Additional Buyer’s Stamp Duty (ABSD) w.e.f. 6th July 2018 Part 1 of Government’s Cooling Measure in July 2018

A sudden news release from the Singapore’s government on Thursday (5th July) afternoon caused a big stir in the property market.

But why did the news lead to such a phenomenon?

There are basically two elements to this and let’s look into the first one:

An INCREASE in the ABSD rate was implemented with effect from 6th July 2018.

Who is affected?

Individuals (both Singaporean and Permanent Residents) who are purchasing their second, third or subsequent properties will face a 5% increase in ABSD. 

All foreigners and corporate entities regardless of how many properties they already owned will need to pay an extra 5% of ABSD too.

For housing developers, it will be a double blow as not only the ABSD is increased by 10%, the previous remissive ABSD now includes a non-remissive ABSD of 5%.

So what does this means?

In simple terms:

Before 6th July 2018, housing developers who purchase a plot of land in Singapore to develop into residential properties (condominiums for people to stay) are able to avoid the ABSD totally if:

  1. Construction starts within 2 years from the purchase
  2. All units get sold within 5 years from the date of purchase

But from 6th July onwards, these developers who are buying lands from Government or existing owners through collective sales (En Bloc), will face a higher ABSD (30% vs 15%).

And only 25% out of the 30% of ABSD can be avoided with no upfront payment to the government provided that they meet the 2 conditions mentioned above.

But there is a non-remissive ABSD of 5% that needs to be paid upfront by the developer that ultimately has to go somewhere.

Examples:

  1. Developers’ selling prices will need to increase to cover this. (Bad news for buyers and maybe good news for resale sellers)
  2. If developer wants to maintain a competitive selling price, running cost such as construction and marketing need to get more efficient or mark up may need to reduce to cover this extra 5%. (Negative news for developers)
  3. Developers will have to lower their land bids or purchase collective sales prices to take into account of an excess 5% that they need to pay straight after winning the bid. (Good news for buyers since land cost plays a significant role in determining the selling price)

To summarise, the government had intervened in the property market once again due to the recent upswing in the private home prices (released by official data from URA) that reached the highest point in four years.  Below is the Private Residential Property Price Index Chart extracted from URA:
Since property price movement should be in line with economic fundamentals, do not expect the property prices in Singapore to swing upwards overnight or within a short period of time. I am pretty sure that our government will do it’s best to prevent the market from overheating as the consequences are usually very unpleasant.

Therefore always ensure that you make a decision with a comfortable & realistic plan that suits your current stage of life and career. And it should be based on sound financial calculations and most importantly, you should get to enjoy your sleep every night!

Stay tuned for Part 2 and happy weekend!

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