by Joseph Tan
In April 2023, the Singapore Government announced their latest adjustment on the “cooling measure” known as the ABSD (Additional Buyers Stamp Duty).
This third round of adjustment, since the policy was introduced twelve (12) years ago, raised the supertax for locals to 20% on our second property and 60% for foreigners.
If one were to follow the official narrative, one will read that the ABSD was put in place to (1) stabilise property prices and (2) protect the younger generation and first-time buyers, but how much of what the tax set out to achieve met their targets?
(I) As an instrument to stabilise property prices, ABSD has failed miserably. This theory, when read with the most simplistic voice, seems to make sense.
By increasing tax, we try to bring down demand and with it, property prices. However, is it really possible to make housing more affordable by first making it more expensive with a supertax? Let me illustrate the theory mathematically.
Consider someone buying a property at $1M (baseline). With an ABSD of 20%, they will actually have to pay $1.2M for that property (Real Cost).
Therefore, when they sell that property, they will have no choice but to raise the baseline to $1.2M to protect their investment.
Even if they forsake greed and sell it at their actual cost, which is very unlikely, the next person to buy that property will have to pay $1.44M after ABSD.
This is how the ABSD has been pushing the prices of property upwards, regardless of demand, and this is why despite the upward revisions, the ABSD has made prices of properties more and more expensive.
(II) As a mechanism to clear the path for the younger generation (first-time buyers), the ABSD has also failed miserably.
Again, in theory this looks pretty good, making property prices for everyone else higher except first-time buyers; and again, when executed in the real world, it cannot hold water.
All for the very simple reason that with the ABSD, prices of property are consistently being driven higher and higher, while household income is pushed lower and lower.
Here is an example.
Citizen A and Citizen B both buy HDB flats that have only 50 years left. Citizen A paid $300,000 for their flat because they bought it before ABSD was implemented, while Citizen B paid $600,000 for the same type of flat because prices have been driven up by the ABSD.
They both paid a 15% downpayment, took a 35-year loan at 5%, and none of them paid ABSD.
In this scenario, Citizen A pays about $1,300 a month for their mortgage, but Citizen B will have to pay $2,150 every month for theirs. That is almost a thousand-dollar difference every month.
If they both earn about $3,000 a month, Citizen A will have much more disposable income compared to Citizen B. Citizen A can save more money, better support the education of their children, go for holidays and enjoy a better quality of life while Citizen B will be struggling just to make ends meet.
The real kicker comes after fifty years when the tenure expires. At that time, the flats of BOTH Citizen A and Citizen B will have zero value, and they will both end up in exactly the same place after having lived different lives. So, how are we really protecting our younger generation, our first-time buyers, by making all of them suffer the fate of Citizen B?
As long as we let property prices continue to skyrocket out of control, prices of everything else will go up. Businesses will have to fight with a higher cost of operations and support the higher cost of labour, and the prices of necessities, including food, will be driven upwards as well.
As for those sentiments going around saying that when property prices go up, everybody benefits. That argument is wrong in so many ways, and here is the reason why.
The only way a person can possibly benefit from the increase in capital gains on their property is to sell it, especially for HDB flats, which one cannot even borrow on its equity.
But how can one sell a flat that they are living in? And if one cannot sell the flat that one has to live in, buying it at a high price only means more disposable income will be used to finance it every month, more hard-earned money has to be allocated to pay the mortgage. Money that could have been spent on better food, better education or just a better quality of life.
Let us not forget that in Singapore, we are all urged to look at our 99-year leasehold flat as long-term rental, urged to accept that once the tenure is up, that property, whether we paid $100,000 or $1,000,000 for it, will revert to zero in value.
Therefore, for the property that we have to live in, it only makes sense to buy it as cheap as possible because if we consider it as a long-term rental, then the property is nothing more than a cost of living. Cost, that any flavour of common sense will tell us, should always be kept as low as possible.
When the ABSD was first introduced as a “cooling measure”, many Singaporeans thought that it was a temporary solution to arrest an immediate problem, and believed that our esteemed government would use the interim to come up with something better, something more holistic instead of simply increasing tax.
So, one can imagine how disappointing it was to learn about the new upward revisions made last month, revisions that will only continue to drive the prices of everything up without adding any real value to the lives of the everyday citizen.
It has been twelve long years since the ABSD was implemented. Surely, we can come up with something better by now?
Prominent scientist Albert Einstein remarked that “Insanity is doing the same thing over and over and expecting different results”, and as a Singaporean, I really hope that the word “insane” would never be used to describe this nation that I love.