4 reasons why Hong Kong’s new stamp duty can’t save Singapore’s property market

By Property Soul

Bloomberg just published an article on ‘Hong Kong Property Tax May Help End Singapore’s Housing Slump’ (Bloomberg, Jan 19).

The journalist cites the remarks of a Cushman & Wakefield spokesperson that foreign buyers may turn to Singapore after the 15 percent increase (30 percent in total) of stamp duty in Hong Kong. This can benefit Singapore to end the slide of property prices this year, especially when the Chinese are looking for a safe haven to park their weakening currency.

The herd of local business and property media, including Business Times, Singapore Business Review, Yahoo News, PropertyGuru, The Edge Property and Property Report, immediately picked up this piece of ‘good news’ without much thought and came up with similar headlines of ‘Singapore to benefit from Hong Kong tax hike’, ‘Hong Kong’s loss in overseas buyers may be Singapore’s gain’, etc.

propertysoul-bloomberg-HK-SG-curbsFor people who have a habit of comparing with others, they often make the mistake of benchmarking themselves against the wrong parties while overlooking the root of the problem.

Could anyone see that there are at least 4 fundamental faults in Cushman & Wakefield’s comments?

1. Foreigners are paying higher in terms of total stamp duties.

A foreigner buying a home in Singapore has to pay 15 percent Additional Buyer Stamp Duty on top of the existing Buyer Stamp Duty (usually under 3 percent depending on the value of the property).

However, there is a Seller Stamp Duty between 4 to 16 percent payable for the property sold within 4 years’ of purchase.

If the foreigner wants to dispose the property within a year, he is liable to a Seller Stamp Duty of 16 percent. In this whole buying and selling process, he has paid a total of close to 34 percent in stamp duties to the Singapore government.

2. There are plenty of choices in countries besides Singapore.

With aggressive marketing efforts of developers and agents targeting well-to-do overseas buyers, foreign property investors are spoiled for choices.

It is not only Singapore and Hong Kong which are seen as stable economy that helps to preserve capital. Places like New York, London, Vancouver and Sydney are also mature markets that promise stable returns in the long-term.

In the case of China, the government has constantly imposed property buying restrictions in major cities in China. With excessive liquidity and depreciating renminbi, Chinese property investment in global markets remains robust.

According to Juwai.com, an international property broker specialized in Chinese investors, for last year alone, the Chinese have dumped a total of US$80 billion in overseas properties.

The top 10 favorite countries for Chinese property investors are in the following sequence.

  1. USA
  2. Australia
  3. Canada
  4. New Zealand
  5. United Kingdom
  6. Thailand
  7. Spain
  8. Germany
  9. Japan
  10. France

Do you notice that Singapore and Hong Kong are not even in the top 10? How naive to believe that overseas property investment is a zero-sum game between two small countries.

Hong Kong developers revealed that around 20 percent of buyers in new projects are from mainland China. According to URA, the Chinese only bought 230 homes in Singapore (a drop from 243 deals a year ago) for the first nine months in 2016.

3. There are many investment options for the Chinese.

Using spare cash to buy properties is most popular for Singaporeans.

But our counterparts in China are far more creative.

Renminbi cannot be exchanged freely in China and there is risk of currency devaluation. There are many ways to transfer money out of the country, both legally and illegally. Let’s talk about only the legal options here.

When renminbi depreciated 6 percent against US dollars last year, the Chinese rushed to the greenback to shield them from the weakness of their local currency.

When the Shanghai-Hong Kong Stock Connect opened in Hong Kong last month, the mainland Chinese know that there is a new legal way to get money out of China.

When the Chinese rushed in droves to Hong Kong to buy insurance, new premium sales from the mainland Chinese hit HK$48.9 billion (S$9 billion) in just the first 9 months of 2016.

Hong Kong insurance agents reportedly swiped the credit cards of eager Chinese customers till midnight every weekend before they went back to China.

Unlike properties, these investment-linked insurance policies are bought in a currency pegged with the US dollar; with guaranteed return; no risk of price fluctuation; and can cash out any time.

Who cares about buying properties in Singapore?

With shortage of the Chinese currency in local banks, especially approaching Lunar New Year, the 6 to 12-month fixed deposit interest rate has just gone up to 6 percent per annum.

Facing a similar risk of declining in value, any Singapore investment property selling in this market able to offer 6 percent net return in the next 6 to 12 months?

4. Money from QE is not benefiting the real home buyers.

Thanks to QE (Quantitative Easing) for so much liquidity and hot money flowing around. Many people have no idea what to invest with their excessive cash and resort to following the crowd.

When the government of US, UK, Europe and Japan are printing money like nobody’s business, the banks find no better ways than lending more loans to large corporations.

But these big companies all know that the market is suffering from over-capacity with contracting consumer demand. There is no point to invest in improving productivity or cost-efficiencies.

The only way to spend that huge amount of cash is through endless acquisitions – through buying investment properties and acquiring profitable or unprofitable companies.

Both activities are not helping the economy: Acquiring properties at top prices further increases prices of the already overheated property market. Buying companies lead to unavoidable restructuring after the merge with more workers losing their jobs.

The actual end users of the residential properties are further priced out of the market. With high property prices and high unemployment rate, where can we find HDB upgraders and real home buyers to clear those 21,000 unsold units in Singapore?

Somebody’s pain is not necessarily your gain

Two months after the announcement of the increased stamp duty in Hong Kong, buyers continue to snap up new projects at record prices. Last Friday, 400 units at a project launch in Tsuen Wan priced at a record of over HK$20,000 per square foot were all sold out by the end of the day.

When was the last time we saw this in Singapore?

Foreigners may deter from buying Hong Kong properties with 30 percent stamp duty. Hong Kong property prices may face a correction. But that won’t benefit the Singapore housing market in any way.

For developers, agents, sellers and landlords, it’s time they went back to work harder on attracting buyers and tenants if they want to stop the continuous slump of the property market.

For fellow property buyers and investors, this is a perfect example why we need to read the news from the media with a pinch of salt, especially from industry stakeholders with vested interest.