Opinion

Will the Average Singaporean Get Burnt if the ABSD is Removed?

ABSD Singapore

Peter Lin

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The other day I had a little “fight” with an up-riding escalator. It resulted in a large (but not deep) gash on my toe. While the bandage was on, I managed to resist touching the wound, but now that it’s off, I’m finding it very hard to resist picking at the s… Ahem. I think I shouldn’t disgust you any further.

My point is that bandages are there to allow something to heal, to bring it back to normal. It’s the same way with the property cooling measures, especially the Additional Buyer’s Stamp Duty. The Additional Buyer’s Stamp Duty acts like a bandage that allows the property market to heal.

But less than 4 years since it was implemented, there are starting to be calls for it to be removed.

 

Okay, hold up. What is the Additional Buyer’s Stamp Duty?

As you may have guessed by its name, it is an addition to the Buyer’s Stamp Duty that is imposed on all purchases of a residential property in Singapore. Unlike the Buyer’s Stamp Duty, the Additional Buyer’s Stamp Duty, or ABSD, is a kind of tax on the purchase of a residential property in Singapore that only affects Singapore Permanent Residents and foreigners, or Singapore Citizens who are buying more than one property.

In other words, it artificially raises the property prices for everyone except Singapore Citizens buying their first residential property.

 

How does it work?

The ABSD is calculated as a percentage of the market value of the property. Here are the current rates:

 Profile of Buyer ABSD Rates from 8 Dec 2011 to 11 Jan 2013 ABSD Rates from 12 Jan 2013
Singapore Citizens buying first residential property  Not applicable  Not applicable
Singapore Citizens buying second residential property  Not applicable  7%
Singapore Citizens buying third and subsequent residential property  3%  10%
Singapore Permanent Residents buying first residential property  Not applicable  5%
Singapore Permanent Residents buying second and subsequent residential property  3%  10%
Foreigners and entities buying any residential property  10% 15%

 

As you can see, when the ABSD was first introduced in December 2011, it was mainly to discourage foreigners and entities (essentially any buyer who is not an individual) from purchasing residential property in Singapore, and discourage the purchase of three or more residential properties.

However, starting from January 2013, those rates were increased further and new rates were introduced. A Singapore PR previously wouldn’t pay any ABSD for their first residential property, and now has to pay 5% more. A foreigner who wanted to buy a $2 million property for example, would now have to pay $100,000 more than before.

 

The aftereffects of ABSD

One of the immediate effects of implementing the ABSD was seeing a sharp drop in property speculation. Buyers from overseas who may have previously been interested in investing in Singapore property following the sharply escalating prices between 2008 and 2013, were now put off by the high ABSD. The thought of paying $100,000 more than before for a $2 million property was enough to make even the richest property investors think twice.

Coupled with the other property cooling measures like the Total Debt Servicing Ratio and the Seller’s Stamp Duty, it has caused the volume of property transactions to drop significantly over the past 2 years. At the same time, property prices and rental costs have also been dropping.

 

Since the desired effect has happened, is it time to remove the ABSD?

Deputy Prime Minister Tharman Shanmugaratnam doesn’t think so. He has said there is still “some distance to go in achieving a meaningful correction, after the sharp run-up in prices in recent years”. He’s right. While the expected consequences of the property cooling measures are starting to take shape, it really is too early to appreciate the full effects of its implementation. Removing the ABSD now is like pulling off the bandage before the wound has had a chance to heal.

But what if it was not removed entirely, just reduced? For example, what if we were to go back to the pre-2013 rates? Let’s peer into the crystal ball we keep around the MoneySmart office.

 

What would happen if the ABSD were reduced now?

Looking at the pre-2013 rates, Singapore Citizens were not penalised for buying a second property, and Singapore PRs were not taxed on their first property. This meant that Singaporeans (both Citizens and PRs) who could afford to buy properties, would not feel the pinch of doing so. Furthermore, with property prices dropping, it’s become even more affordable for more buyers to snap up.

But who will benefit from the relaxing of the ABSD? The cash-rich Singaporeans who’ve previously been turned off by the extra costs. Property once again becomes an option for them to invest their money. The increased demand, which will undoubtedly not be small, will push up prices. But the cash-rich won’t need to worry, since this means their properties will increase in value.

