Higher ABSD for foreigners is unnecessary: Maybank Kim Eng

Is 15% too much for them?

In Maybank Kim Eng's report “A Theory of Relativity” dated 30 Oct 2012, the research firm wrote about the relatively lower transaction costs for buying Singapore private property after Hong Kong introduced a 15% Buyer’s Stamp Duty of its own for non-HK resident homebuyers, when at that time, Singapore’s ABSD was at 10% for foreigners.

Here's more from Maybank Kim Eng:

Following the Singapore government’s latest round of cooling measures, the ABSD for foreign homebuyers has now been raised to 15% to match that of Hong Kong’s, effectively removing that immediate cost advantage.

But is it necessary to raise it for foreigners? Looking at the caveats lodged for all non-landed private property transactions in 2012, one would notice that the percentage of foreign non-PR homebuyers had remained fairly stable at 7% in each quarter last year. They also accounted for less than 10% of the transactions for properties priced below SGD18,000 psm (or SGD1,670 psf).

Hence, the higher ABSD imposed on foreign buying could have been unnecessary, in our view. The imposition of the 7% ABSD on Singaporeans on their second home purchase and 10% for third and subsequent purchase is to be applauded, on the other hand, to ensure that home prices are not excessively driven by investment demand and to maintain affordability for first-time homebuyers.

Which segment bears the brunt of the measures? In our view, the private property market is likely to undergo another deep freeze over the next 2-3 months as developers and homebuyers grapple with the magnitude of the latest measures.

In our view, the mass market segment will be the worst hit as marginal investors will be forced to the sidelines, with underlying demand coming mainly from first-time homebuyers.

The high-end segment which had enjoyed a “mini-revival” in the last quarter is likely to go into intermission as well, but we think that longer-term fundamentals will prevail, and the wealthy and savvy investors will continue to see value in the segment.