Foreign Investors Losing Love for Singapore, or Maybe their Bottle

Singapore is seeing fewer foreign investors, and this is at least partially due to the stamp duty recently imposed on overseas buyers. Developers who are willing to absorb at least part of the stamp duty are continuing to see sales. 

The increase in stamp duty was one of several measures imposed by the Singapore government in order to curb sales to foreign investors as there work concerns that housing was becoming too expensive for residents. By the time these measures were in place the international sales market had already quietened down due to the global economic situation, and the introduction of additional taxes has only cooled the market down further.

During the first quarter of this year property values in Singapore fell for the first time in three years, according to data from the government. Property prices at the higher end of the market fell by 0.9% compared to the previous quarter. 

Prices are expected to continue to decline for the rest of this year due to the number of properties currently on the market. Although these price declines are minimal, they are in considerable contrast with the price increases seen over the past few years, as Singapore has seen the largest price gains in the world. 

Between the fourth quarter of 2006 and the fourth quarter of 2011, property prices in Singapore have risen by 50.5%. The only areas to see larger price increases are China, Hong Kong and Israel. In 2007 the price increase for Singapore was an incredible 33%. Singapore is desirable as it is seen as being a relatively transparent market, especially in comparison with other Asian cities. The percentage of foreign buyers increased from 11% in 2005 to 17% in 2011.

December Sales of Singaporean Private Homes Hit Lowest Level for Two Years

Figures for December sales of privately owned homes in Singapore fell to their lowest level for two years after new government taxes came into effect. Just 632 units were sold in December, and total sales for 2011 show a fall of 24%.

Experts are not surprised as this result is exactly as they predicted, with potential homebuyers remaining cautious about committing to a purchase as there are fears that property prices could fall.

The Singaporean government has been trying to regain control over property prices since 2009 when it banned interest only loans for certain housing projects, and prevented developers from absorbing interest payments on homes still under construction.

In spite of this property prices still increased by 0.2% during the fourth quarter, although this is the smallest gain for two and a half years.

Additional taxes have also been introduced for foreigners buying property, and this is likely to cause a further drop in demand as foreigners account for 36% of prime property transactions. Foreigners and corporate entities will now have to find an additional 10% for stamp duty.

There is an additional 3% for permanent residents buying a second home, or for citizens purchasing their third residential property. Earlier on last year the government imposed stamp duty of 1% on the first S$180,000 of the property price, with 2% being payable on the next S$180,000 and 3% being payable on the remainder. During the fourth quarter demand for prime property fell with sales down by 44% compared to the previous quarter.

Foreign Buyers in Singapore Increase by 16%

According to government figures, the number of foreigners owning private property in Singapore has increased by 16% during the first six months of this year, compared to an increase of just 12% for the whole of last year.

Some people are concerned that locals may be out priced by foreigners from the housing market, but the National Development Minister Khaw Boon Wan has pointed out that locals still accounted for 80% of private home purchases this year.

The Singaporean government recently imposed cooling measures to try to prevent the market from overheating, and although these are already having an effect the full impact won't be felt for a while.

The rate of price increases in residential property is already slowing as prices have increased by 6% so far this year compared to the 18% recorded during last year.

The Singaporean government also intends to continue supplying sufficient land so housing developments can be built for those Singaporeans who wish to own their own homes. Last year the government released land for 10,000 units while this year it has released land for more than 14,500 units.

At the moment there are about 34,000 unsold private homes which is equivalent to 2 years of demand, but the government intends to keep up with their land sales program until the market stabilises, especially as it will be some time before the new supply is available. The government has also pledged to build more affordable housing and expects the country's supply of rental flats to reach 47,000 with an additional 3,000 units being added next year.

Singapore Safe as Houses for Investors

Sales of residential homes in Singapore have reached a five-month high as they increased 29% last month due to many foreign buyers seeing the country as a safe place in which to invest. This is because of the recent earthquake in Japan and the continuing political unrest in the Middle East regions.

Sales of new homes rose from 1,386 in March to 1,788 in April which is the highest level since 1,915 homes were bought in November. However this figure has dropped since a previous high of 2,208 recorded a year earlier.

According to Donald Han, managing director at Cushman and Wakefield, this shows that consumer confidence is still high both locally and internationally, and that Singapore is still seen as a highly desirable investment destination.

The economy in the country grew at an annual rate of 23.5% during the first quarter and homes are now at record prices in spite of the government's attempts to curb speculative buyers. The government has extended the period for sales tax liability on home sales from 3 to 4 years and has also raised the down payment necessary for second mortgages.

This hasn't stopped investors as most intend to hold onto their properties for longer term and are not buying them just to flip them. It remains to be seen if the government will introduce any more measures, and much depends on property price figures for the second quarter.

There is growing discontent amongst Singaporeans who are unable to afford property in the city and this led to the People's Action Party losing votes and seats during general elections held earlier in May.

http://www.bloomberg.com/news/2011-05-16/singapore-april-private-home-sales-rise-to-five-month-high-on-haven-status.html