Singapore residential property market continues to appeal to buyers from China
The Singapore real estate market continues to offer investors long-term capital appreciation with its strong growth story and proven resilience against headwinds in the global economy. Private home prices on the island city-state continued to rise 2.8 per cent year-on-year in 2012 despite six rounds of residential market cooling measures amid uncertainties in the eurozone and tentative economic recovery in the United States.
Singapore’s sound fundamentals have attracted foreign property buyers to the republic. Foreigners are allowed to buy non-landed private residential property in Singapore while those who wish to purchase landed property will need to seek approval from the Minister for Law. In 2011, one in three buyers of non-landed private residential property in Singapore was a foreigner.
Buyers from Malaysia and Indonesia traditionally form the two largest foreign markets, in terms of transaction volume, for non-landed private residential property in Singapore. In 2011, however, we saw a surge in the number of buyers from China as they looked to a safe investment destination on the back of property market cooling measures in China. Chinese buyers accounted for 27.8 per cent of the total foreigner transaction volume that year, up from the annual average of 15.5 per cent from 2008 to 2010, and overtaking Malaysia and Indonesia to rank in the top spot. Malaysia and Indonesia fell to second and third places, respectively.
Transaction caveat records that we have collated from the Government showed that buyers from China were most active in five geographical districts in Singapore in 2011. Ranked in terms of transaction volume, they were districts 15, 14, 16, 19 and 18. The top two districts – 15 and 14 – are located in the city fringe areas of Singapore and private homes there generally command higher prices than those situated in the suburban districts of 16, 18 and 19. We also found that 28.2 per cent of buyers from China bought housing units costing more than S$1.5 million in Singapore in 2011.
The high volume of purchases by foreigners (or 17.6 per cent in 2011) and rocketing home prices prompted the Singapore government to impose an Additional Buyer’s Stamp Duty (ABSD) on top of the existing Buyer’s Stamp Duty on purchases of residential property in December 2011. In particular, foreigners were the most adversely affected, where a maximum 10 per cent ABSD is imposed on foreigners and non-individuals buying any residential property in Singapore.
This cooling measure resulted in a fall in residential property purchases by foreigners to 6.3 per cent in 2012. We noted that transactions by buyers from China also dipped to 22.2 per cent of total foreigner purchases in 2012. Nonetheless, they remained the second largest group of foreign buyers after Malaysia during the year, demonstrating the continued appeal of Singapore’s property market to buyers from China despite the cooling measures.
We observed that the Chinese buyers of residential properties in 2012 mostly favoured suburban locations. They have turned to the more affordably-priced mass-market properties located in the suburban districts of 19, 16, 18 and 23 after the imposition of the ABSD which effectively increased buying costs.
Correspondingly, a slightly higher percentage or 72.8 per cent of homes bought by Chinese nationals was less than S$1.5 million.
Following the re-acceleration of private property prices in 2H 2012 and record housing transaction volume in 2012 that have been fuelled by the pro-buying environment – low interest rate and excess central bank-created liquidity – a seventh set of residential property market cooling measures was introduced by the government. Particularly, the ABSD for residential property purchases by foreigners has been increased to 15 per cent with effect from 12 January 2013. While this may deter some foreign buyers, Singapore is likely to remain attractive for the fact that it has long been an investment haven for foreigners given the clear and transparent foreign ownership laws that provide protection to property rights, political and social stability, the absence of natural disasters politically and low currency risk. Hence, many foreign buyers are expected to still view the latest curbs as just another one-time tax on property that they are willing to pay.
As such Singapore’s real estate will continue to offer an attractive proposition to international buyers in the Asia Pacific region amid low interest rates and against the red hot property markets of neighbouring Hong Kong and Shanghai.