Despite the government’s latest bout of cooling measure implemented on the 6th of July in 2018, high-end condos are continuing to sell in Singapore. These condos are located entirely in the core central region of Singapore where foreign ownership takes majority share. A quick search of 2 high-end developments launched after the latest measures reveals the following
8 St Thomas. 67 of 250 units sold. (26% sold)*
South Beach Residences 53 of 190 units sold (27% sold)*
A Perspective Of How Harsh The Cooling Measures Are For A Foreigner Purchasing Properties In Singapore
To understand and put into perspective of how harsh these measures are, let’s calculate the total taxes a foreigner needs to pay for a high-end home in Singapore. I will use the price of S$6 million which is around the amount required to purchase a brand new three bedroom.
Additional Buyer’s Stamp Duties/Stamp Duties required
Additional Buyer’s Stamp Duty (20% of property price) =$1,200,000
Buyer’s Stamp Duty (Tiered formula but is around 4% of property price)=$227,500
Total taxes required= $1,427,500
Hence, for a S$6 million home in Singapore, a foreigner would need to come up with close to S$7.5 mil. To exit this investment without suffering any losses, the foreigner would need to sell the property later on at $7.5 mil or above. So why do they do it? Do these foreigners see a potential gain of more than 24% down the road or are there other reasons why they choose to park their money in real estate?
Well, we do know that Singapore is one of the safest countries in the world. It has one of the best healthcare facilities in the region. Not to mention a society that is multi-cultural, multi-racial and even multi-lingual and anyone can integrate with ease. All that being said, would it be better to take this stamp duty and spend it every year as a tourist here? After all, if you were to spend $50,000 a year in Singapore, you could do it for the next 30 years. Does it even make any financial sense to buy this high-end property?
Well, there is. The main reason is that Singapore uses currency to combat inflation while neighbouring countries use interest rates. This policy also means that over time, the Singapore dollar will appreciate against the Malaysian Ringgit and the Indonesian Rupiah. To understand better, let’s take a look at the exchange rates ten years ago.
Currency Exchange Rate Back in 2009
Within 2009 itself, there was a significant difference between the exchange rate of the Singapore Dollar and the Indonesian Rupiah; The lowest point was at 1 SGD to IDR 6735 while the highest peak was around 1 SGD to IDR 7783. For simplicity sake, I will use the average of 1 SGD to IDR 7259 as the reference. The Malaysian Ringgit, on the other hand, is more stable and I will use 1 SGD to 2.45 RM as the reference.
Case Scenario 1. Indonesian Purchasing A Property In Singapore back in 2009
A S$6mil property back in 2009 would require an initial IDR 43.544 billion (converted using the exchange rate of 7259). Fast forward to today, private property prices in Singapore have since increased by 63.34%(Source: 99.co Researcher). The initial $6mil property is now worth $9.800 mil today. With today’s exchange rate of 10519, the S$9.8 mil is now worth IDR 103 billion. A 136.54% increase or an annual rate of return at 13.65%.
Assuming the property price did not appreciate and remained at S$6mil. The S$6mil property is now worth IDR 63.119 billion. An increase of 44.95% or an annual rate of 4.495%. Considering that you get to enjoy the condo for ten years, this isn’t shabby at all.
Case Scenario 2. Malaysian Purchasing A Property In Singapore back in 2009
A S$6mil property back in 2009 would require an initial $14.7 mil Ringgit (converted using the exchange rate of 2.45). Fast forward to today, private property prices in Singapore have since increased by 63.34%(Source: 99.co Researcher). The initial $6mil property is now worth $9.800 mil today. With today’s exchange rate of 3.0, the S$9.8 mil is now worth $29.4 mil Ringgit. A 100% increase or an annual rate of return at 10%.
Assuming the property price did not appreciate and remained at S$6mil. The S$6mil property is now worth $18 mil MYR — an increase of 22.45% or an annual rate of 2.245%. Of course, the returns could be higher if the property was rented out. However, this is just a study to understand the effects of currency exchange and the main reason why foreigners continue to invest in Singapore as a means of value retention.
So, there you have it. As long as these monetary policies are in place, foreigners will always have interest in Singapore properties. High-end homes will continue to sell, even more so as the region continues to develop and grow. Are you looking for the next high-end home in Singapore? Contact us here or shortlist the properties listed on this website, and we will get back to you shortly.
Article contributed by Jerry Wong
Jerry Wong is a realtor with Huttons Asia Pte Ltd. He loves coffee, cookies and condos. Most importantly, he loves connecting people to properties and gets enormous satisfaction when they acquire their dream home or make that capital upside in just a matter of months. Buy Jerry a coffee, and he will meet up with you on a 1 to 1 session to share the following
- How certain factors affect real estate prices. (Using historical transactions as references)
- Applying lessons from history to determine if a condo has the potential for upside or not. These condos can be those under construction, resale or the very one you are staying in right now.
- Or just prepare the toughest question you have on your mind! If it is interesting enough, the answer will be in a blog post and shared with everyone!
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*Units sold as of 12th March 2019. Caveats lodged with URA may not show the actual number because of the progressive payment scheme or are paid entirely in cash.