Reduce ABSD for foreigners purchasing homes in certain areas, such as Marina South

The Urban Redevelopment Authority recently rejected a bid for 99-year leasehold Marina Gardens Crescent in Marina South that was priced at S$770.5 Million or S$984 psf per plot ratio (psf/ppr), because it was too low.

Developers may have been cautious about the Marina Gardens Crescent because they were uncertain of housing demand in Marina South.

Lack of schools in the area could be a factor that hinders local demand for future homes at Marina South. Developers may also be concerned that the demand for housing from investors and foreigners, who aren’t Singapore permanent residents (SPRs), could be low.

Marina Gardens Crescent, a plot that can be developed for both residential and commercial purposes, is now on the Reserve List of the H1 2024 Government Land Sales Programme (GLS). Developers are invited to apply for the sale of this site which could generate 775 private houses, at a price acceptable to the government.

As we wait to find out if the government receives an acceptable offer in the future for the Marina Gardens Crescent, it may be worthwhile to make efforts to increase demand for the property.

In order to revive foreign interest in buying homes, the government may consider lowering the Additional Buyer Stamp Duty (ABSD), which is charged on foreigners who do not hold Singapore Permanent Resident status. This could be done for certain areas. Marina South, Sentosa, and perhaps parts of Downtown Core are examples of areas that may not be as popular for locals to buy homes.

Can ABSD rates be reduced from 60% to 30% for foreigners who do not hold SPR visas and buy homes in these areas?

Foreigners buying homes

In 2023, the number of foreigners who bought private homes outside of SPR fell by about one third compared to last year.

According to data provided by URA Realis, on February 14, 2023, the number of foreigners who are not SPRs that lodged caveats for private homes (excluding executive condos or ECs), was 623 compared to 934 in 2022, 1120 in 2020, 745 by 2020, 1,000 in 2019 and 1,225 by 2018.

In H2 2023, the number of foreigners who are not SPRs that lodged caveats was down to 146 from 477 during the first half-year. Non-SPR foreigners lodged a smaller share of the caveats on private homes (excluding ECs) in H2 2023. This is down from 4.9 percent in H1 2023 and 4.3 percent in 2022.

The increase in ABSD for non-SPR foreign buyers is to blame.

Since ABSD’s introduction in December 2011, the ABSD rate has increased dramatically from 10% to 60%. The ABSD rate was last raised in 2018, from 30% to 60%, effective April 27, 2023.

Some non-SPR foreigners pay no ABSD. The free-trade agreement with Singapore allows permanent residents and nationals of Iceland, Liechtenstein and Norway to enjoy the same stamp duties as Singaporeans.

Singaporeans pay no ABSD for their first residential property, 20% on a subsequent residential purchase and 30% on a third purchase.

Non-SPRs such as those from China, Indonesia, and India, however, pay 60% ABSD on the purchase of homes in Australia.

Locals who buy their first home should be favored by policies that govern the private housing markets.

A large number of foreigners buying private homes can also distort the local market, making it difficult for locals who want to own a home.

Foreigners buying home: Benefits

Foreigners who do not hold SPR passports can still benefit from buying a home in Singapore.

Singapore is a global leader in talent attraction. Attracting top talent to Singapore is good for the economy. When non-SPR internationals are not faced with onerous barriers to buying homes, they can attract global talent here.

Non-SPR foreigners with homes in Singapore can help promote Singapore’s story to their home countries and networks.

A home in Singapore can also help foreigners who are not SPRs to become more familiar with Singapore. Some of these non-SPR foreigners could then deepen their Singapore connections and become SPRs, or even Singapore Citizens.

Some foreigners who are not SPR holders may also rent out their home here. The availability of rental properties for both locals and overseas students or workers who are working in the country, as well as those from other countries looking to rent an apartment, provides tenants with a wide range of choices.

Third, foreigners who do not hold SPR visas and buy property here also contribute to the tax revenue.

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All homeowners are responsible for paying property taxes and transaction taxes when they buy a house. The rates of Buyer’s Stamp Duty are progressive. Residential property tax rates for non-owners are higher than those for owners, and for more expensive properties.

If 100 non-SPR residents buy homes for S$3,000,000 each and pay ABSD the total collected is S$102,000,000, assuming ABSD at 30%.

Budget 2024 brought some good news to homeowners, homebuyers and housing developers. There are many reasons why ABSD rates should be lowered for foreigners who do not hold SPR visas and buy homes in certain areas. The government could announce this change outside Budget 2024.

If ABSD is lowered for foreigners who are not SPRs in certain areas, it could make these areas hotspots of home purchase by foreigners. Even if ABSD is 30%, foreigners who are not SPRs could still buy homes at a moderate pace.

Singapore’s ability to show its openness towards foreigners at a time when many other countries are becoming more inward looking can be demonstrated by lowering ABSD rates on selected areas for foreigners who do not hold SPR. This can increase tax revenue. This can also accelerate the pace of growth in areas like Marina South.

Having non-SPRs account for less than 5 percent of all private home sales, excluding ECs should not distort this market.

Locals can still achieve private homeownership goals as long as government continues to ensure an adequate supply.

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