ABSD curbs on property purchases?
Relax, lah!
Additional Buyer’s Stamp Duty or ABSD increases has been described by some media folks as “shocking”!
Others are surprised that buyers are snapping up 75% of units at a recent condo launch, post the ABSD increase announcement.
Wow! What nail biting news!
But hit the pause button, and we find it is not so surprising after all.
First of all, what is clear is that Singaporeans still enjoy zero ABSD for their 1st property (ie the single property that they wish to buy if they do not own any other properties). PRs would pay 5%, no change from before.
The ABSD cooling measure increases target 2nd, 3rd and higher number of residential properties, as well as foreign buyers. Taken together, these constitute some 10% of residential property transactions.
Ah so! 90% of home buyer are buying their one property, mostly for owner occupation. The rare exceptions are when they are posted overseas for instance for jobs etc.
So, the new ABSD increases don’t affect the 99% of home buyers at all.
But, but, but, …, what if we want to upgrade? downgrade? move nearer our parents or children? move nearer school for kids? move nearer our work place? follow our church or temple move? move closer to parks, seaside, MRT station, hawker centre, etc?
Yah, there is also straight forward 2nd point about the ABSD system as a cooling measure.
We can get an ABSD refund if we sell our 1st residential property within 6 months of buying the 2nd property.
After all, the ABSD is meant as a property cooling measure, not intended to prevent home mobility.
So we have 6 months to sell our 1st property, to claim back our ABSD.
What else if we are looking at a 2nd residential property?
Apparently, we don’t need to pay ABSD upfront if we are buying an Executive Condo or EC. We still have 6 months to sell our 1st property to avoid paying the ABSD for the new purchase.
And husband and wife can separately or jointly own 2 properties, on the basis that this is equivalent to one residential property each.
And of course, ABSD only applies to residential properties. There is no ABSD for commercial properties etc.
Plus, there are now over 30+ S-REITs for interested investors to get exposure to various kinds of properties for investment, without having to go buy single chunky assets, which could be hard to dispose when we need to cash.
The S-REITs in this environment yield anywhere from 4% for more conservatively managed portfolios, to over 10% for the higher risk portfolios.
The S-REITs don’t require huge amounts of money to start. And we can buy an ETF on S-REITs too to diversify single S-REIT manager risks.
S-REITs were first conceived and developed as a way for ordinary mom and pop retail and small investors to have digestible access to a chunky asset class of properties. It is a way for folks to invest in a well regulated, relatively stable and easily understood asset in bite sizes of 1000 units.
At the same time, foreign buyers can also have access to a more liquid asset underpinned by an easily understood and well diversified asset like property. In this way, they don’t need to park their emergency savings into a single property, and find it difficult to sell and monetise that one chunky asset precisely during emergencies when markets may dry up.
What else?
Yah, what if we are planning to move but worry about not finding a buyer within the 6 months window?
Not usual, but we can consider doing a sale and leaseback say for 2-3 years, so we have up to 2-3 years of lease post sale to remain in our 1st home, while we hunt for our next dream home.
As Lucy Tan suggested in her comments, perhaps govt could consider extending the sale of 1st property to 9 months instead of 6?
But 6 months may not be too bad, if there is serious effort to sell?
Sometimes, delays in selling may be driven by higher than market expectations? ]
As for paying the ABSD for 2nd, 3rd or more homes, whether for ourselves, our children, etc, think of it this way.
Those who can afford to buy more than one property, would be buying for investment, or as a gift for their children or as a home for their parents.
The ABSD they pay can be considered a donation to government to support various social programmes or public good services including education and defence.
We can kind of think of the ABSD as another layer of wealth tax.
Given that there are many other ways to invest, or create a nest egg for their children or grandchildren, including S-REITs, folks who want to buy additional properties for investment or as future gifts to their children or grandchildren should consider their ABSD as a sharing of their own good fortune, as a payback of their good fortune, as donations for the public good.
And as for foreign buyers, chances of foreigners from far away wanting to buy a home in Sg is small.
But as Asia prospers, and about half of the world population is within 7 hours flight from Sg, we are just too small a place for a massive wave of non Singaporeans or PRs wanting to park their money in a relatively non-productive asset like a residential home.
Overseas folks are most welcome to invest in other productive segments of the economy, with residential properties largely meant to be homes for people to stay as owner occupiers.
Hence, foreign buyers are subject to a hefty ABSD of 60%, doubling the earlier rate of 30%.
This hefty jump must mean that MAS must already be seeing increasing flows into the residential property market post pandemic, and hence, the quick preemptive cooling measure, esp in the light of various macro global trends.
So foreigners still interested in property assets can invest in S-REITs or S-REIT ETFs as an alternative to crowding into the residential home market in tiny Sg
So relax folks, there is really no need to hyperventilate about the latest ABSD increases.
Have a good weekend, and a Happy May Day tomorrow.