Additional Buyer’s Stamp Duty (ABSD) is a significant consideration for property buyers in Singapore. Introduced as a cooling measure, ABSD rates vary based on the buyer's profile and the number of properties owned. As of 2024, the ABSD rates for Singapore citizens are 0% for the first property, 20% for the second property, and 30% for the third and subsequent properties. For Permanent Residents (PRs) and foreigners, the rates are higher.
Is it Worth Buying a Second Property with ABSD?
Investing in a second property while incurring ABSD can still be profitable, depending on market conditions and the holding period. Here are case studies illustrating the potential profitability.
Case Study 1: Short-Term Investment (4 Years)
Property Details
Property Type: Condo
Purchase Price: SGD 1,000,000
ABSD (20%): SGD 200,000
Total Purchase Cost: SGD 1,200,000
Annual Property Growth Rate: 3%
In this scenario, selling the property after 4 years results in a loss of SGD 74,492, indicating that short-term investments may not be profitable due to the high ABSD.
Case Study 2: Mid-Term Investment (8 Years)
Property Details
Property Type: Condo
Purchase Price: SGD 1,000,000
ABSD (20%): SGD 200,000
Total Purchase Cost: SGD 1,200,000
Annual Property Growth Rate: 3%
Selling the property after 8 years results in a profit of SGD 66,770, showing that mid-term investments can offset the ABSD and yield positive returns.
Case Study 3: Long-Term Investment (12 Years)
Property Details
Property Type: Condo
Purchase Price: SGD 1,000,000
ABSD (20%): SGD 200,000
Total Purchase Cost: SGD 1,200,000
Annual Property Growth Rate: 3%
Selling the property after 12 years results in a profit of SGD 225,760, demonstrating that long-term investments can significantly offset the ABSD and provide substantial returns.
Understanding the 3% Annual Property Growth Rate
The 3% annual property growth rate used in these calculations is a conservative estimate based on historical property price trends in Singapore. This rate represents an average appreciation and is considered realistic for long-term investments. Here’s why:
Historical Data: Over the past decades, Singapore's property market has shown an average annual growth rate of around 2-4%, depending on market conditions and economic factors.
Market Stability: Singapore is known for its stable and robust real estate market, which has consistently appreciated over time due to limited land supply and strong demand.
Government Policies: Various government measures, including cooling measures like ABSD, are aimed at ensuring sustainable growth in the property market, preventing bubbles, and protecting investors.
Higher Growth Rate for New Launch Properties: Paying ABSD and Still Making Money!
New launch properties tend to have higher growth rates compared to resale properties, especially in the period leading up to the Temporary Occupation Permit (TOP). Based on recent data, the average price of new launch condos has appreciated significantly between launch and TOP. For example, from 2017 to 2023, average psf prices of new launch condos increased by 62%, suggesting an annual growth rate in the range of approximately 5-8% during this period (99.co) (99.co). This higher growth rate can be attributed to:
Initial Pricing: New launches are often priced competitively to attract buyers, leading to higher appreciation once the market recognizes their value.
Modern Amenities and Facilities: Newer properties come with modern designs and facilities, making them more attractive to buyers and investors.
Strategic Locations: Developers often choose strategic locations for new launches, ensuring good connectivity and proximity to amenities.
Considerations for Potential Buyers
When considering the purchase of a second property and incurring ABSD, potential buyers should evaluate several factors:
Financial Stability: Ensure you have sufficient funds to cover the ABSD and any additional costs associated with property purchase and maintenance.
Investment Horizon: Longer investment horizons tend to yield better returns, as shown in the 8-year and 12-year case studies.
Market Conditions: Keep an eye on property market trends and economic indicators that might affect property values.
Alternative Investments: Compare the potential returns from property investment with other investment products such as stocks, bonds, and mutual funds.
Suitable Buyer Profiles
High-Net-Worth Individuals: Those who have significant capital and can afford to hold onto properties for an extended period.
Long-Term Investors: Individuals looking for stable, long-term investments rather than quick profits.
Property Enthusiasts: Buyers who are knowledgeable about the property market and are comfortable with the risks associated with real estate investments.
Comparing Property Investment with Other Popular Investment Products
Stocks and Bonds
Stocks: Offer high liquidity and potential for high returns, but come with high volatility and risk.
Bonds: Provide more stable and predictable returns but generally lower than stocks and real estate.
Mutual Funds and ETFs
Mutual Funds: Offer diversification and professional management, making them suitable for those looking for a balanced investment approach.
ETFs (Exchange-Traded Funds): Provide liquidity and diversification with lower management fees compared to mutual funds.
Real Estate Investment Trusts (REITs)
REITs: Allow investment in real estate without the need to directly purchase properties, offering dividends and potential capital appreciation with lower capital outlay compared to direct property investment.
Conclusion
While ABSD significantly increases the initial cost of purchasing a second property, it does not necessarily render the investment unprofitable. Long-term investments, as shown in the 8-year and 12-year case studies, can lead to substantial gains despite the ABSD. Additionally, properties bought during a new launch tend to have higher appreciation rates at TOP, which can offset ABSD costs even in shorter investment periods. Paying ABSD and still making money is not impossible. Potential buyers should consider factors such as market conditions, rental yield, and personal financial stability. Consulting with a property expert or financial advisor can provide tailored insights and help make informed decisions.
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