 

Where does this leave the average Singaporean?

The rest of us who are not cash-rich, on the other hand, already have to rely on meeting the restrictions of the Total Debt Servicing Ratio when applying for a bank loan. These restrictions already limit the kind of property we can afford, not to mention the fact that we will probably take all our working life to repay the loan.

 

So… to reduce the ABSD now or not?

Ultimately, we’re not saying that no good will come out of reducing the ABSD right now. There’ll definitely be positive effects such as injecting life back into a slumping property market. However, we also need to remember why the ABSD was implemented in the first place – to discourage property speculation in a market where prices were quickly becoming out of step with incomes.

Remember that right now, the ABSD does not affect Singaporeans trying to buy their first home, and only charges 5% to PRs trying to buy their first home. If the ABSD gets reduced, it is ultimately this group that will get burnt. And it might be too late to replace the bandage by then.

 

Do you think the ABSD should be reduced? What about the other property cooling measures? We want to hear from you.

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Peter Lin

I am the poster boy for reinventing one's self. I've been a broadcast journalist, technical writer, banking customer service officer and a Catholic friar. My life experiences have made me the most cynical idealist you'll ever meet, which is why I'm also the co-founder of a local pop culture website. I believe ignorance is not bliss, and that money is the root of all evil only if you allow it to be.

  • The current system makes it very difficult for upgraders or (in my case) senior citizen downgraders because first you have to sell your home then move into rental accommodcation before you can buy your next home. If the scheme allowed you to buy your second home and gave you, say, 180 days from completion to sell off your first home, it would minimise the stress (only one move instead of two.) Also, it would incentivise owners to reduce their price as the 180- day deadline approached – better to knock 50% of your looming ABSD fee off your selling price and save yourself some money (while at the same time making your unit more attractively priced, which is the govt’s objective anyway!)

    • Peter

      Hi Roger, I see this is an old comment but I read it and immediately remembered (then double checked) the ABSD exception you asked for already exists. If you downgrade to an HDB unit you will not be charged ABSD as you must dispose of your existing property within 6 months under existing HDB rules. If you are downgrading to a smaller private apartment then you will be charged ABSD but you can claim this back if you sell your old apartment withing 6 months.

      The reality though is that few people will take the risk of being charged ABSD if they can’t find a buyer first and this clearly is contributing to anemic transaction volumes. Perhaps this rule should be extended to 12 months instead of 6 months so that more people will take the plunge and buy before they sell. A functioning market that allows reasonable movement of people to suit changing economic needs is better than a frozen one.

      Obviously, I’m in the camp that says it is time to apply some of the lessons learned and tweak the rules:
      – SSD should reduce faster: No penalty after 2 or 3 years instead of 4 to allow people whose jobs move to also move (but keep the shorter term SSD to deter speculators).
      – ABSD levels can be shaved back but not yet to pre January 2013 levels – I suggest: SC: 1st: 0% 2nd: 3% 3rd+: 6% SPR: 1st: 3% 2nd: 6% 3rd+: 9% F/E: 1st+: 10%

      However, I think the TDSR rules are good and should remain as-is.

      Regards,
      Peter.

      • Thanks Peter for taking time to reply. Yes, I was informed of the 6-month sell date for a refund after I wrote to the Finance Minister. If you google ABSD, there are lots of references to what you have to pay, but nowhere did I see any agent pointing out that if you sell within 6 months (“use me and I’ll do my best to sell your property in time!”) you get the tax back. I agree that in the current slack housing market, 12 months would be more realistic – despite offering our property at a competitive price, we’re getting few viewings. And, as you point out, those interested say ‘we have to sell our own property first’.

        • Peter

          Good luck, Roger!

        • romanc9

          Hi Roger,

          I heard it apply to Matrimonial house only. If you are single or divorced, if you don’t sell first then buy, you will not entitle the return of the ABSD. I don’t know about windowed. The HBD have a lot of rules and regulations but was not explain properly. Even if you talk to the HDB staffs, some are just blurr and they tell you rubbish. Then when you done your purchases, they start tell you , you did not complied with this or that. They will never admit is their mistake.
          Therefore, will be better you email them and ask them to answer your question according to the number of the question.
          Good luck.