Changing tides of foreign buying

Changing tides of foreign buying

IN RECENT months, foreigners’ purchases of luxury condo units in Singapore, including penthouses, have made headlines in an otherwise subdued market.

Yet, current foreign buying levels – in the year to date – are low compared with their peak years of 2007 and 2011, and have been since cooling measures were rolled out at the end of 2011. Foreigners – comprising both Singapore permanent residents (PRs) and non-PRs – bought 3,044 or 20.9 per cent of the total non-landed private homes here sold year to date in 2019, according to List Sotheby’s International Realty’s analysis of URA Realis data downloaded on Nov 8.

In 2007, foreigners picked up 9,723 units here, giving them a then-record 29.9 per cent buying share. The all-time high in foreign buying was in 2011, with the 9,748 private apartments and condos sold to foreigners translating to a 33.8 per cent share.

To put things in perspective, foreign buying this year is still at a higher level than during the 1996 property market peak before the Asian Financial Crisis, when foreigners acquired 2,531 units, which translated to 16.8 per cent of the market. And foreign buyers continue to dominate purchases in the top-tier price range. So far in 2019, PR and non-PR foreigners bought 211 units that were over S$5 million in the core central region, compared to 88 units purchased by Singaporeans in the same range.

Here, we trace the ups and downs in foreign buying over the past 24 years.

Singapore’s private residential property market boom during the mid-1990s, which was characterised by rampant speculation, ground to a halt when the authorities first rolled out property cooling measures in May 1996.

This marked the start of a property slump that lasted for the greater part of the following eight years. The market was further pummelled by the Asian Financial Crisis, dotcom bubble burst and an economic slowdown in Singapore, among a litany of woes.

From 2005, property prices and foreign buying rekindled, due to a confluence of factors which boosted Singapore’s profile overseas and put the Republic on the radars of well-heeled overseas property investors.

These included the government’s announcement that Singapore will have two integrated resorts (with casinos); an international marketing blitz to invite foreigners to bid for residential land parcels on Sentosa Cove; plans for the Marina Bay Financial Centre; and the government’s efforts to position Singapore as a hub in many fields.

“All these helped to create more job opportunities for both locals and foreigners,” said ListSIR’s research director, Han Huan Mei.

To meet the increased manpower requirements, the authorities also relaxed limits on immigration at the time.

In the period 2005-2011, the PR population expanded 38 per cent from 387,000 to 532,000. Within the same period, Singapore’s non-PR foreigner population increased 75 per cent from 798,000 to 1.39 million, notes Ms Han. “That probably explained the spike in foreign homebuyers between 2006 and 2012,” she added.

There were two parts to that upcycle. The first part culminated in the 2007 boom which saw strong activity in the prime market – the high-end segment in the Core Central Region (CCR).

This was followed by the US sub-prime crisis, which deteriorated to the Global Financial Crisis – causing both private home prices and transaction volumes to ease in 2008.

However in the following year, Singapore’s property market began to recover – as did foreign buying, aided by low interest rates and high liquidity in the era of quantitative easing.

Transactions by foreign buyers rose in 2009 to 2011, marked by one key difference.

Unlike the 2007 property boom, the one in 2011 was dominated by purchasing in the suburban mass-market segment, or the Outside Central Region (OCR).

“During 2010 to 2013, the government stepped up residential land sales; as these sites were mostly in the suburbs, this translated to a surge in new project launches in the OCR which attracted not just Singaporeans but foreigners as well,” says Ms Han.

As a result, foreigners picked up nearly 30 per cent of non-landed private homes that were sold in the OCR in that year – up from a share of 23 per cent in 2007 and 11.7 per cent back in 1996. Conversely, Singaporean buyers’ share of homes sold in the OCR fell from 85 per cent in 1996 to 73.9 per cent in 2007 and 69.5 per cent in 2011.

Market watchers say the strong encroachment of foreign buyers into the suburban private housing mass-market, which is the mainstay of Singaporeans, triggered the introduction in December 2011 of the ABSD to quell excessive residential property buying.

