Singapore is raising property taxes in a bid to cool its red-hot housing market, amid mounting concern that an influx of wealth into the city-state is hurting affordability for locals and its competitiveness as a financial hub.
The government is increasing stamp duties for second-home buyers and foreigners purchasing private property, it said in a statement. For foreigners buying any home, the tax rate doubled to 60 per cent from 30 per cent.
The measures follow tax increases that were imposed in December 2021 and a tightening of home-loan limits in September 2022. While those moves had a "moderating effect," property prices last quarter showed "renewed signs of acceleration amid resilient demand," the statement said.
The hike on foreign buyers is "draconian" even though the moves were not totally a surprise, Citigroup Inc. analyst Brandon Lee wrote in a note. "We expect a knee-jerk negative impact on shares of residential developers."
Citigroup forecasts the rate of price increase to slow over the next few quarters to as much as 2 per cent but not drop given a healthy employment market. Home prices gained 3.2 per cent in the first quarter.
Singapore's property sector has remained buoyant even as countries elsewhere face slowdowns due to soaring interest rates and inflation, in part due to money flowing into the city-state, especially from China.
"Demand from locals purchasing homes for owner-occupation has been especially strong, and there has also been renewed interest from local and foreign investors in our residential property market," the government said. "If left unchecked, prices could run ahead of economic fundamentals, with the risk of a sustained increase in prices relative to incomes."
Rise in residential rents
The exuberant property market has also fed into a surge in rents, with Singapore pushing New York off the top spot for the strongest growth in residential rents in the last quarter of 2022, according to a report by Knight Frank.
There have been signs that this is driving discontent among expats and locals alike. A YouGov poll conducted last December found that two out of three people felt the government should place greater focus on housing affordability. A separate survey by the European Chamber of Commerce earlier this year showed that 69 per cent of businesses were considering relocating their staff out of Singapore without any help with rising rents.
Singapore's housing boom contrasts with rival financial hub Hong Kong, which saw an exodus of residents during the pandemic. Hong Kong in February lowered the tax rate for first-time buyers of properties worth up to about HK$10 million ($1.2 million) in a bid to help people climb the housing ladder. Foreigners buying a property in Hong Kong are subject to 30 per cent in property tax.
Singapore's government raised the so-called Additional Buyer's Stamp Duty to 20 per cent from 17 per cent for Singapore citizens buying a second home. It was increased to 30 per cent from 25 per cent for citizens purchasing their third or subsequent home, and for permanent residents purchasing a second residential property.
The increases take effect on Thursday, according to the statement, which was issued by the Ministry of Finance, the Ministry of National Development and the Monetary Authority of Singapore.