By Mr. Propwise

Savills recently published an interesting report titled Profiles of foreign buyers in Singapore. Thanks to Singapore’s growing attraction as a safe haven for investors, foreigners purchased 31% of all private home purchases in 2011, an all-time high and twice the number versus 10 years ago.

Profiles of the Four Main Groups of Foreign Buyers

The top four main groups of foreign buyers are the Mainland Chinese (28% of all purchases by foreigners), Malaysians (20%), Indonesians (18%) and Indians (12%). Together these four groups made up 78% of all foreign buying.

1. Mainland Chinese

Bought over 2,550 private homes in 2011, triple that in 2007, mostly in the Outside Central Region. Mainly buying smaller homes as 44% of purchases in 2011 were below $1 million. But demand is also growing in the high end segment (more than $2 million) as well. Districts 14, 15 and 16 were the most popular among this group.

2. Malaysians

Proportion of purchases grew by 4% from 2007, as have their budgets. Most popular district are 19 (Serangoon Garden, Hougang, Punggol), 15 and 14 in that order.

3. Indonesians

Have the largest budgets, with 79% of total purchases above $1 million, and home purchases in the Core Central Region mainly in the $2 to $3 million range. However versus 2007, proportion of home in the Outside Central Region and Rest of Central Region rose by 19% and 5% respectively, indicating a shift of demand outside the central areas, most likely due to reduced affordability as home prices rise. The most popular districts are 9, 15, 10 and 11 in that order.

4. Indians

Profile fairly similar to Malaysian buyers, with 66% of purchases coming from the Outside Central Region. Most popular districts are 18 (Tampines, Pasir Ris), 15 and 16.

To sum up I noticed two distinct phenomena:

Firstly, the Mainland Chinese and Indonesians form the largest bulk of buyers in the high end market. Second, demand from all groups have started to shift from the Core Central Region to the Rest of Central Region and Outside Central Region as rising property prices have made homes in Singapore less affordable to them. Singapore home prices are already fairly high, even relative to the top cities in the world.

Impact of the ABSD on Foreigners

The Additional Buyer’s Stamp Duty slaps an additional 10% stamp duty on non-permanent residents and companies, while permanent residents are required to pay an additional 3% on their second and subsequent home purchases. If foreigners continue to buy despite this new tax, it either means that they expect significantly higher property prices or that they are purchasing for more than just investment reasons (e.g. to get permanent residence, for their children’s educations etc).

As foreigners made up 43% of the luxury market in 2011, this segment could be the hardest hit. Singapore is not the only market of interest – foreigners are also looking at the U.S., London, Australia, Canada, Hong Kong, Malaysia etc.

Only the foreigners who are determined to make Singapore their home would buy a home here, and will now be incentivized to take up permanent residence to escape the ABSD.

Segments of the market that are more prone to speculation (e.g. shoebox units) could also be hard hit, and foreign buyers may then switch their attention to strata-titled office, retail or industrial units (which to be fair have already run up in prices).

If foreign buyers who are living in Singapore put off their buying decision due to the ABSD, housing demand could then switch to the rental market, pushing up rents and thus yields.

The ABSD will curb some foreign demand, leading to a more domestic-centric property market. From what we can see from the recently property launches post the announcement of the ABSD, mass market projects targeted at local Singaporeans are still doing very well, potentially leading to another round of Government measures in the not-too-distant future to cool any remaining speculative fever/fervor.

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