Non-PR foreigners were subjected to the highest rate of 10 per cent additional buyers’ stamp duty (ABSD) on residential property purchases. (This was raised to 15 per cent in January 2013 and hiked further to 20 per cent in July 2018. The ABSD regime is less punitive on Singaporeans and PRs).

Another barometer worth noting is that on an islandwide basis, non-PR foreign buyers’ share of private apartments and condo units sold, surged from 5.4 per cent in 2001 to 19.4 per cent in 2011.

“The consequence was that locals felt that they were competing against wealthy foreigners and were concerned whether they would be priced out of the market if more foreigners entered the property scene,” says JLL senior director Ong Teck Hui.

In the wake of the rollout of the ABSD, along with the tightening of immigration from 2011, the share of foreign buyers (PRs and non-PR foreigners combined) shrank from 33.8 per cent in 2011 to 23.8 per cent in 2012,

Looking just at non-PR foreign buyers, their share fell from 19.4 per cent in 2011 to 7 per cent in 2012 – and has since remained in the single-digit per cent. (The data however does not quite capture the effect on the market of foreigners who became Singapore citizens).

Putting things in perspective, Edmund Tie & Co chief executive Ong Choon Fah highlights that Singaporeans continue to be the major buyers of private residential properties here. “I think that is important because we do want Singaporeans to have a home. The Housing Board takes care of a large part of it. When you’ve reached a certain level of income and wealth, you aspire to own private housing, so we also have to make sure Singaporeans’ aspirations in this regard are also addressed.

“I don’t think our level of foreign buying is very high. If we want to have an open economy, if we are developing into a wealth hub, we want to attract family offices, high net worth individuals to bring their money to Singapore, to be managed out of Singapore. So naturally you would attract these people here. To me, it is difficult to say that I want your money, but I don’t want you to buy properties here. It is really part of the entire ecosystem,” she says.

“That said, we don’t want to end up like Monte Carlo, where the locals can’t live in their own city because prices have gone up so high and it becomes a playground for the rich and famous.”

A key reason foreigners are drawn to Singapore’s property market is that the nation is seen as a safe haven for their investments. JLL senior director Ong Teck Hui says: “Singapore’s sound fundamentals, underpinned by its political stability, economic prosperity, strong governance and legal and institutional framework, provide foreigners the assurance in investing here.”

ET & Co’s Ms Ong says the Torrens system of title registration in Singapore also gives certainty of property ownership – unlike in some countries, where property ownership is more complex.

Moreover, the Singapore property market is more liquid. “In Singapore, a foreigner may buy a property from anyone or sell a property to anyone. Whereas, say, in Australia, foreigners can buy only from a developer and can sell only to an Australian or an Australian PR,” Ms Ong notes.

Who’s been buying

The profile of foreign buyers in the Singapore residential property market has evolved over the years.

Back in 2007 and 2011, foreign nationals from more than 70 countries picked up private apartments and condos in Singapore in each of these years. In comparison, the foreigners who have bought properties this year are from about 50 countries. Back in 1996, the figure used to be around 30 countries.

In 1996, the peak year of the boom before the Asian Financial Crisis, Indonesians were the predominant nationality among foreign buyers in Singapore.

The properties they bought here would serve as a holiday home when they visited Singapore to shop and for medical check-ups. Their most sought-after locations would be in prime districts 9 and 10 – to be close to the Mount Elizabeth and Gleneagles medical facilities and the prime Orchard Road shopping belt.

Even today, Indonesians continue to favour districts 9 and 10.

From 1995 (the earliest date for which foreign property buying information is available on the URA Realis system) to 2009, Indonesians alternated with Malaysians as the top nationality of foreign buyers of non-landed private homes, shows ListSIR’s analysis, which excluded executive condos and en bloc sales.

In 2011, for the first time, mainland Chinese became the biggest foreign buyers of private apartments and condo units in Singapore. Since then, they have retained the top spot except in 2012 and 2015, when they were No 2; as Malaysians were tops in those years.

