Tougher tax laws, various cooling measures and growing voices of discontent are seemingly dampening investment sentiment among foreigners in Singapore.
View of downtown Singapore at Marina Bay. Photo: Courtesy of Shutterstock.
What do Eduardo Saverin, Jim Rodgers, Gina Rinehart and Jet Li have in common? They each now call Singapore home and are believed to have snapped up luxury properties in the city-state.
Since the UBS banking scandal hit Switzerland in 2008, the wealthy have increasingly began to shift their focus to Singapore.
A city where English is widely spoken and where everything works with clockwork precision, it is now a haven for the rich to park their money ever since Switzerland’s flagship bank, UBS, became the target of a US probe.
Its chief Raul Weil was subsequently charged for helping 17,000 Americans hide around US$20 billion in its offshore Swiss bank accounts.
The flight to safety and the timing could not have been better. Back then, Singapore’s bank secrecy laws protected the rich from any external government’s probe.
In fact, up till 2009, Singapore was still under the Organisation for Co-operation and Development ( OECD) ‘grey list’ as a tax haven.
Is there a strong correlation between influxes of ‘hot money’ and record property prices?
The city-state has always set its sights on attracting the rich since the 1990s.
In 1993, the Urban Redevelopment Authority (URA) approved the Master Plan for Sentosa Cove to develop extremely luxurious residences.
Located off the main island, this is the only place in Singapore where wealthy foreigners can get fast-tracked approvals from the Singapore Land Dealings (Approval) Unit.
With the tagline “the world’s most desirable address”, the lifestyle here is a far cry from the high-density main island where most Singaporeans call home.
2008 also saw the inauguration of the Singapore Grand Prix and by 2009, the party was already in full swing thanks to the country’s quick economic recovery.
Ferraris and Lamborghinis became the norm on Singapore’s roads.
The following year, a flurry of high-rollers made their way to the casinos here when Marina Bay opened its doors in 2010.
In less than a decade, the city has become a playground for the rich.
According to the Boston Consulting Group, the city-state boasts the highest concentration of high net worth individuals in 2012 at 16 percent.
Interestingly, during the same year, Singapore’s income inequality which is also defined as the Gini coefficient was the second highest after Hong Kong among developed economies at 0.478 points.
Data from Savills showed that mainland Chinese, Indonesians, Malaysians and Indian were the top buyers for private properties in 2011.
Cooling measures
On the back of Singapore’s strong economic recovery and new found status among the rich as a tax haven, it is also no coincidence that property prices in the country surged to their record highs.
Government data showed that from the first quarter of 2009 onwards, the Resale Price Index(RPI) for Housing Development Board (HDB) flats and the Private Property Index (PPI) surged by a whopping 60-plus points and 80-plus points respectively until the first quarter of 2013.
Million-dollar HDB flats had become the norm while expensive public housing cost the ruling People’s Action Party (PAP) its lowest vote margin ever during the 2011 general election.
By 2012, the growing voices of discontent was already being felt with many Singaporeans taking to social media to vent their frustrations on what they perceived as the growing income divide and the preferential treatment given to foreigners.
This was further exacerbated by wealthy foreigners involved in bad behaviour such as Briton’s Anton Casey who fled Singapore after he was caught calling Singaporeans who
take public transportation “poor”.
Perhaps sensing that the groundswell opinion has somewhat shifted, the Singaporean government began to introduce various cooling measures to prevent a property bubble from forming.
The first measure was the Sellers Stamp Duty (SSD) which was aimed at deterring the rampant speculation that occurred in 2009 specifically in the Marina Bay and Sentosa Cove areas.
Introduced in 2010, those who dispose of their properties in the first, second, third and fourth years of their ownership of it must pay an SSD of 16, 12, 8 and 4 percent
respectively.
The second measure was the Additional Buyers’ Stamp Duty (ABSD) introduced in 2011 just after the general election which is targeted at multiple property investors.
It was subsequently revised in 2013.
This measure hit foreigners the most as they must now pay an ABSD rate of 15 percent on their first, second and subsequent property purchases.
Permanent residents are also not spared as they must pay an ABSD rate of 5 percent
on their first property and then 10 percent on their second and subsequent property purchases.
This, together with the new Total Debt Service Ratio (TDSR) and lower loan-to-value (LTV) ratio, have somewhat dampened market sentiments among foreign investors as they find it increasingly expensive to buy a property in Singapore.
Lights out
By 2014, it appeared that the party had officially ended.
A survey from CIMB suggests that while interest among foreigners was still there, demand has somewhat waned.
“Foreign demand has fallen, now making up less than 10 percent of new sales compared to 15 percent two years ago. Investment demand has fallen as well with upgraders making up more than 60 percent of new sales versus 50 percent two years ago,” its survey stated.
Meanwhile, prices of private properties continued their downward trend which is something that has worried developers.
According to the fourth quarter of 2014 flash estimates by the URA, the PPI are now similar to levels recorded in the second half of 2011 which is just before the
ABSD was introduced.
Additionally, the sales volume of properties decreased by almost half from 14,948 units sold in 2013 to 7,500 units in 2014.
Unsurprisingly, some property agents have now left the market altogether while some are selling overseas properties instead.
Likewise, in the HDB market, the RPI dropped by 1.4 percent from the third quarter to reach almost similar price levels in the first quarter of 2011.
The introduction of almost 20,000 new units had also eased demand from the resale
market and helped to bring prices down.
Perhaps the biggest dampener was the tax agreement between the Singaporean and US government announced in May 2014.
Under the agreement, Singapore-based financial institutions must now comply with the US Foreign Account Tax Compliance Act (FATCA).
This means financial institutions here are now required to regularly submit information on financial accounts held by Americans to the US Internal Revenue Service, marking the end of Singapore’s status as a tax haven among wealthy US citizens.
However, that has not deterred other ultra-high net worth individuals who do not mind paying extra for the various tax benefits.
Just last December, David Beckham was spotted snapping up a luxurious bungalow on Sentosa Cove – a timely move when so many properties there are on fire sale.
Meanwhile, foreign funds are continuing to flow in the Lion City despite the curbs.
According to the Monetary Authority of Singapore (MAS), total assets managed by Singapore-based asset managers grew by 11.8 per cent to S$1.82 trillion as at end 2013.
While the luring the rich to Singapore is something that is likely to continue to be on top of the Singaporean government’s agenda, it has other things to worry about for now.
2016 is a crucial year as the next general election needs to be called.
The focus for now is to win back the hearts and minds of the people.
This article was first published by iProperty.com Malaysia in its February 2015 issue.
I write | Khalil Adis 