Singapore's Housing Tax Hits Home

in Property Time |Property News ! Fri Feb 01, 2013 5:39 am
by Martin

SINGAPORE—An increased surcharge the Singaporean government has assessed on most foreign buyers to try to tamp down soaring property prices threatens to rattle Singapore's uneasy relationship with many of its rich foreigners while giving Americans an edge in one of Asia's hottest property markets.

Singapore recently boosted the duty on residential purchases, a move that could rattle some foreign investors, although U.S. buyers are exempt.

This month, the government boosted to 15% from 10% the fee added to the purchase price of residential property bought by many foreign nationals, including the Chinese, who were the second-largest group of foreign buyers last year. In contrast, U.S. buyers don't have to pay the surcharge, thanks to a bilateral trade accord with Singapore.

Joy Stevenson, a U.S. native who has lived in the city-state for more than 20 years with her family, bought a two-bedroom condominium this month in a neighborhood close to the Singapore Botanic Gardens for 1.85 million Singapore dollars (US$1.5 million). Under the new 15% stamp duty, a Chinese or Indonesian buyer would have paid US$1.725 million for the same property.

U.S. citizens are exempt from paying the fee as a result of a nine-year-old trade pact that requires that U.S. investors be treated the same as Singaporeans. A few other nationalities get the same perk—citizens of Switzerland, Norway, Iceland and Liechtenstein—but most don't, including citizens of Indonesia and Malaysia, countries that in other respects enjoy close economic ties with Singapore.

Singapore's government imposed the tax in December 2011 on most foreigners to fight what it contends is excessive speculation in the property market. Private-home prices have surged 59% since the market's most recent trough in 2009.

The government worries that foreign buying is introducing the risk of a market bubble and making homes less affordable for Singaporeans, which is feeding a growing resentment of foreigners. But the move risks alienating some wealthy foreigners, including the Chinese, whose home-buying activity dropped markedly last year after the government imposed the original 10% surcharge.

"My feeling is that Singapore isn't foreigner-friendly anymore," said Alan Chen, 37 years old, who is from Shanghai and moved to Singapore five years ago to work in the logistics industry.

Mr. Chen is a Singapore permanent resident, a legal status that confers certain advantages denied to other foreigners, such as the ability to buy single-family homes and receive higher priority in school admissions. They also had escaped the stamp duty paid by foreigners, but now will have to pay a 5% fee when purchasing their first home. That changes the equation for the legions of expatriates who call Singapore home.

Property agents already report they can feel a chill among permanent residents as a result of the 5% levy. "I had a couple of clients who now can't afford it," said Deborah Law, manager of property broker Expat Realtor.

"The revised Additional Buyer Stamp Duty measures are meant to moderate the demand for properties across all groups of buyers of properties, including Singapore citizens, Singapore permanent residents and foreigners," a statement provided by a Ministry of Finance official said.

Soaring home prices have fed public dissatisfaction as many Singaporeans watched prices climb out of their reach. Those feelings of discontent also are tied into a public backlash against the rising presence of foreigners in Singapore. Cheap labor from places such as India and the Philippines is seen as pulling down wages for Singaporeans, even as property buying by wealthy foreigners pushes up home prices.

"It's very expensive, probably due to the high demand from foreigners," Singaporean Kelvin Lee, 32, said of residential home prices. "These last few years, [the price of housing] has been rising too much, too fast."

Mr. Lee, who works in financial services and hopes to purchase a residence within the next few years, said the government's cooling measures "probably will calm things down so that more Singaporeans will be able to afford to buy."

In addition to the higher tax on most foreign buyers, the government imposed other measures this month to keep prices in check. It raised the minimum down payment for people buying second homes and capped mortgage payments for people buying government-built housing at 30% of monthly income.

Private-home prices rose 2.8% in 2012, according to data from Singapore's Urban Redevelopment Authority, compared with 5.9% in 2011. Foreign buying fell substantially in 2012, after the government's earlier round of cooling measures. Other factors may have contributed to the drop, such as some foreign investors believing Singapore's prices for residential property are unsustainable and better investment opportunities lie elsewhere.

In particular, the buying of private homes by Chinese plunged 42% in 2012 from 2011, according to data from global property adviser Knight Frank. Chinese buyers slipped to the No. 2 spot last year, representing 22% of foreigners buying homes in Singapore, while Malaysians reclaimed the top spot with 26%. Indonesians were the third-largest group at about 19% of foreign buyers.

American buyers are a much smaller group, comparatively, buying only 169 homes in 2012 to make up 2.4% of all foreign purchases. Some U.S. buyers see opportunities in Singapore.

Suman Masciarelli, an American entrepreneur who with her husband Jason came to Singapore to start a mobile-app company called Acromobile, bought a home in 2011. She said she is considering selling some of her U.S. real estate in order to invest in other Singapore properties."We are looking at this market. It is quite high, but it seems like a very controlled market that won't have an overnight drop."

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