China’s ascendance in the property market reflects wealth growth of the economic powerhouse, which has led to many of its affluent citizens seeking to invest abroad, notes JLL’s Mr Ong. “Chinese citizens are attracted to Singapore partly because of cultural and language similarities, as well as the quality of residential projects here,” he said.

Malaysian buyers have also featured consistently in the top two spots for the past 24 years, not surprising given that Singapore is Malaysia’s closest neighbour and many Malaysians live and work here.

From 2012 onwards, US citizens have also gained greater prominence on the Singapore property scene, consistently being the fifth-largest foreign buyers. Market watchers attribute this to the US-Singapore Free Trade Agreement, under which US citizens enjoy the same treatment as Singapore citizens for the ABSD.

Another recent twist is that Indonesians have fallen from third to fourth position since 2017. “One reason could be Indonesia’s tax amnesty strategy introduced in July 2016,” suggested Ms Han of ListSIR.

Conversely, Indians have moved up from the fourth spot to third.

Ms Han recalls that around the 2007 period, working professionals from India were drawn to Singapore by employment opportunities in the IT industry, while those from China came here for both their children’s education and in search of job opportunities.

ET&Co’s Ms Ong highlights that the more recent wave of Chinese buyers include the younger, more sophisticated set. “They are in their 30s and 40s, and very well travelled; many have also lived or worked overseas. They are very international, speak excellent English, and they know their brands. They are well appointed.”

Impact of the latest cooling measures

ListSIR’s analysis also shows definitive consequences of the latest cooling measures in July 2018, which included a 5-percentage point hike in ABSD rates for most categories. As a result, the ABSD rate on foreigners who are not Singapore PRs is now 20 per cent.

Comparing transactions from January 2017 to June 2018 (the period prior to the cooling measures) against deals from July 2018 till YTD 2019, it found that the number of private apartments and condo units bought by foreigners declined at a steeper rate than those bought by Singaporeans – following the cooling measures. As a result, the Singaporean buying share islandwide has grown from 75 per cent to 78.6 per cent.

In the OCR – the bread-and-butter territory of housing for locals – Singaporeans’ share has risen from 77.4 per cent prior to the cooling measures, to 81.4 per cent post-measures.

So far this year, the non-PR foreign buying share islandwide has been creeping up, from 5.1 per cent in Q1 to 5.9 per cent in Q2 to 6.9 per cent in Q3. In comparison, the PR buying share has been decreasing from 16.6 per cent to 15.9 per cent to 13.5 per cent.

Among the projects that have attracted strong interest from non-PR foreign buyers this year are: Boulevard 88, Marina One Residences and South Beach Residences in the CCR, Parc Esta in the city fringe or Rest of Central Region (RCR) and Parc Clematis in the OCR.

Projects that have been popular among PRs this year include Treasure at Tampines, Riverfront Residences, Florence Residences, Parc Clematis (all in the OCR), Parc Esta, Stirling Residences and The Tre Ver in RCR.

Ms Han expects foreign buyers (PRs and non-PR foreigners combined) to buy about 3,500 private apartments and condo units for the whole of this year – down about 20 per cent from the 4,450 units they purchased last year.

Says Mr Ong of JLL: “The cooling measures, particularly the ABSD, have been a strong deterrent against buying of private homes by foreigners. It has taken three rounds of ABSD to manage purchases of private homes by foreigners as well as local investors. While cooling measures are static, wealth growth, income growth and property prices are dynamic, and on the rise over the longer term, which could diminish the effects of the cooling measures over time.”

Related posts

New home sales in January up amid global economic uncertainty

New home sales held their own in January amid the volatile global economic climate and the...

Continue reading

Midtown Bay, residential part of GuocoLand’s S$2.4b mixed-use project at Bugis, to launch on Oct 5

SINGAPORE — Property developer GuocoLand will be launching residential project Midtown Bay, in...

Continue reading

Ip Man star hunts for Singapore luxury real estate

SINGAPORE (EDGEPROP) - Action hero Donnie Yen and wife weren’t the only ones who headed to the...

Continue reading

Join The Discussion