Minister for National Development Lee Chee Siong said that the increase in the Additional Buyer's Stamp Duty (ABSD) was to restore stability and resilience to the residential property market, while ensuring that owner-occupiers could afford to buy private homes.
In a media interview, he also pointed out that foreign investors accounted for 7 per cent of the total number of local home purchases in the first quarter of this year.
This ratio was around 20 per cent in 2011, but has fallen to 3 to 4 per cent in the past few years. However, between 2017 and 2019, the share of foreign investors rose to about 6 per cent. It rose even further in the first quarter of this year, showing that foreign buyers are starting to return.
"We are finding that foreign buyers are still very interested in Singapore housing as an asset class. If we do not take early precautions, residential investment from both local and foreign buyers could increase, which would add pressure on Singaporeans interested in buying homes, especially owner-occupiers.
"With this in mind, our two main objectives in introducing the cooling measures are to prioritise supply for national home buyers for owner-occupation, and to pre-empt demand for homes from local and foreign investors."
The Government announced a new round of property cooling measures late in April, increasing the Additional Buyer's Stamp Duty (ABSD) on residential property purchases by three to 30 percentage points. The largest adjustment was made to the ABSD payable by foreign buyers, which was raised from 30 per cent to 60 per cent.
The two rounds of property cooling measures introduced by the government in December 2021 and September last year, as well as the changing global economy and rising lending rates over the past year and a half, have had an impact on demand, and private property prices have shown signs of slowing down, said Mr Lee. However, in the first quarter of this year, private property prices rose again, up 3.3% year-on-year.
The strong demand came mainly from national buyers of owner-occupied homes, due to delays in housing construction as a result of the coronary disease epidemic and a desire for more living space in the aftermath of the epidemic. Singaporean and foreign buyers are also actively investing in local real estate, hence the need for the government to cool the market.
Based on 2022 data, this round of ABSD adjustments will affect about 10% of residential property transactions. The number of transactions affected may seem small, but Lee Chee Sing pointed out that 10% was last year's figure, and with local and foreign investors expected to increase next, it is important to curb investment activities early.
In this round of cooling measures, the ABSD payable by Singapore citizens buying second and third properties has been increased by three to five percentage points, while the ABSD payable by permanent residents buying second and third properties has been increased by five percentage points across the board.
Lee said that Singaporeans and permanent residents are very sensitive to ABSD increases, so this increase is believed to be enough to dampen national investment demand. He also did not think it would affect HDB flat buyers' chances of buying private homes, as many of them sell their first homes for cash before buying a second one, and are therefore not affected by the ABSD.
However, the ABSD payable by developers will remain at 40 per cent, including the 35 per cent stamp duty that can be refunded to developers if the stamp duty requirements are met, and the 5 per cent stamp duty that cannot be refunded.
Lee Chi Sing said it was important to allow developers to continue to purchase land for housing so that there would be a supply of homes for owner-occupied locals.
The ABSD has gone through four rounds of increases since it was implemented in 2011, and Lee said the government is taking a two-pronged approach to stabilise the market by increasing supply and curbing demand to prevent property prices from overtaking economic fundamentals to the detriment of the nation.
As to whether the cooling measures will be relaxed or further tightened, the government will closely monitor market trends and key demand conditions before deciding on the action to be taken.