Luxury residential market to be the hardest hit by additional buyer’s stamp duty

Foreigners who made up almost half of the prime home sales last year may retreat and shift interest to cheaper homes.

According to Savills Research, as foreigners made up 43% of all prime home sales last year, the luxury segment is anticipated to be the hardest hit by the ABSD. There could be a significant retreat by the Indonesians as they formed the bulk of buyers in the luxury segment. Some mainland Chinese buyers may also shift their interest towards cheaper residential homes.

Anecdotally, more mainland Chinese investors were seen scouting for alternative properties in the US of late, while some Indonesian buyers were observed to be snifi ng-out home bargains in Europe.

Well-heeled investors who still regard Singapore as one of the top investment destinations in Asia may be less deterred by the additional 10% outlay as they are relatively less price elastic. Mainland Chinese and Indonesian buyers in the ‘over S$5 million purchase’ category are likely to continue to dominate the superluxury market.

Similarly, suburban homes are less likely to see huge demand shifts as foreigners made up only 27% of mass-market home purchases in 2011. Although non-permanent residents are slapped with a 10% ABSD, many owner occupiers may still proceed with their purchases as they have aspirations to own a home in the long run.

Some may use the ABSD as a bargaining chip to ask for more discounts from developers. Permanent residents are unlikely to be affected as most developers are willing to absorb the 3% ABSD.

In contrast, demand for small-format homes may see a more muted interest as these short-term investors may be more sensitive to the ABSD. Mainland Chinese, who form the bulk of foreign buyers in this category, may switch to alternative investments such as strata-titled offices, and retail or industrial units, while those with smaller budgets and immediate housing needs could switch to renting an apartment instead.