the CCR.

"By 2019, there will be no new supply of completed homes in the CCR location," Ms Tan said.

"As the unsold inventory pares down, coupled with the high supply of completed homes in the outside central region (OCR), the appeal for high-end homes will continue or even increase."

Though the government has reiterated its stand on cooling measures, Ms Tan believes that the recent stock market selloff and interest rates hike reflect many other downside risks that could impact the property market more adversely than what the policymakers could anticipate.

"The next three to six months will be quite critical for them to see if it is necessary to tweak some measures," she added.


This article was first published on February 2, 2016.
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