Foreign buyers leave Singapore Real Estate market due to high tax rates

The recent increase in tax rates for foreign buyers of real estate in Singapore has had a profound impact on the demand for houses by foreigners.

The recent increase in tax rates for foreign buyers of real estate in Singapore has had a profound impact on the demand for houses by foreigners. Demand for private apartments plunged to new lows as foreign buyers bought only 57 private apartments in May, down 50% compared to April. The Singapore government doubled the property tax on foreign buyers to 60% at the end of April to restrain the escalating momentum of house prices.

With the additional 60% tax that foreigners have to pay when buying a home in Singapore, their property tax rate in the city-state already exceeds that of Hong Kong, London, or New York. For instance, to buy a $5 million home in Singapore, a foreign buyer would have to pay a total of 65% in tax, or $3.25 million. Rates in New York and London are 4% and 15%, respectively, according to Savills data.

Foreigners buyers leave Singapore Real Estate market due to high tax rates

However, this new policy may benefit Hong Kong in attracting customers from mainland China. Hong Kong charges a 30% property tax on foreign buyers, but after settling in Hong Kong, customers can get a full or most of the tax refund. This is one of the city's efforts to attract talent.

Over the years, the rich have flocked to Singapore, causing house prices and rent costs to soar, raising concerns about prices rising quicker than economic fundamentals. The number of family offices specializing in wealth management for the rich has increased from eight offices in 2017 to 221 offices in 2020 in Singapore. By the end of 2021, this number will reach approximately 700 offices.

According to a new report by the Urban Land Institute (ULI), housing prices in Singapore have surpassed Hong Kong and are among the highest in Asia-Pacific. The median house price in Singapore is $1.2 million, higher than $1.16 million in Hong Kong, per the report. However, the ratio of private housing prices to median annual income in Singapore is 13.7, and for social housing, this rate is only 4.7, even though house prices have increased by 7.9% in 2022.

The increase in tax rates for foreign buyers has led to a significant drop in the demand for houses by foreigners. Despite Singapore's efforts to attract wealthy individuals, the high cost of living may make it less appealing to foreign investors. Hong Kong could benefit from Singapore's policy change as it tries to attract more customers from mainland China with its lower property tax rates.