2023 Unveils Singapore’s Bold Move: The 60% ABSD Tax
In a strategic move to regulate speculative capital inflow into the real estate sector, the Singapore government unveiled a bold initiative on April 27, 2023. This initiative took the form of a substantial 60% Additional Buyer’s Stamp Duty (ABSD) tax on residential properties purchased by foreigners, establishing one of the highest non-resident tax rates globally.
This shockwave extended beyond foreign investors, affecting Singaporeans and permanent residents. ABSD rates for locals purchasing a second or subsequent residential property were increased by 3% to 5%, resulting in rates ranging between 20% and 35%. Foreign property purchases, which soared to 8.1% in January 2023, plummeted to approximately 1.3% by November 2023, demonstrating the profound impact of the tax hike.
Market Turbulence in the Core Central Region (CCR)
Compounding these changes, the property market faced challenges in August 2023 with the arrest of 10 foreigners suspected of laundering over $2.8 billion, a significant portion of which was used for property acquisitions. With both ABSD and laundering cases, the Core Central Region (CCR) experienced a drastic decline in foreign purchases, dropping from a high of 59 in March 2023 to just 10 in November 2023.
Resilience Amidst Challenges
Despite the disruptions, the property market exhibited resilience. In 2023, developers launched an impressive 26 private residential projects and one executive condominium (EC) project, surpassing the previous year’s numbers. Notable projects such as The Reserve Residences, Grand Dunman, and Lentor Hills Residences recorded robust sales, reflecting buyer confidence.
We estimate that the number of units launched for sale in 2023 at 7,600. This is less than the original forecast of up to 12,000 units launched for sale in 2023 but nevertheless 67.8% higher than the 4,528 units launched for sale in 2022. An estimated 90% of the units launched are in the Rest of Central Region (RCR) and Outside Central Region (OCR).
Developer sales could end the year between 6,000 and 6,500 units. Contrast against a backdrop of economic slowdown, cooling measures and pent-up demand during the pandemic which may have been largely satiated, the sales results should be seen as encouraging.
The impact of higher for longer interest rate is keenly felt in the resale market. Furthermore, we see asking prices of many properties asking for record prices compared to recent years, pushing away buyers especially if the banks are not able to support the valuations. Resale transaction volume has been on a downtrend since 2022. The resale market is estimated to see around 10,500 units sold in 2023.
2023 Rental Market
The broader economic slowdown in 2023, coupled with geopolitical tensions, impacted the private rental market. Employment Pass (EP) holders faced challenges, resulting in a slowdown in new tenant demand. The steep 30% increase in rents in 2022 further displaced tenants, prompting some to explore more affordable options such as co-living spaces and HDB flats.
A surge in private residential home completions, exceeding 18,000 in 2023, marked the highest supply since 2016. Mega projects like Affinity At Serangoon, Avenue South Residences, Normanton Park, Riverfront Residences, The Florence Residences, and Treasure At Tampines accounted for nearly half of the new units. These contributed to a 9.1% decline in the number of non-landed rental contracts in 2023, with landed rental contracts experiencing a 19.1% drop.
The number of HDB flats rented out in 2022 witnessed a decline to 36,166 as Malaysian workers returned to their daily commute to Singapore. Based on estimates, we forecast an increase in HDB flats rented out in 2023 to around 39,000, a 7.8% rise from 2022. This increase can be attributed to tenants displaced from the private residential market and HDB upgraders seeking affordability and putting purchases on hold.
Singapore Property 2024 Outlook
Sales Projections for 2024
In 2024, there may potentially be up to 38 launches with an estimated 11,636 units. This includes a 512-unit EC project, Lumina Grand at Bukit Batok West Ave 5.
There may be up to 2,968 units launched in the CCR which is the largest supply since 2021. Some of the potential major launches include Aurea, former Peace Centre/Peace Mansion, Marina View Residences, Newport Residences and Skywaters Residences.
The RCR may see potential major launches at Bukit Timah Link, former Meyer Park, Jalan Tembusu, Marina Gardens Lane, The Arcady at Boon Keng and The Hill@OneNorth in 2024. There may be up to 3,085 units which is about 27% less than 2023’s launch of more than 4,200 units in the RCR.
And to meet upgrading demand, the government has increased the sale of state land, leading to the largest supply of units in the OCR in 11 years, with an estimated 5,583 units in 2024.
Optimism surrounds the new sale market in 2024, with developers expected to sell between 7,000 and 8,000 units. The resale market may experience muted activity, with sales ranging from 9,000 to 10,000 units due to continued high interest rates environment.
As Singapore navigates economic challenges and adjusts to government measures, the real estate landscape remains dynamic. Developers’ growing confidence, expressed through higher payments for prime sites, sets the stage for property prices to grow between 3% and 5% in 2024. While challenges persist, the overall outlook suggests a more optimistic economic climate for the upcoming year.
Rental Projections for 2024
In 2024, the good news is that the estimated new supply of homes is almost half of 2023. The economic outlook for Singapore in 2024 is rosier than 2023 and there may be more new EP holders. The market may also be supported by foreigners who are renting while they apply for their permanent residency before buying. Landlords might find relief from the high mortgage payments should interest rates ease in 2024.
However, it may take at least six months in 2024 for the market to digest the large completion of private residential homes in 2023 with downward pressure on rents in 1H 2024. The rental market is anticipated to stabilize in the second half of 2024, with a forecast contraction of up to 5% in rents for the entire year.
For the HDB rental market, the number of completions of new private homes and public flats in 2024 is estimated to be lower than 2023. This means there will be a smaller increase in the supply of HDB flats for rent in 2024.
Also we expect more than 7,500 units private properties to be launched for sale in the RCR and OCR, slightly more than the estimated 7,000 units in 2023. The launches in the RCR and OCR tend to attract more HDB upgraders and may induce more rental demand for HDB flats in the interim.
On balance, we estimate HDB rents to grow between 5% and 8% in 2024.
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