The REAL deal: Is Singapore property tax hike a boon for Malaysia?

• The latest ABSD increase hits foreigners most with the doubling of the rate to 60%. Singapore citizens and permanent residents (PRs) have not been spared but the rate hike for them is less severe.
• For Singapore citizens buying their second residential property, the ABSD has been increased by 3% to 20%, and for those buying their third and subsequent property, the tax is now 30%, from 25% previously.

Everyone who buys real estate in Singapore is subject to Buyer’s Stamp Duty (BSD). On top of this, for residential properties, depending on certain criteria, buyers are to pay another tax called the Additional Buyer’s Stamp Duty (ABSD). The two taxes are computed based on the purchase price of the property or its market value, whichever is higher.

On April 26, 2023, the Singapore government announced that effective the next day, ABSD rates would be raised “to promote a sustainable property market”.

This has come on the heels of the continued escalation of home prices in Singapore despite numerous rounds of cooling measures introduced by the government and a dimmer economic outlook. In fact, 1Q2023 saw property prices showing renewed signs of acceleration and resilient demand from both local and foreign investors.

Consequently, rents have jumped significantly, soaring as much as 30% to 50% in recent months, according to reports.

The latest ABSD increase hits foreigners most with the doubling of the rate to 60%. Singapore citizens and permanent residents (PRs) have not been spared but the rate hike for them is less severe.

For Singapore citizens buying their second residential property, the ABSD has been increased by 3% to 20%, and for those buying their third and subsequent property, the tax is now 30%, from 25% previously. Meanwhile, Singapore PRs buying their second residential property are taxed 30% (from 25% previously) and 35% (from 30% previously) for third and subsequent properties.

The ABSD rate is computed based on the buyer’s profile as at the date of the property acquisition. Other considerations include whether the buyer is an individual or an entity, the number of residential properties owned already (including those beneficially owned and held in trust) and whether the property is to be held in a living trust. For purchases made jointly by two or more buyers of different profiles, the highest applicable ABSD rate will apply on the entire value of the property purchased.

A bit on the background of the ABSD: it was first introduced in December 2011 to manage demand and cool the housing property market. Rates were raised in January 2013. In 2018, both BSD and ABSD were revised upwards. The ABSD rates were increased again on Dec 16, 2021.

Malaysia a beneficiary of the raised ABSD?

What is the impact of the latest ABSD hike on Malaysian real estate? A foreigner purchasing a Singapore condo unit at a market value of S$2 million (RM6.7 million) will now have to cough up another S$1.2 million for ABSD alone, without factoring in other Singapore dollar-denominated costs. On its own, the S$1.2 million in ABSD would fund a luxurious real estate buy in Johor or other parts of Malaysia.

So, are buyers trooping in from across the Causeway? Hardly, sadly. Reportedly, increased interest has been detected from investors who are shopping about but it would be a fallacy to say that the high differential cost of owning a home in Singapore and that of nearby Malaysia alone will see a game changer for the latter.

Remember the excitement and market expectations when Johor was first celebrated as another Shenzhen? Where Shenzhen is today versus Johor is telling.

Cost-wise, it makes good sense for Singaporeans and foreigners who call Singapore home to invest in Johor because of the close proximity and positive currency exchange.

Then again, this consideration on its own, regardless of how attractive it is, has so far not moved the needle meaningfully in decision-making. There is more, much more than location — which means proximity to Singapore in this case — when investing in a property.

Safety, connectivity, accessibility, amenities, general liveability and investability are definite boxes discerning investors would tick off.

It is a buyer’s market now and there are plenty of options beyond Johor or Malaysia. Recent reports say interest in neighbouring locations of Bangkok, Phuket, Batam and Bali have picked up.

Malaysia is not alone in wooing Singapore and we need to work harder and move faster so as not miss the boat. There is a long list of “must dos” to attract foreigners to invest and live here and these, I believe, are neither new nor unknown to the authorities.

It is time to stop talking and start working. Start rolling up the sleeves.

For starters, connectivity between the two countries must be enhanced quickly — be it land, sea or rail. Any unnecessary red tape must be dismantled immediately. And no flip-flopping, please, for obvious reasons.

Safety, safety, safety

Johor, on its own, needs a new and strong narrative to attract real estate foreign investors. The carrots of proximity to Singapore and cheaper living costs may be real but, unfortunately, insufficient to move the needle. Safety remains of the utmost importance to investors and this need is not something new to us.

Johor must quickly come up with a game plan in combating and preventing crime. Nothing is too small or trivial when it comes to safety. Even the mere and consistent presence of uniformed personnel is comforting and goes a long way to instil confidence in the security of the state.

Any report of crime must be investigated speedily and this must be complemented by effective communication and engagement with the public. Transparency is vital to generating trust among the people.

Johor must not only step up its security but be seen to be very serious about it.

Best-in-class property management

Not everyone buys a home in a foreign country to stay in it 24/7. Hence, being able to keep the property in tip-top condition from a distance is a challenge for many investors.

Managing the individual unit in a foreign land is a chore that can quickly escalate into a nightmare. Which is why we must step up our property management skills and services. Quality property management goes beyond ticking off all boxes in a maintenance schedule. It is about going the extra mile to put at ease the individual investor who is typically physically away from the property. For instance, performing periodic checks inside the unit with a full report complete with visual documentation is important.

The appointed manager is also responsible for keeping the investor abreast of any changes in local laws and regulations that might impact the investment. Constant communication is at the core of the owner-manager relationship.

Of course, such services do not come for free. Be that as it may, best-in-class property management services is something we can no longer afford to take lightly. It must be made available to all foreign investors who do not occupy the units on a permanent basis.

Project-wise, quality and sustainable property management will go a long way in determining which direction the investment will head.

On a broader perspective, the sustainable quality of project upkeep is equally important. A responsible developer would ensure that the building has been designed and built for sustainable property management to start with. This will pave the way for the services of world-class property managers. Quality property management is definitely a sales narrative that will go down well with investors.

So, is Singapore’s latest ABSD hike a boon for Malaysia? The ball is now definitely in our court. That is the real deal.

Au Foong Yee ([email protected]) is an editor emeritus at The Edge Malaysia