“You are a property agent! Of course you will say paying the Additional Buyer Stamp Duty (ABSD) is not a bad idea!”
The above must be the thoughts running through your head.
Yes, I am a property agent.
But for the second part – let me illustrate to you why paying ABSD is not such a bad idea.
Now, ABSD is very important and relevant only when you plan to buy a 2nd, 3rd, 4th property in Singapore.
It is not applicable if you are only planning to buy and own 1 property in Singapore. For owner-occupiers – ABSD is not relevant.
However, for most property investors – ABSD is expected and par for the course.
They are simply barriers to entry and actually provide a positive impact if you study it carefully.
Let’s explore the impact of ABSD on a $1-million private residential property.
What if you buy TWO $1-million properties and willingly pay the ABSD?
Below is an illustration of the calculations if you choose to buy TWO private properties at $1 million each.
The 1st property is NOT subjected to ABSD. This is your existing property.
The 2nd property is subjected to 12% ABSD.
The 3rd property is subjected to 15% ABSD.
What is important is to understand how we came about to the 3.07% inflation rate.
This inflation rate is based on the MAS calculator on the average inflation rate of housing in Singapore from 2006 to 2016.
Last year in 2018, the average private property index went up by 7.9% – despite the punitive cooling measures.
So a 3% average inflation rate is actually very conservative.
Property in Singapore is still seen as a worthwhile investment as the calculations show above: an average 11.9% returns on equity.
This is AFTER paying the 12% Additional Buyer Stamp Duties!
Putting Your CPF Monies to Work
Your CPF monies are currently earning at 2.5% interest rate.
This is a safe and guaranteed rate.
But if your CPF monies can be put to work on another investment that can bring greater returns – why not?
There is more risk but by choosing the right property – you can secure your future retirement when you sell the property.
(There are various ways to mitigate risks in property investment – if you know how.)
Over the past 30 years, property prices has only been going up despite repeated cooling measures.
Ask someone who bought a private property 10 years ago – all of them will tell you their private property has increased in value.
Imagine if there was NO ABSD?
We have to credit the Singapore government for taking steps to cool a potentially hot property market.
If the optimism level has been too high, the following could have happened:
- Developers continue bidding for land at RECORD prices
- Sentiment soars
- Inflation soars
- Consumers become numb at rising prices
- Income fails to keep up
- Affordability drops
If a black swan event were to happen that shocks the economy, this positive sentiment might be wiped out overnight AND people will WANT to dump their properties.
This could lead to property prices plunging and a whole host of negative blowback to the Singapore market.
In a worst-case scenario, this will definitely affect everyone resulting in company exits, job losses and depression-style economic sentiments.
The Positive Impact of ABSD
To tell you the truth, me and a few agents around me were actually relieved when the latest ABSD rates was announced.
The key impact was this – it immediately lowered prices and reduced the exuberance.
This meant cooler heads all around and this was far easier to manage.
(When property market was hot – people were so afraid of losing out that they make rash decisions. Now we are sure people are behaving more rationally.)
Here are some of the positive impact of ABSD:
- Developers hold back on bidding too aggressively for land plots
- Enbloc sellers lose interest
- HDB prices start to catch up as people turn to HDB instead (they are priced out of private property)
- Some new launch buyers might pay more ABSD but might be enticed by some developers offering discounts
- A cooler market means easier negotiation with owners who are looking to sell
From my experience, this cooling measures will result in declining volume transactions for maybe 5-6 quarters.
It will then stabilize for awhile. But during this period of declining volume – this is the best time to find hidden gems and undervalued properties.
I might be biased about property investment.
But I have seen for myself the positive returns it can make to those who are savvy and willing to take action.
For a property investor, ABSD is merely an obstacle that can be overcome because they see the bigger picture.
Is it time for you to enter the property market?
Well it depends… on YOU.
The property market is what it is – a market that is subjected to various external forces as well as the internal demands.
If you are in need of a place to stay, ABSD has no impact on you.
If you are thinking of getting returns on your property and view it as an investment, then your choice will be important.
At the very least, a cooler market means: cheaper properties, easier negotiations with owners and strategic moves.
Herd mentality is one of the most dangerous behaviour out there.
This is from my observations: only the minority makes the smart and savvy financial choices.
The majority follows the herd and only moves when the market moves.
My conclusion? All these are the factors that make life more interesting. 🙂
Whatever your issue might be – I invite you to contact me for a no-obligation consultation session.