At the end of April, the Singapore government increased the Additional Buyer's Stamp Duty (ABSD) on residential property purchases by foreigners by 30 percentage points to 60%, with immediate effect from 27 April.

This caught many real estate agents and homebuyers off guard. "For a private home worth S$2 million, for example, this means that the additional buyer's stamp duty payable by foreign buyers will jump from S$600,000 to S$1.2 million ((about R6.21 million)." Deng Minjie, executive director of AsianPrime Properties, told Business First.

The new policy comes as local Singaporeans are increasingly worried about being squeezed out of the housing market with high property prices, which could also make Singapore less attractive as an international financial centre.

The latest figures from the Urban Redevelopment Authority of Singapore show that private residential prices in Singapore rose by 3.3 per cent in the first quarter, compared to a 0.4 per cent increase in the previous quarter. 2021 and 2022 saw local house prices increase by 10.6 per cent and 8.6 per cent respectively.

In other major cosmopolitan cities, the ABSD rates are much lower. For example, the tax rate for foreigners buying a home in Vancouver is 29%, while London, Melbourne and Sydney have tax rates of around 14%. New York's tax rate is only 4.3%.

In a joint statement, the Ministry of Finance, the Ministry of National Development and the Monetary Authority of Singapore explained the new policy: "Demand from locals for owner-occupied homes has been particularly strong, and there is renewed interest in our residential property market from both local and foreign investors. If left unchecked, prices could outpace economic fundamentals. At the same time, there is a risk that prices will continue to rise relative to income."

Speaking to Firstrade, Deng Minjie analysed that stabilising property prices is a top priority for the Singapore government today, given the high lending rate environment and the risk of the global economy facing challenges, "This round of cooling measures is meant to be in slowing down the demand for purchases, especially from investors and foreigners."

In fact, this is the third round of cooling measures for real estate in Singapore since the new crown epidemic, with similar early precautionary measures taken by the government in December 2021 and September 2022, which have had a "moderating effect".

For example, the stamp duty on foreign buyers in Singapore was raised from 20% to 30% in December 2021, which led to a 16.5% drop in the number of condominiums purchased by foreigners in 2022. But the fact remains that local property prices have still not eased.

According to a 2022 study by Singapore brokerage OrangeTee&Tie, Singapore remains a top investment destination for foreign investors after multiple rounds of cooling measures.

"Despite the interest rate hike and the cooling measures implemented in December 2021, foreign buyers purchased more luxury condominiums priced at S$5 million (approximately R25.87 million) and above in 2022," the report said, adding that "foreigners and those who have been granted permanent residency in Singapore people are almost back to 2019 levels for luxury condominium purchases."

According to buyer enquiries from Juwai IQI Group, a global property technology company based in Kuala Lumpur, Singapore is a popular overseas destination for Chinese buyers. Singapore has been in the top 10 overseas enquiries from Chinese buyers since 2021, ranking ninth in that year. Despite the Singapore government's increase in stamp duty for foreign buyers at the end of 2021, Singapore remained at number 10 in the list of enquiries for two years after that.

Foreign buyers only account for a small percentage of property sales in Singapore. According to the Urban Redevelopment Authority of Singapore, foreign buyers accounted for 4.7 per cent of home purchases in Singapore last year, rising to 7 per cent in the first quarter of this year.

Nicholas Mak, chief research officer at property information platform MOGUL.sg, therefore argues that the measures are limiting if only 10 per cent of purchases are affected, "How do you cool the market when it doesn't affect the other 90 per cent? It's like you have an oil plant on fire and these people aren't using the right tools to put out the fire."

Meanwhile, those who can afford to buy property in Singapore may not care about the extra tax they pay.

Kashif Ansari, co-founder and group chief executive of IQI, told Business First that the high price of property in Singapore has weeded out a number of foreign buyers. High-net-worth individuals who are planning to buy Singapore property now may not change their decision to buy a home due to the 30 per cent tax increase.

"Of course, those who specialise in property speculation will be deterred. On the other hand, foreign homebuyers with a global allocation in mind may turn their attention to luxury properties in places like Malaysia or Dubai." He said.

According to Deng Minjie, based on already past experience, foreign buyers tend to be deterred when they receive the news, especially since the increase has doubled this time around.

However, one of her clients, a foreign buyer who had planned to look at properties after the new policy was introduced, has not changed his mind. "We have communicated with them promptly about the tax increase and they are still willing to go ahead with their home purchase plans. Their feedback is that Singapore would be a place they would want to invest in and migrate to." She also revealed that her buyers' feedback was that the unit price of Singapore homes was reasonable, in terms of just the high amount of taxes.

For his part, OrangeEasy Industrial Research Director Sun Yanqing told Firstrade: "The cooling measures may dampen demand in the coming months. This may provide time for more housing completions and housing supply. When there is a better market balance, prices may stabilise. When demand contracts, price increases may also slow down. This will benefit first-time home buyers and HDB upgraders (HDB upgraders) buying their first homes."

"We have revised our price forecast for the full year 2023 down slightly from 5-8 per cent to 4-7 per cent." Sun Yanqing said.

Deng Minjie expects that as first-time home buyers who are Singapore citizens and permanent residents are not affected under this new policy, these groups will be the main demand drivers in the coming months. Based on 2022 figures, this group accounts for about 90 per cent of residential property transactions.