Dim prospects, ABSD set to cut foreigner home buying again this year

THE appetite for Singapore residential property among foreigners continues to diminish, depressed by higher purchase taxes and dim prospects for gains or returns.

The number of private homes bought by non-resident foreigners (non-permanent residents) dropped 22 per cent to 895 units last year, from 1,148 units sold in 2014. And with no sign of any removal or reduction of the additional buyer’s stamp duty (ABSD) rates and rosier prospects at other gateway international cities, the prospects for 2016 remain glum, say industry insiders.

But Singapore’s resident population does not seem to share the pessimism – at least not as much.

Purchases by PRs (permanent residents) increased 13.7 per cent to 2,522 units last year, while the number of private homes bought by Singaporeans rose 12.4 per cent to 9,967 units, according to DTZ’s analysis of URA Realis data.

Among foreign buyers, the Chinese, Malaysians, Indians and Indonesians remained the top buyers.

For the third year in a row, mainland Chinese emerged as the top overseas buyers (PRs and non-PRs combined) of private homes in Singapore. The 952 units they acquired in 2015, though, marked a 4.6 per cent fall from 998 units in 2014.

Malaysians were the second-biggest overseas buying contingent, picking up 945 units in 2015, down 1.5 per cent from 959 units in 2014. Indian citizens were in third position, despite an 11.7 per cent drop in the number of units they bought to 325 last year. And Indonesians emerged in fourth position after a 34.1 per cent drop in their private home purchases here last year to 276 units.

But one discernible trend over the past five years within each of these four major overseas nationalities is that the proportion of buyers who are Singapore PRs has gone up.

Market watchers attribute this partly to the lower ABSD rate payable when PRs buy residential properties in Singapore (5 per cent on the first purchase and 10 per cent for subsequent purchases) compared with non-PR foreigners, who have to pay 15 per cent ABSD for any Singapore residential property purchase.

DTZ’s regional head (SEA), research, Lee Nai Jia, highlights that a rule change that took effect in late August 2013 that bars newly-minted PRs from buying public housing resale flats within the first three years of becoming PRs – has also driven more PRs into the private property market.

Savills Singapore research head Alan Cheong noted that in the past, HNWI (high net worth individual) immigrants would often purchase a private residential property here first as a precursor to getting PR under a scheme that was scrapped in 2012. The Financial Investor Scheme (FIS) allowed overseas HNWIs with at least S$10 million of assets held in Singapore for five years to get onto a fast track and apply for PR status. Up to S$2 million of the S$10 million that these wealthy foreigners parked here could be used to buy private residential property.

“Now the trend is the other way round; people become PRs first and then buy a property,” said Mr Cheong.

While PRs tend to be driven by “fundamental economic” reasons to buy a private home in Singapore – for owner occupation, as they may have settled here with a family, or as a long-term investment – non-PR foreigners could have bought for “safe haven or capital flight” reasons.

At least until the property cooling measures hit home.

According to Century 21 Singapore CEO Ku Swee Yong, the value proposition for foreigners to buy Singapore private residential properties purely for investment offshore, or just putting money in safe haven real estate, has fizzled out.

“Singapore is lacking a good growth story for these foreign individuals as well as for their businesses,” he said

Mr Ku also observed that newly minted PRs these days looking for Singapore private residential properties tend to have smaller budgets of about S$2 million, although they are still looking for well-located apartments of about 1,000 sq ft in places ranging from River Valley to Newton for instance. He added that today, very few are eyeing big apartments of 3,000 sq ft or more, costing upwards of S$8 million – which was common during the 2007 property boom as well as during the post-recovery period of 2010-2012 – before the FIS was discontinued.

“A higher fraction of people receiving PR status these days seem to be getting it for their professional capabilities, rather than their family wealth,” Mr Ku observed.

Based on DTZ’s analysis, the rising share of Singapore PRs among nearly all major nationalities of overseas buyers of private homes here, in the past five years was more pronounced for Chinese and Indonesian citizens.

Back in 2011, only 33 per cent of China citizens who bought private homes here were Singapore PRs. Last year, it was the reverse situation, with PRs accounting for 66 per cent of the China citizens who bought private homes here. Among Indonesian buyers, the Singapore PR share has risen from 25 per cent in 2011 to 58 per cent last year.

For Malaysians and Indians buying private homes here, PRs had already accounted for a high proportion – 65 per cent and 66 per cent respectively – even in 2011. Still, their respective shares climbed further to reach 87 per cent and 89 per cent last year.

Mr Ku noted that most Malaysians and Indians have for some time now been buying for “practical reasons”. “They are PRs, based in Singapore, and buying for a need,” he said.

Agreeing, Mr Cheong of Savills noted that many Malaysians had their tertiary education in Singapore, following which they would usually start working here.

Indian buyers tend to go for big-sized family homes and have a sharp eye for attractive deals, said Mr Ku.

In the past, many Chinese and Indonesian HNWIs used to buy Singapore residential properties more for wealth protection and capital gains, said Mr Ku. However, the respective governments in both countries have placed restrictions on outward remittance since last year, he noted.

Furthermore, said DTZ’s Dr Lee, “the yuan’s devaluation since last August has clipped Chinese nationals’ purchasing power as their national currency has weakened against the Singapore dollar”. However, Chinese citizens who are Singapore PRs would have parked their money here much earlier. Moreover, they would be earning income here and still have the means to fund property purchases.

Mr Cheong expects non-PR foreigners to continue to stay away from the Singapore property market this year because of the punitive ABSD: “Chinese buyers in particular are very sensitive to the 15 per cent ABSD, and prefer alternative markets like Australia, Canada and the US where taxes on foreigners buying residential property are lower.”

Dr Lee of DTZ too reckons purchases by non-PR foreigners will continue to fall this year amid overall subdued global economic growth, and increasing investor caution.

HNWIs are more optimistic about property market prospects in London and gateway cities in the US. However, newly minted Singapore PRs will continue to look for private homes, he adds.

On the positive side, Singaporean buying is set to rise again this year, thanks largely to upgraders entering the market as many may feel prices have fallen to a comfortable level and the ABSD is unlikely to be lifted any time soon, Dr Lee noted.

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