Debated in Parliament on 10 May 2023.
Mr Shawn Huang Wei Zhong asked the Minister for National Development what are the framework and indicators to guide the levels of the Additional Buyer’s Stamp Duty in the medium- to long-term future.
Mr Chong Kee Hiong asked the Minister for National Development regarding the higher Additional Buyer’s Stamp Duty (ABSD) for residential properties (a) whether the higher ABSD will affect the residential rental market and business costs; (b) what is the expected impact on the number of foreigners intending to invest and take up employment in Singapore as this leads to increased cost of owning and renting properties; and (c) what is the expected effectiveness in moderating residential property prices if it results in higher rents which can then be used to pay higher mortgages.
The response to this question also addresses the Parliamentary Questions on the latest round of property market measures filed by Mr Liang Eng Hwa for the Sitting on 10 May and Ms Hany Soh for the Sitting on or after 11 May.
The Additional Buyer’s Stamp Duty (ABSD) was introduced in 2011 to moderate demand for private residential property and to promote a stable and sustainable property market. In calibrating the ABSD rates, we consider a multitude of factors, such as the prevailing economic and property market conditions and outlook, trends in property prices and income growth, as well as the profile of property buyers.
We recently raised the ABSD rates for some categories of property buyers, with effect from 27 April 2023.
This follows two earlier rounds of measures, in December 2021 and September 2022, to temper housing demand and encourage greater financial prudence.
These measures, coupled with the broader economic climate and mortgage interest rate increases, have had a moderating effect on property price growth. However, our housing market has remained relatively resilient. Private housing prices showed renewed signs of acceleration, increasing by 3.3% in the first quarter of 2023, compared to 0.4% in the previous quarter.
This resilience is a result of strong housing demand. Local owner-occupation demand is especially strong and is increasing with changing social norms. As we emerge from the pandemic, there is also renewed interest from local and foreign investors in our residential property market.
Between the two, our priority is to support Singaporeans who buy property for owner-occupation. We raised the ABSD rates to moderate both local and foreign investment demand, so as to prioritise Singaporeans’ owner-occupation needs. This round of ABSD changes will only affect about 10% of all property transactions, based on 2022 data. This will not affect locals purchasing their first property, who make up about 90% of all property transactions in 2022. We are acting pre-emptively, as investment demand for residential property is likely to continue to grow otherwise. Should price momentum continue amidst slowing economic growth and elevated interest rates, prices could run ahead of economic fundamentals, risking a sustained increase in prices relative to incomes.
We recognise that there are significant concerns about rising rental prices and the impact on business costs. We do not expect the recent ABSD revisions to have a significant impact on the rental market. The vast majority of foreigners working in Singapore rent their homes and will not be affected by the recent ABSD revisions.
The tight supply conditions brought on by the pandemic had led to an exceptional imbalance in the rental market. However, we expect to see signs of easing, with a large number of new residential units being completed over the next few years. We are expecting 40,000 home completions this year – the highest in the last five years – and about 100,000 completions by 2025. Households temporarily renting while awaiting the completion of their new homes will also move out of their rental units and into their new homes. We, therefore, expect pressures in the rental market to ease with this large supply entering the market, and we already see early indications that rental demand is abating. This will moderate rent increases in the coming quarters.
We also do not expect the recent ABSD revisions to have a significant impact on the commercial property market. The drivers of the residential and commercial property markets are very different. Demand for commercial properties tends to be driven by business considerations and commercial property transactions are generally of much higher value than for residential properties. Individual buyers make up nearly all of the residential property market but only about 10% of the commercial property market. Historically, commercial property prices and transaction volumes have also remained stable in the period following past increases to the ABSD rates.
Nevertheless, we will continue to keep a close eye on both the commercial as well as residential property markets and will take further steps, if necessary, to promote a stable and sustainable property market.
PAPERCUTS