Budget 2023: How will higher BSD rates impact the property market

The hike will affect 15% of residential and 60% of non-residential properties.

Real estate experts believe that the higher buyer stamp duty (BSD) rates imposed by the government under the 2023 budget will not discourage buying of properties.

OrangeTee added that buyers who will be affected by the hike are wealthy individuals and it will be unlikely for them to be deterred by the additional BSD; however, the expert said the changes may have some "knee-jerk effects."

"Buyers need time to reassess their finances and observe the market reaction," OrangeTee added.

Data from CBRE showed that the higher BSD rates for higher-value properties in residential and non-residential properties would result in up to a 2% increase in total costs for buyers.

This means that for a condominium with a value of $2m, BSD will increase by $5,000 or 0.25% of property value, meanwhile a condominium with a value of $10m, BSD will increase by $155,000 or 1.25% of property value.

Huttons said the additional $5,000 BSD translates to a 7.7% increase from the previous rate.

"There has been an increase in purchases of luxury residential properties by foreigners in 2022 and possibly more in 2023. This change in stamp duty increases the transaction costs for foreigners but does not discourage them from buying residential properties," Huttons commented.

CBRE believes the measure will unlikely have a significant impact on the market on its own, but given the higher financing costs for both residential and commercial properties, and the other earlier wealth taxes and cooling measures for residential properties, transaction volumes in both residential and non-residential properties could slow down in the near term. 

Prices, however, could still be resilient given the strong fundamentals of the underlying property sectors, said CBRE.

"The higher BSD rates coupled with the higher ABSD from December 2021’s round of cooling measures, property tax increases announced in Singapore’s 2022 Budget and higher mortgage rates, could further deter the overall buying sentiment particularly in the mid to high-end market," CBRE added.

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PropNex said the measure is unlikely to affect non-residential properties as well, adding that demand for these properties will still be healthy.

"We anticipate that buyers/investors will be able to take the increase in BSD payment in their stride and that the non-residential property segment should remain resilient," PropNex said.

CBRE, for its part, said the revised BSD rates will mainly impact non-residential properties with higher values of above $10m.

" This is likely to further impact investor sentiment, which has turned cautious since H2 2022 amid sustained rate hikes and the deteriorating global macroeconomic backdrop. Higher interest rates have impacted the ability of institutional investors to underwrite larger property deals," CBRE said.

"Coupled with the increase in BSD payable, which is likely to widen the mismatch in pricing expectations between buyers and sellers, investors are likely to continue adopting a wait-and-see approach. This should lead to a short-term slowdown of big-ticket institutional grade asset transactions," CBRE added.

Amongst markets, CBRE believes the industrial property sector is still attractively positioned despite the BSD rate increase.

"This is due to a positive yield spread despite the higher cost of debt. While the actual impact still depends on the profile of investors, the market could remain competitive, especially for good quality assets," CBRE said.

Overall, CBRE maintains a positive mid to long-term outlook for Singapore assets.

"Investment volumes could pick up in the later half of 2023 when interest rates stabilise and there is more clarity in the market outlook," the expert added.

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