I. Introduction

On 26 April 2023, the Government announced increases to the Additional Buyer’s Stamp Duty (ABSD) rates, which marks a third round of property cooling measures since December 2021.

As stated in the Press Release jointly issued by the Ministry of Finance, the Ministry of National Development and the Monetary Authority of Singapore (the Press Release), the hike in the ABSD rates is meant to pre-emptively manage investment demand and prioritise housing for locals buying for owner-occupation. It is intended to work in tandem with an increase in housing supply by the government to address the problem of a tight housing market for owner-occupation and rental, with the goal of creating a more sustainable housing market in Singapore.

In this client alert, we will highlight the changes in the ABSD rates that are most relevant for our clients, as well as provide our perspective on the increase in ABSD.

II. Increases in ABSD Rates

As summarized in the table below, the government has increased the following ABSD rates, effective from 27 April 2023:

For the avoidance of doubt, the highest applicable ABSD rate will apply for acquisitions made jointly by two or more parties of different profiles.

Clients, particularly those intending to purchase property under a trust for their minor children, should note the increase in ABSD for Trustees from 35% to 65%. This increase may pose significant cash flow problems, and also carries with it a potential risk given that the Inland Revenue Authority of Singapore may not approve the remission of ABSD (Trust).

In addition, the rates for Additional Conveyance Duties for Buyers (ACDB) have also been raised from up to 46% to up to 71%. ACDB applies to qualifying acquisitions of equity interest in entities with at least 50% of its total tangible assets that comprise of prescribed immovable properties (i.e., residential property) in Singapore.

III. Transitional ABSD Remission

There will be a transitional period where ABSD Rates on or before 26 April 2023 will apply, and ABSD remission can be granted. To qualify for this transitional ABSD remission however, the following conditions have to be met:

1. The Option to Purchase (OTP) was granted by sellers to potential buyers on or before 26 April 2023
2. This OTP is exercised on or before 17 May 2023, or within the OTP validity period, whichever is earlier; and
3. This OTP has not been varied on or after 27 April 2023.

To apply for the remission, an application has to be submitted to the Inland Revenue Authority of Singapore within 14 days after the date of execution of the instrument. Do contact us if you require our assistance to apply for ABSD remission during this transitional period.

IV. Perspectives on the ABSD Rate Hike

Due to the continued rise in demand in Singapore residential property, it is clear that the ABSD rate hike is a targeted response by the government to address rising property prices.

Based on statistics released by the Urban Redevelopment Authority, take-up of properties in the private residential market has increased by 82% from 690 in the fourth quarter of 2022, to 1,256 in the first quarter of 2023. Additionally, property prices also increased by 3.3% during this same period. This shows that demand for residential properties in Singapore is still high notwithstanding the increased interest rates.

In light of this, the government has chosen to take steps to ensure that the property market remains affordable, especially for local Singaporeans looking to purchase their first homes. Yet at the same time, there is also a need to keep Singapore attractive for foreign high net worth individuals, who bring capital into Singapore through investments in property and other assets alike.

This requires a fine balancing act in considering the interests of all the relevant stakeholders. In our view, through this round of ABSD hikes, the government has signaled its intention to tax foreigners more greatly than locals. Foreigners purchasing residential property for instance, now have to pay a 60% ABSD rate, which is a significant increase from the previous rate of 30%. This is a considerable price to pay, and it remains to be seen how this would affect the take-up rate of Singapore residential properties by foreigners.

While increasing the ABSD rates is a more direct approach in cooling the residential property market in Singapore, it should be borne in mind that other taxes may still be on the table.

• Capital Gains Tax seeks to tax people on gains made by investments, such as for instance, the gains made by selling a property that has appreciated in value.
• Wealth Tax may be levied as a flat percentage tax on an individual’s total net worth.
• Estate Duty, which was abolished in Singapore in 2008, is a tax levied on the assets owned by a person upon his or her death.

There are disadvantages in using each of these tools – a Wealth Tax is difficult to implement for instance, and individuals can always find ways to mitigate the effect of these taxes through proper tax planning. Moreover, these taxes also have the effect of making Singapore less attractive as a global wealth management hub. These are possible reasons why the government thus far has not taken this step in introducing the afore-mentioned taxes, choosing instead to increase the ABSD rates.

V. Conclusion

It is possible that high ABSD rates may not be a long-term solution, and it remains to be seen how this would impact the Singapore residential property market, and what further measures the government may introduce in the future.

At Dentons Rodyk & Davidson, we continually seek to keep our clients abreast of the latest developments that affect their interests. Should you have any questions or clarifications regarding the latest round of ABSD rate hikes, please feel free to get in touch with any of our key contacts.

Dentons Rodyk thanks and acknowledges Practice Trainee Zachary Goh for his contributions to this article.