Surprise ABSD hike: How the latest property cooling measures affect your stocks

Insights

Stocks

By Beansprout • 27 Apr 2023 • 0 min read

The increase in additional buyers' stamp duty (ABSD) rates for residential property purchases led to a fall in share prices of Singapore property stocks.

Singapore property cooling measures absd 2023

In this article

0 min read

What happened?

The Singapore government has announced a latest set of property cooling measures to cool the Singapore residential property market. By increasing the additional buyers’ stamp duty (ABSD) rates, these measures are aimed at promoting a “sustainable property market”

With effect from 27th April 2023, the following changes in ABSD rates will take effect:

  • Singapore Citizens (SCs) purchasing their 2nd residential property will pay a higher ABSD rate of 20% from 17% previously

  • Singapore Citizens purchasing their 3rd residential property and subsequent residential property, and Singapore Permanent Residents (SPRs) purchasing their 2nd residential property will pay a higher ABSD rate of 30% from 25% previously

  • Foreigners purchasing any residential property will pay a higher ABSD rate of 60% from 30% previously

Calendar

Description automatically generated with medium confidence
Source: Straits Times

What is the rationale of the increase in ABSD?

In explaining the rationale for the increase in ABSD, MAS, URA and MND mentioned that property prices in the first quarter of 2023 has shown signs of acceleration amid resilient demand. 

This came through even as previous rounds of property cooling measures in December 2021 and September 2022 have helped to moderate the price increase. 

Indeed, Singapore’s residential property price index rose by 3.2% in the first quarter of 2023 compared to the previous quarter, according to flash estimates by the URA. 

This represents a sharper increase from the 0.4% rise in the fourth quarter of 2022, even as there are growing concerns of a potential economic recession.

Chart, line chart

Description automatically generated
Source: URA

How will the increase in ABSD affect Singapore’s property market?

#1 – Impact largely on foreign buying

The increase in ABSD is most significant for foreigners, who will likely re-evaluate their options on whether to make a residential property purchase in Singapore

While there has been a lot of headlines about foreigners making property purchases in Singapore, they still represent a small part of the market.

According to URA data, foreign buying represented about 7% of overall volumes in the first quarter of 2023, similar to the average in 2022 and over the last 10 years. 

Hence, it would seem like the increase in ABSD are more pre-emptive in nature, as mentioned by National Development Minister Desmond Lee

#2 – More muted property transactions expected in the next 3 months

Based on previous rounds of cooling measures announced, demand is expected to slow down in the coming months, as buyers take a wait-and-see approach before making their purchase decisions. 

Likewise, developers may also wait for the market to stabilise and delay their planned launches in the coming months. 

Existing and upcoming launchesDistrict
Tembusu GrandD15
Botany at Dairy FarmD23
Blossoms by the Park @ One NorthD05
The Giverny ResidencesD10
The ContinuumD05
Newport Tanjong PagarD02
The Reserve Residence @ Beauty WorldD05
Lentor HillD26
The Hill @ One NorthD05

#3 – Increase in ABSD may not lead to a drop in property prices

As the increase in ABSD has the greatest impact on foreigner demand, which currently makes up a relatively small proportion of buyers in the entire Singapore property market, there may not be a sharp drop in property prices as a result of the measures. 

First-time home buyers are not impacted by the latest measures, and could continue to drive demand for Singapore residential property.

Looking at previous property cooling measures announced by Singapore government, we see that property prices may continue to rise even with cooling measures announced.

For example, property prices continued their increase in 2013 even with the progressive hikes in seller’s stamp duty and additional buyer’s stamp duty. It was only when the total debt servicing ratio (TDSR) was announced in 2013 that property prices started to decline.

Chart

How have Singapore stocks reacted to the increase in ABSD?

The STI Index fell slightly by 0.4% on 27th April following the announcement of the increase in ABSD.

The share price of property developers led the declines, with the developers having more significant Singapore residential exposure falling the most.

For example, City Developments fell by 5.6%, UOL fell by 4.7% and Far East Orchard fell by 3.7%.

Property agents also saw a sharp decline in their share prices, with APAC Realty declining by 7.6% and PropNex declining by 6.5% as investors expect a decline in property transaction volumes in the coming months. 

Singapore banks were relatively resilient following the announcement of the increase in ABSD, as investors may perceive that there will not be significant change in mortgage demand. DBS in fact managed to see gains of 0.2%, bucking the overall weakness in sentiment. 

Amongst the small and mid cap stocks, we also saw the share prices of some of the construction-related companies such as BRC Asia falling slightly in anticipation of slower construction demand. 

DevelopersShare price change (27 April)
City Developments-5.6%
UOL-4.7%
CapitaLand Investment-0.3%
Wing Tai-2.6%
GuocoLand-0.6%
Far East Orchard-3.7%
  
Banks 
DBS+0.2%
UOB-0.5%
OCBC-0.2%
  
Agents 
PropNex-6.5%
APAC Realty-7.6%
  
Construction 
BRC Asia-2.8%

What would Beansprout do?

The latest round of Singapore property cooling measures has caught many by surprise, and we will be watching closely to see how the increase in ABSD will impact demand. 

For investors who are looking to remain invested in the Singapore property sector, but are looking for a safe haven to ride out the uncertainty, it might be worthwhile looking at stocks with relatively low Singapore residential exposure. 

Amongst the larger Singapore property stocks, CapitaLand Investment has the lowest exposure to Singapore residential property. This explains why its share price has not fallen much following the property measures. 

Alternatively, we can also look at the REITs as a way to get exposure to Singapore’s property market outside of the residential property sector. 

Check out Beansprout’s guide to selecting the best REIT to make sure they are resilient against a slowing economy and elevated interest rates.  

Join Beansprout's Telegram group to get the latest updates on T-bills and simple financial guidance. 

[Exclusive promo] Open a Webull account through Beansprout and receive welcome rewards of US$50-500 and a $20 Grab voucher. Fund ANY amount. 

Read also

Gain financial insights in minutes

Subscribe to our free weekly newsletter for more insights to grow your wealth

chatbubble Comments

0 comments