As quarantine-free travel returns, private home purchases by foreign buyers are expected to gradually gain momentum, although analysts also flagged headwinds such as economic uncertainties and currency fluctuations as factors to watch.

According to data collated by OrangeTee & Tie, non-landed private home purchases by foreign buyers nearly halved after a fresh round of property cooling measures were unveiled in December, from 277 units in Q4 2021 to 146 units in Q1 2022. As part of the measures to cool the red-hot property market, foreign buyers now have to pay a 30 per cent Additional Buyer’s Stamp Duty (ABSD), up sharply from 20 per cent previously.

OrangeTee’s senior vice-president (research & analytics), Christine Sun, said: “Some buyers may have been deterred by the higher taxes and bigger cash outlay.”

Nicholas Mak, ERA’s head of research & consultancy, pointed to other factors which also contributed to the pullback in transaction volumes, namely geopolitical tensions, rising interest rates and a dearth of major launches.

Meanwhile, Lam Chern Woon, head of research & consultancy at Edmund Tie, cited the Omicron outbreak which spiked in January and February before easing.

But the data also showed a pick up in transactions by foreign buyers in April as Singapore relaxed pandemic-linked measures, including border curbs. 93 non-landed private homes were bought in April by foreigners, jumping from 51 units in March and pipping the monthly average of 83 transactions from January 2021 to March 2022. The data includes both the primary and secondary market.

For instance, Frasers Property’s Rivière at Jiak Kim St saw sales more than quadruple from 8 units in March to 35 units in April, Lam highlighted. Foreigners scooped up 11 units in April, and zero in March. “With the ABSD rate hike, some foreigners could also be adjusting their purchases towards the Rest of Central Region (RCR) to fit their budget,” said Lam.

With interest rates heading north, Edmund Tie has also observed an increase in the proportion of American buyers among foreign buyers, some of whom are newly minted American citizens from other countries. Thanks to a Free Trade Agreement, US nationals are accorded the same stamp duty treatment as Singapore citizens.

Mak, however, cautioned that it was too soon to tell if the bump in transaction volumes by foreign buyers would be a sustained one as he reckons more time is needed for foreign buyers to digest the cooling measures before they return.

Mak went on to add: “Non-Permanent Residents (PRs) working here are waiting for their PR status to be approved before buying private properties. (They) find the ABSD too high. “

In particular, the data showed there was an uptick in buyers from Malaysia - potentially due to the re-opening of the Causeway - and India in March and April, versus January and April. In terms of volume however, buyers from China maintained their lead among foreign buyers with 79 units transacted in April. This was followed by buyers from Malaysia, India, the United States (US) and Indonesia.

By market segment, non-landed homes purchased by foreign buyers in Q1 2022 were predominantly located in the Core Central Region (CCR) as such buyers typically prefer luxury homes. Transactions by foreign buyers in the suburbs saw the biggest slump of 60 per cent year-on-year as the higher ABSD likely impacted affordability. The drop in transaction volumes in the CCR was lower, albeit still in the double-digits, at 35 per cent. 71 units were bought by foreign buyers in the CCR in Q1 2022, while 49 units were located in the city fringe and 26 units in the suburbs.

At this month’s launch of 407-unit Piccadilly Grand on Northumberland Road, 77 per cent of the project was sold at an average selling price of S$2,150 per square foot (psf). 90 per cent of the buyers were local, while the remaining 10 per cent comprised PRs as well as foreigners from markets such as China, India, Malaysia, US, Hong Kong and Indonesia.

Huttons’ senior director of research, Lee Sze Teck, has noticed a rise in interest from foreigners since April, adding that there has been “a number of deals” concluded by Indonesians in prime districts 9 and 10 that month.

Lee observed: “Despite the pandemic and cooling measures, the budget from foreigners is unchanged and in some cases, actually larger. The key issue is finding large floor plate units as these are limited in supply.”

Looking ahead, Sun expects more foreign buyers to stream back to the market, although the higher ABSD could mean the absolute number may not rival pre-pandemic times. Sun said: “Property prices are also rising in other advanced cities, (so) some buyers may still find properties here attractive despite the increased ABSD.” However, she also flagged factors such as a challenging macro-economic environment and currency fluctuations, which may dent income and investment returns.

As long as quarantine-free travel remains in place, Lee reckons that the number of transactions from foreigners will gain ground this year, potentially supported by a flight to safety as the Russia-Ukraine war continues to rage on. Lee puts the proportion of purchases by foreign buyers at about 5 per cent of the total sales tally this year.

Amid burgeoning headwinds, Mak estimates that demand for private homes from non-PRs this year could account for less than 5 per cent of total sales for 2022, with demand from PRs to pick up the slack at 15-20 per cent. Singaporeans are seen as largely comprising the balance.

Meanwhile, Lam expects a “gradual firming” of foreign demand in line with the recovery in travel and as inflationary pressures boost the appeal of property as an inflation hedge. As such, the share of foreign demand should head towards the pre-pandemic level of 6 per cent over the next 12-24 months, he said.

Analysts that The Business Times spoke to also said that they see a limited impact from the imposition of a 35 per cent ABSD rate on any residential property transferred into a living trust, although it could create some uncertainty in the short-term. The government announced on Sunday (May 8) that the ABSD has to be paid upfront when the transfer is made, but that a trustee may apply for a refund of the stamp duty if certain conditions are met.

Credit: Business Times