The recent imposition of the Additional Buyer’s Stamp Duty of 10% by the Ministry of National Development and the Ministry of Finance to curb foreigners’ and corporations’ ownership of private properties in Singapore may be a step in the right direction, it is, but a bit too little to effectively control the ever escalating residential properties prices in Singapore.
In addition, Singaporeans and Permanent Residents will need to pay an additional of 3% ABSD on the third and second, including subsequent properties, respectively are just as ineffective in the long run as many of the rich citizens and permanent residents will not feel the brunt of the 10% ABSD.
While the Additional Buyer’s Stamp Duty may bring additional revenue into the government’s coffer, it, however, does not benefit the average citizen in the long run. This is especially so among young working adults who might be contemplating in buying a home to start a family but found themselves being priced-out of the property market.
Admittingly in a joint press statement by both Ministries, “a higher ABSD rate for foreign buyers in particular is necessary, in view of the large pool of external liquidity and strong buying interest from abroad, and the relatively small size of the Singapore market.”
Realizing the smallness in size of the Singapore market and the increasing population, the question is: Does it make sense for Singapore to open its residential real estate market to foreigners when land is scarce in Singapore – having to cater to housing the population, industrial and commercial usage as well as recreation?
Foreigners, who account for more than a quarter of Singapore 5.2 million population, made about 18% of property purchases in the third quarter of 2011 and accounted for a third of purchases in the luxury market.
As the price of public housing is peg to private residential properties, the demand for private private residential properties by foreigners will inevitably affect the prices of public housing, hence, making it even harder for the young working adult to be able to afford one.
Since the average Singaporean family lives in public housing and does not own more than one property, the imposition of the 3% ABSD on Singaporeans and Permanent Residents purchasing their third and second property, including subsequent ones, should indeed be brought to par with those of the foreigners at 10% and be made applicable to the purchase of second property onwards. In addition, higher initial downpayment, for example 60% of property value, and lowering of mortgage loans, currently at about almost 90%, are also effective ways to curb speculative activities and as preventive measures for banks against high non-performing loans arising out of defaults as a result economic downturns.
While foreigners’ purchase of private residential properties may be viewed as a source of foreign direct investment, such foreign direct investment are viewed as unhealthy as such capital inflow is not invested in any productive assets but only adds to the detriments of the citizens by pushing up prices of residential properties.
Measures implemented during the last two years to ease demand, such as raising the seller’s stamp duty and boosting mandatory down payments for mortgages, have only succeeded in slowing down price surge. Despite this, prices continued to rise 1.3% in the July-to-September period after rising 2% in the previous quarter.
Indeed, the government should be looking at longer term solutions to stabilize Singapore residential property prices with the objective of making residential properties more affordable to the average citizen instead of introducing measures that will not have any long term benefits for the average citizen.
Andrew Michael Teo 