With strong foreign ownership trends persisting in Singapore, despite nationwide cooling measures, Chan Ai Cheng discusses how the Singaporean Government protects its people, pricing trends and the reasons for the phenomenon.

Since 1973, the Singaporean Government has imposed restrictions on foreign ownership of private property by placing it under the jurisdiction of the Residential Property Act. The main aim of the Act is to strike a balance between giving Singaporeans ownership of residences at affordable prices, and attracting foreign talents that make economic contributions to Singapore to purchase properties.

As a result of the Act, a foreigner cannot purchase restricted property, including vacant residential land, landed properties and landed property in strata developments but not approved condominium developments under the Planning Act, unless he or she obtains prior approval from the Law Minister.

However, they can purchase any apartment or an approved condominium under the Planning Act. That said, the foreigner cannot purchase all the units within the development without prior approval from the Ministry.

Protecting the People

Speaking to Lieutenant Colonel (NS) Ismail Gafoor, CEO of PropNex Pte Ltd, one of Singapore’s largest real estate agencies and the President of the Institute of Estate Agents, he highlighted issues that foreign property investors may face.

According to Ismail, it is advisable for a foreigner to get an in-principle approval from Land Dealings (Approval) Unit (LDAU) of the Singapore Land Authority before committing a deposit.

“Should one wish to purchase restricted properties, submissions have to be made to the LDAU with each application reviewed based on the applicant’s residency status, contribution to the economy and investment in the needed industries in Singapore”.

“Of course there are conditions such as the residential property must be used for own stay and must not be sold or disposed within three years after purchase,” he added.

Price in Check, Not

Due to the fast-paced movements in the property markets, the Government maintains a vigilance over the possibility of an asset bubble forming, and checks it where necessary. In a bid to keep pace with raising property prices, it announced in August 2010 a series of measures to prevent the public and private property sectors from overheating and to maintain a stable and sustainable property market, said Ismail.

“Some of the measures taken to cool the property prices include increasing the holding period for imposition of Seller’s Stamp Duty (SSD) from the original three years to four years,” PropNex’s Ismail said.

“Additional measures, introduced on January 13, 2011, also saw the authority raising the SSD rates to 16%, 12%, 8% and 4% for the consideration of residential properties bought on or after January 14, 2011, and are sold in the first, second, third and fourth year of purchase respectively”, he added.

Other measures include lowering the Loan-to-Value (LTV) ratio limited to 50% on housing loans given out by financial institutions for property purchases for non-individuals and lowering the LTV limit on housing loans by financial institutions regulated MAS from 70% to 60% for property purchasers who are individuals with one or more outstanding housing loan at the time of the new purchase.

In spite of this, the private property market continued its buoyancy, with prices exceeding the SGD1,000 psf mark for mass-market properties in outlying areas such as Jurong and Bukit Panjang.

High-end condominiums saw an average price increase by 3.6% q-o-q from SGD2,179 psf in 3Q 2011 to SGD2,258 psf in 4Q. At the same time, average super-luxury residential prices increased 5.4% q-o-q from S$3,210 psf in 3Q2011 to S$3,383 psf in 4Q2011, although the peaks in these segments were still lower by 6.3% and 8.1% respectively than those recorded in the same period in 2007.

“Over the past three years, we have witnessed strong buying interest by investors from China and India, a trend that was nonexistent just a few years ago,” Ismail said. “With continued buying interest from the top four countries – namely Malaysia, China, Indonesia and India – the demand for private properties is bound to increase,” he added.

Investment Reasons

So, why should a foreigner invest in Singapore’s property market? Well, for a start, Singapore has had, since the 1960s, a stable government with robust forward planning. Due to this, it is renowned as a financial and educational hub with a reputation for its clean and transparent government. These factors benefit the property market tremendously.

Low interest rates and cheap financing is reflected in affordable home loans with rates ranging from 2%-3%. We’ve discussed government intervention to ensure stability and curb speculation which either cools the market or stimulate demand during a downturn.

In fact, many foreigners purchase property in Singapore as their second home for long-term residence thanks to its reputation as an educational and financial hub with low taxes and crime rates.

Then there’s Singapore growing population. At 2010 estimates, the population of about 5.08 million is made up of only 3.77 million Singaporean citizens and permanent residents (PR). In the past five years alone, its Immigration and Checkpoints Authority (ICA) has granted an average of more than 30,000 PR statuses per year. As such, a growing population and limited land both contribute to the strong demand for housing, boding well for the market
in years to come.