The doubling of the Additional Buyer’s Stamp Duty (ABSD) rate for foreign buyers of residential property in Singapore, from 30 per cent to 60 per cent from end-April 2023, has effectively culled foreign buyer demand. Were foreign buyers inundating the private residential space with such force that the market was unbalanced, and the housing aspirations of Singaporeans marginalised?

When the government announced the higher ABSD rates in April 2023, it said that the change was a pre-emptive measure. But perhaps, taking a look at the foreign buyer volume in recent times will show whether this group of purchasers were moving the needle significantly.

Before the pandemic, foreigners bought 1,216 units in 2018 and 1,001 units in 2019, making up 6.3 per cent and 6 per cent, respectively, of all non-landed private home purchases islandwide. Over these two years, the average volume of foreign purchases came to about 277 non-landed residences per quarter, or about 1,109 plus unit per annum, prior to the Covid-19 outbreak.

Even though there were occasions (from first quarter to third quarter of 2018 and in Q3 2019) when the number of foreign buyers crossed 300, the government was not compelled then to invoke measures to curb demand from this buyer group.

This quarterly average remained stable at 231 units, even in the dark days of the pandemic between Q1 2020 and the fourth quarter of 2021, with transactions by foreigners mostly hampered by travel restrictions.

Never once in the three-and-a-half years between Q4 2019 and Q1 2023, which includes the pandemic and recovery thereafter, did the number of sales to foreigners exceed 300 per quarter, comprising 3.1 to 6.9 per cent of all non-landed transactions each quarter.

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Foreigners constituted an average of 4.7 per cent of all non-landed transactions quarterly, from the onset of the pandemic to just before the imposition of the 60 per cent ABSD rate for foreign buyers.

Foreign buyer activity in the CCR

In the Core Central Region (CCR), where the luxury class of prime non-landed homes are located, the proportion of foreign buyers versus total sales volume is typically higher, averaging 11.7 per cent quarterly from Q4 2019 to Q1 2023, or, ranging from 7.8 to 17.7 per cent.

The higher proportion of foreigners buying in the CCR is a result of high-net-worth individuals and families from around the region that traditionally regard Singapore as a safe destination to set up investment homes for both capital preservation and appreciation.

One reason why foreigners find Singapore an attractive wealth hub to sink their financial roots into residential property derives from the proactive efforts of the government in crafting pro-business policies that attract foreign investment, develop infrastructure, and regulate business and society, such that wealth finds a stable and secure home.

Even with this context, the number of foreign buyers in the CCR remained under 200 units each quarter (the highest being 162 units in Q1 2023), from the pre-pandemic years of 2018 right up to the present day.

The ultra-rich will always be a minority in any demographic, and under 200 foreign buyers each quarter did not appear threatening before the pandemic and during the pandemic. Therefore, post-pandemic, it was somewhat surprising to hear alarm bells suddenly sounding, especially when there were no presenting symptoms of a change in trends.

Headlines are not statistics

Foreign buyers bagging multiple properties at new price benchmarks make headlines.

But these anecdotal deals do not form the full picture, and do not represent the reality of foreign buyers’ influence on the private residential market.

Based on the non-landed price index for the CCR, prices fell 0.4 per cent in 2020, rose by a moderate 3.8 per cent in 2021, 4.8 per cent in 2022 and 1.9 per cent in 2023.

These movements lagged far behind the overall price index as well as the indices for the Rest of Central Region (RCR) and Outside Central Region (OCR) in these years – years in which price increases were fuelled mainly by Singaporean homebuyer demand.

With the increased ABSD, foreign buyer participation in the CCR declined from an average of about 50 per month between January and May 2023, to an average of 13 between June and December 2023. Foreigners from countries that have free trade agreements (FTAs) with Singapore – and who pay the same ABSD rates as Singaporeans – made up most of the numbers in the months after May.

It was not so much a case of foreigners from FTA countries increasing their participation in the private home market in the CCR, but rather buyers from FTA countries continue to show some interest (albeit on a more subdued level) in opportunities here instead of looking at other wealth hubs.

The fact is, Singapore is a hub for investment and wealth. This reputation for stability and safety was further enhanced after the government kept the economy afloat and its citizenry safe from the worst of the pandemic.

In the attitudes survey in Knight Frank’s Wealth Report 2022, 25 per cent of the regionally mobile from Asia chose Singapore as the country they would most likely consider purchasing a new home outside their own country. This percentage was similar in the 2023 report at 26 per cent. Moreover, the number of family offices grew from 50 in 2018 to 1,100 by end-2022, according to the Monetary Authority of Singapore (MAS), a further testament to the appeal of the city-state.

Foreign investors attracted to the wealth proposition that is Singapore might very well now turn to other alternative locations in the region and around the world, when faced with the increased ABSD rate.

As transaction volume thinned in the wider market, and with foreign buyer activity almost coming to a standstill in the CCR, should the government consider reducing the ABSD rate for foreign buyers? Especially now that supply has caught up with the extraordinary domestic demand that rose from the pandemic.

Some form of limiting conditions could be considered for the concession.

For example, allowing a reduced ABSD rate only for homes in the CCR, and for ticket sizes of more than S$5 million, which is ordinarily the more exclusive ambit of any wealthy household.

The foreign buyer ABSD rate need not return to the 30 per cent prevailing prior to April 2023.

Any reduction, even with qualifying conditions, could serve as an olive branch that sends a message that Singapore continues to remain open to wealth and investment from all over the world, and welcomes those with the talent and resources to grow and live together with us.

Leonard Tay is head of research and Koh Kai Jie is analyst at Knight Frank, Singapore