ABSD: What It Is & What You Need To Know
Let’s first take a look back at what happened on the fateful night of 5th July 2018..
If you have seen this article and wondering what all the fuzz was about…
Baby Yoda is right.
The authorities announced rather abruptly on 5th July 2018 that the Additional Buyer’s Stamp Duty (ABSD) will be raised by 5 percentage points for individuals looking to pack on an additional property on top of their first.
And the raise will be implemented…12am sharp on the very next day.
You might be thinking…just 5 percentage points…what’s the big deal?
Well if you’re looking at a million-dollar property for investment, that’s a straight extra $50,000 off your potential returns.
Or $100,000 gone for a $2 million unit.
What will you do if you could save $100,000 in a matter of hours?
Naturally, investors still sitting on the fence scouting for better deals at that time had a rude awakening, and were forced to make a quick decision, before realizing even making up their minds to put that cheque wasn’t enough.
Typical scene at showflats that night
They still had to get past those insane crowds and long queues before their cheque could even get across.
And the aftermath…
Over 1000 units cleared in one single night.
That’s only accounting for units in 3 specific condominium developments.
There were many that didn’t made it to the table in time before 12am, with chaos and several cases of shoutings being reported at the showflats.
Pretty bad situation to be in
(We’re sure a lot of MCs were issued by doctors for 6 July as well…for the many rough & sleepless nights.)
What ABSD Is For & Why The Increase?
The Additional Buyer’s Stamp Duty (ABSD) was first introduced on 7 December 2011, before its first revision upwards on 12 January 2013, and the most recent one on 6th July 2018.
Its implementation was a response by the Singapore Government to regulate the property market, especially when they sensed that prices were starting to stray way off the economic fundamentals.
After the easing of SSD rates on 11 March 2017, property prices embarked on a fast track upwards, powered by the en-bloc fever from developers trying hard to replenish their landbanks.
Look at how steep that rise in Property Price Index (PPI) was!
Just an easing (not removal) of a cooling measure was enough to drive the prices up at a worrying rate in a short span of slightly over a year.
This simply shows the underlying strength of the property market in Singapore.
However, in order to ensure the sustainability of the housing market for future generations, by the end of 2Q18 the authorities had to do something fast.
And they did.
A nice summary of the rates increase from propertyguru
Considering how real estate is a big ticket item, a 5% hike certainly isn’t something to be scoffed at.
Impact on the Market
Since the ABSD hike mostly affects investors scouting for additional properties, with 5% of the price off potential returns, most had to go back to the drawing block with their realtors and revisit their investment strategies.
Typical showflat scene soon after the ABSD hike
Think about it from a developer’s point-of-view..
What price adjustments will you make if your showflats are like this?
Let’s examine price movements at some of the developments soon after 6 July 2018.
Impact on Prices at New Launch A
Prices at New Launch A seemed to experience a rather drastic drop from an average of $1600 psf to $1500 psf soon after the ABSD hike, and stayed around that range for a long period of time before rising back up again.
If you were thinking whether this could be an isolated case..
Impact on Prices at New Launch B
Similarly, New Launch B saw a significant drop from an average of $1640 psf to $1480 psf in just a few months after the ABSD hike, staying at a depressed range until much later.
How Does This Affect Us?
As with any cooling measures, there will always be people who benefit and those who don’t.
The latter camp would be the investors who were fueling the speculative demand brewing after the 2017 SSD easing, or rather those the authorities were more likely to be targeting.
The extra 5% ABSD would render an investment property much less appealing than it would have been before, forcing them to stay back and reconsider their options.
On the other hand, first-time buyers right after the cooling measure would have found themselves in a pool of opportunities stemming from a huge supply stockpile from 3Q2018 to 1Q2019 amidst suppressed demand.
Unsold Private Residential & EC Stock
*Special Bonus: For the regions which the foreigners seem to favour, there may be particular pockets of opportunities if Singaporeans are sharp enough, given that your friendly neighbours are paying an additional 20% on the price tag!
“So What’s Next For Me?”
At this point, most people would have responded with…
“TT, if like that I should also wait longer lah!”
Well, they’re not wrong.
The first-timers who chose to hop in after the ABSD hike, especially during the Covid-19 Circuit-Breaker period, would have had great timing, considering developers typically raise their prices as the bulk of their stocks are sold.
However, for those still sitting on the fence waiting for the crisis to depress property prices, this data from URA may not seem so optimistic..
A Quarter-on-Quarter gain on all except CCR region.
The drop in the CCR seems pretty expected, considering it is more speculative in nature due to the higher price quantum of homes in that region, catering more towards business owners and higher management personnel who may be more affected by the Covid-19 crisis.
For the large majority of new home seekers scouting the RCR & OCR regions, they are already facing rising prices.
They can still choose to wait… nothing wrong with that.
Except this time there is a need to keep in mind the rapidly dwindling supply of unsold units over the last 7 quarters since the peak in 1Q2019.
Unlike 3Q2018 where supply was increasing while they waited, now we’re facing the opposite situation.
At the same time, we also need to take into accounts various factors, such as the general direction that prices would more likely be inching towards in our land-scarce Singapore, which is hinted strongly by the price trend even in a Covid-ravaged economy.
However, if you sense a need to arrive at a decision soon, do remember to consult a trusted professional who is able to understand your needs properly and help you perform your due diligence sufficiently before making an important financial decision.
After all, a real estate move concerns the biggest ticket item for most people, and we wouldn’t want to be in a situation where we put our hard-earned monies at risk purely due to impulse.
If you find my analysis makes sense to you, and that perhaps I can provide some perspective leading you towards the best decisions for yourself, do drop me a text at 91499929 and I’ll be happy to assist you towards the right step forward.