Brace yourself for new and higher ABSD rates starting today!

If you remember at the beginning of the year, I said that the Singapore government is serious about keeping the property price under control.

Recently, the IRAS also tried to clamp down on the 99-to-1 scheme amongst property buyers.

But that’s not all.

Other measures to cool the property market include:

• The loan-to-value (LTV) limit for HDB housing loans was lowered from 85 per cent to 80 per cent, meaning buyers could borrow less than before.
• Current and former owners of private residential property had to wait for 15 months to buy a non-subsidised HDB resale flat, moderating the demand for HDB resales.

The biggest blow comes when the Government said the higher ABSD rates would apply to all residential properties acquired on or after Thursday, Apr 27, 2023.

Here’s a summary of the changes:

• 20% ABSD, or Additional Buyers’ Stamp Duty for Singapore citizens on their second residential property, up from 17%.

• Citizens are to pay 30% on their third and subsequent property, up from 25%.

• Singapore PRs to pay 30% for their second residential property.

• 30% to 35% Additional Buyers’ Stamp Duty for Singapore PRs purchasing their 3rd and subsequent residential property.

• Additional Buyers’ Stamp Duty doubled from 30% to 60% for foreigners buying any residential property.

• ABSD for entities or trusts buying any residential property raised from 35% to 65%.

What is ABSD (Additional Buyer’s Stamp Duty)?

ABSD, or Additional Buyer’s Stamp Duty, is a tax that property buyers in Singapore have to pay on top of the standard Buyer’s Stamp Duty (BSD) when they purchase a residential property.

As it was introduced as a measure to curb property speculation and cool down the property market, the ABSD rates vary depending on:

• Buyer’s citizenship,
• Residency status,
• The number of properties owned.

For instance, Singapore citizens buying their first residential property are exempted from ABSD, while foreigners purchasing any residential property in Singapore are subject to higher ABSD rates.

As illustrated from the chart below, ever since its introduction in 2011, ABSD rates have been changing throughout years. And have an increasing impact on the Singapore property market.

How does ABSD affect the Singapore property market?

The government’s priority is to promote a sustainable property market and prioritise housing for owner-occupation. ABSD is a pre-emptively move by the government to manage investment demand.

#1 Reduced demands

The buyers’ market is coming.

• ABSD can increase the cost of purchasing a property for certain buyers, such as foreigners or those who already own multiple properties.
• This might discourage some potential buyers, which in turn could decrease the demand for properties and put downward pressure on prices.

The table below shows the impact of ABSD on sales volume and prices from 2011 to 2014. (Comment below if you know where to find an updated chart)

#2 Shift in buyer profile

• If the measure targets foreign buyers, it could lead to a decline in foreign demand for properties.
• While this might seem like a good thing for local buyers, it can also result in a decline in property values for existing homeowners who may see the value of their properties decrease due to the lower demand.

#3 Market segmentation

• ABSD can also create a market segmentation where there’s a price disparity between properties that are subject to the measure and those that are exempt.
• For example, properties that are not subject to ABSD, such as commercial properties and shophouses, may experience increased demand and potentially higher prices.
• Foreigners, who were hit with the highest ABSD hike at 60% for the second property may relook into their investment plans.

#4 Influence on investment decisions

• The additional costs imposed by ABSD can impact the feasibility of certain projects or reduce the attractiveness of investment opportunities.
• This can influence the supply of properties in the market and potentially affect prices.

#5 First-time Homebuyers

• On the positive side, ABSD may benefit first-time homebuyers.
• The cooling measure potentially reduces competition from foreign buyers and investors, creating an opportunity for first-time buyers to enter the market and secure their dream home at a relatively more affordable price.

Good property investment planning is essential to your financial success

While the changes in Additional Buyer’s Stamp Duty may pose some initial adjustments and difficulties, it can also provide prospects for those who are well-informed and strategic in their property investments.

Property is an important asset for retirement, but how to invest it is often misunderstood. Rich people don’t invest the same way as the average person. They use Optimal Leverage and only buy when there is an Insane Discount.

If you are a prospective property buyer or investor, here’s what you should do:

• Stay updated: Keep abreast of the latest developments in the property market, including any further revisions to the ABSD rates and exemptions.
• Assess long-term investment potential: Consider the fundamental aspects of the property market, such as location, demand, and potential for future growth, when making investment decisions.
• Consider how it affects your stock investments: Property cooling measures can add additional pressure to the Singapore stock market since property investment and stock investment are often interlinked.
• Explore alternative investment avenues: Look beyond the residential property market and consider opportunities in commercial real estate, REITs, or other investment vehicles that may offer attractive returns.

If you invest property wrongly, it can be detrimental to your whole retirement plan.

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