Singapore’s luxury homes look attractive vis-à-vis London, Sydney

/ The Edge Property |

February 25, 2016 10:00 AM SGT

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Singapore’s 15% additional buyer’s stamp duty (ABSD) seems prohibitive and has been the biggest deterrent for foreign buyers. However, the regulatory changes affecting foreign buyers in the London and Sydney markets over the past year have enhanced the appeal of Singapore private residential property over these gateway cities, according to the first global tax report by Knight Frank in collaboration with Ernst & Young.

The report compared Singapore with London and Sydney in two scenarios: a foreign investor buying a US$1 million ($1.4 million) property and a US$10 million property. The conclusion was that for a US$1 million property, Singapore offers the lowest property cost but the highest tax cost. For a US$10 million property, Singapore offers the lowest property and tax costs (see tables).

Table

Source: Knight Frank, Douglas Elliman, BCZ Capital, Zabel Property AG, Clear Title Group LLC

On an overall cost basis, taking into consideration tax (which includes the ABSD) and property costs, Singapore is “competitive” relative to London and Sydney. To rein in property prices, policymakers in Australia and the UK have introduced higher taxes for foreign buyers as a macroprudential measure, says Nicholas Holt, head of research for Knight Frank Asia Pacific. “While Asia led the way in using taxes as a form of macroprudential tool — in places such as China, Hong Kong, Singapore and Malaysia — they are now being adopted by policymakers in the West.”

For example, in London, the Chancellor of the Exchequer is introducing a 3% stamp duty on buy-to-let or second homes from April. This comes on top of the tiered stamp duty regime introduced in December 2014, with higher stamp duties for properties worth £1.1 million ($2.3 million) or more. From last April, foreigners have also been hit by capital gains tax when they sell their residential property.

In Australia, the government introduced application fees for foreign property buyers, which came into effect last July. While the fees are not high — A$5,000 ($5,035) for properties worth less than A$1 million and A$10,000 for every additional A$1 million — the penalty is punitive for those who flout the Foreign Investment Review Board regulations.

According to Knight Frank’s Prime Global Cities Index in 4Q2015, the prices of high-end homes in Singapore fell 2.1% over the past year and 8.2% over a five-year period. In London, prime residential property prices rose 1% over the past year and 39.3% over a five-year period. In Sydney, prime residential property prices increased 14.8% over the past year and 29.9% over a five-year period.

The hike in the ABSD for foreigners in January 2013 and the introduction of the total debt servicing ratio loan framework in June that year have had a major impact on Singapore’s high-end homes. Transaction volume and prices have been in the doldrums over the past three years, says Alice Tan, head of research and consultancy at Knight Frank Singapore.

However, the price declines have made it “an attractive value proposition” compared with London and Sydney. Compared with the two cities, Singapore offers lower prices on an average per sq ft basis for ultra- luxury non-landed homes. Currency shifts have also made property prices in Singapore more attractive, Tan adds.

There are signs that high-net worth investors are starting to relook at Singapore high-end homes. With the gap between seller’s and buyer’s price expectations closing, more trades of high-end homes are being done, notes Tay Kah-Poh, executive director of residential services at Knight Frank Singapore.

Unsold inventory of premium homes in the Core Central Region (CCR) has also been pared down. In 4Q2015, unsold stock in the CCR accounted for just 26% of Singapore’s total of close to 25,000, according to Knight Frank Research.

“There’s a lot of uncertainty about global market performance this year and the interventions we’ve seen are unlikely to stop here,” Holt warns. For instance, in Singapore, there has been intense speculation on whether the government will tweak the cooling measures this year. In London, the hot-button issues are housing affordability and the latest stamp duty, he adds.

“Owing to the uncertainties, buyers will be looking more closely at taxes and costs, and how it’s going to change and impact their overall holding costs,” says Holt. “Despite the ABSD, we think Singapore remains attractive for a foreign buyer and is very competitive relative to London and Sydney.

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This article appeared in the City & Country of Issue 714 (Feb 08, 2016) of The Edge Singapore.

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