How Rising ABSD causes Owners with Multiple Properties to be Trapped

PLB Editorial Team

The real estate landscape in Singapore has undergone significant changes over the years, particularly in relation to the Additional Buyer’s Stamp Duty (ABSD) policy, which has recently increased in a fresh round of cooling measures. In the past, property owners had more flexibility when changing properties, as they could buy first and then take their time to sell the existing one. However, with the introduction of a high ABSD, the process has become more challenging, causing friction and delays in the buying and selling process. As a result, many people choose to sell, rent, and then buy.

In this opinion piece, we cover how some property owners with multiple properties are finding it difficult to have an effective and efficient timeline in making moves to adjust their property portfolio. Many investors are “stuck” with the properties they currently own, with higher ABSD rates deterring them from expanding their portfolio. In this article, we cover the challenges as well as some implications of recent regulations for property owners with a more sophisticated portfolio.


Voices from the Ground – The Dilemma

As ABSD continues to rise since its inception in 2011, the additional cost of building up a property portfolio has grown astronomically. Many homeowners who have purchased multiple properties now face the difficulty of redeploying capital after they have sold their homes. Since they will incur ABSD if they simply buy another property. 

This is one of the challenges faced. Investors with multiple properties face an all-or-nothing decision when it comes to their property portfolio if they do not wish to incur ABSD. They need to dispose of all their property to upgrade, or stay stuck with the properties they currently own. If they dispose of part of their portfolio, they would have to invest in something other than Singaporean real estate.

Small unit owners, including those who invested in 1-2 bedders, are now feeling the pinch. The lack of capital appreciation and tepid rental returns on these properties, combined with the difficulties in exiting them, have made it increasingly challenging for investors to realise their investment gains. Moreover, the current market trend shows that buyers prefer new launches, while resale properties mainly attract buyers interested in 1 bedders and studio apartments for their own stay. This has left small unit owners with tenancy agreements struggling to find buyers.

Families who held onto their HDB and invested in multiple private properties in the past are also facing difficulties. The ABSD was low back then, at 3%, 7%, and 12%, making it an attractive investment option. However, these smaller properties are not yielding great returns, and exiting them is not easy. As a result, many families are choosing to combine their names to own a bigger landed property or a 4-5 bedder condo for their own enjoyment but find it difficult to plan such a huge move in the property journey.


Hopes of Property Investors Dashed

Consider the scenario of a couple who jointly own an HDB flat. In 2013, they invested in a 1+Study unit, (including ABSD) at a rate of $750K. However, its value in 2022 has only increased to $850K, representing a meagre ROI. In 2018, they further purchased two 2-bedroom units, (including ABSD) at $950K. The 2-bedroom unit only rose to a valuation of $1.1M in 2022. This couple finds themselves in a predicament of selling any of these properties to upgrade as it would require them to pay the latest ABSD of 20% (which is much higher than before, for SG citizens), leading them to seriously consider restructuring and consolidating their entire property portfolio.

This dilemma leaves them desiring a larger and more luxurious home, with better views and amenities, given that they have worked hard for many years. Additionally, their HDB flat is also ageing, further amplifying their predicament. The fear of lease decay eats up the value of their property portfolio over their retirement years. Their worries, however, don’t stop here.

The latest Total Debt Servicing Ratio (TDSR) update has also shrunk the purchasing power of the couple, making it even more challenging for them to buy a new property. This is why many property investors (not just this case study) are motivated to combine their names to own a bigger property. Coupled with the fact that most smaller units are with tenancy, it’s now even harder to find a buyer because of these unseen effects and the lack of people buying smaller units for investment as the property count is so precious now.

Rather than buying 2 separate 1-bedroom units for investment, or one 3 bedroom unit together with a 2-bedroom unit to rent out. The preference is quickly shifting to couples that rather combine their names, to own a bigger landed home, or 4-5 bedroom condo for their own enjoyment. All while having a more easier to manage property portfolio.

Despite the challenges, many property owners in Singapore are still looking to upgrade to a bigger home with better views and facilities. This is particularly true for those who have invested in smaller properties and are now looking to exit. While the process of selling these properties may be challenging, combining names to own a bigger property is an attractive option that many couples are exploring.


The Logistical Nightmare of Restructuring a Property Portfolio

If you think that the decision to make such a huge change in the property portfolio was stressful enough, wait till you get to executing such a plan. The biggest problem is not the decision itself, but the logistical nightmare that follows suit. Timing is a delicate matter when it comes to coordinating the sales and purchase of multiple properties with many different parties. With no room for error or confusion, flawless execution is often a rarity. There are many horror stories when it comes to couples mistiming and ending up paying ABSD or having to stay in a rented apartment for an extended period of time.

With a high ABSD, the cost of mistiming a purchase while currently in the process of selling a home is very high. It causes friction in the transaction process and makes it such that one has to sell first, then buy. To give more breathing room in the transaction process, many property investors or upgraders sell, rent, and then buy. However, this breathing space is becoming more expensive as the time delay in moving into a new home is worsened by the hot rental market. The property investor or upgrader has to ensure that buyer(s) interested in their properties must first exercise the option to purchase the current home in the investor’s portfolio. Only then can the investor-upgrader put the option fee for their next home. 

Lining up the option exercise dates is a crucial yet challenging process. As the portfolio grows, it can quickly become a nightmare to organise. The entire process, from engaging a realtor to exercising the option (if the property is sold at a favourable price), can take between 6 to 12 months for 1-bedroom units and approximately 3 to 6 months for larger units. The duration can increase significantly depending on the number of properties the investor wants to dispose of. Furthermore, the time taken to exercise the option on the property they plan to upgrade to, along with renovation, A&A, or rebuilding time for landed properties, can extend the entire process to 1 to 2 years.

This logistical conundrum is also the reason why the property rental market has benefitted. Apart from the rental demand from foreign talents and expatriates, property investors and upgraders are also a key demand factor for short-term rentals. It also increases demand for storage units to store their furniture or personal belongings temporarily. This might also be part of the reason why co-living rentals like lyf by Ascott have taken off in Singapore.


Concerns and Pain-Points of Upgraders Eyeing Landed Homes

When property investors and condo upgraders are in the process of deciding whether to consolidate their property portfolio to buy a landed property, there are typically two concerns that rise up. First, it is the issue of age and managing a loan of a higher quantum. Next, it is the issue of quality of life trade-offs when one moves from a condo to a landed property. This is not an exhaustive discussion and often there are many different personal preferences and situations that shape the decision.

The first issue we will discuss may be of a greater concern for property investors or condo upgraders who are nearer to their retirement age. Typically, banks take the remaining age till 65 years old as the limit to the loan tenure for the home. By the time a couple accumulates sufficient capital to buy a landed property, they are often in their mid to late forties and above. The shorter loan tenure would also mean higher monthly payments. 

For property investors and upgraders who are closer to the retirement age, they might think that the sun has set for the decision to buy a landed property because taking a bank loan with a low tenure would be too unaffordable. However, there are solutions to this issue. Some bank loans can be refinanced after the lock-in period is over with a maximum age for housing loan of 75 years, which means they will take 75 years minus age as the loan tenure. This might help make monthly payments more affordable. Of course, at this age, depending on the financial situation, investors should be more prudent to make sure that they do not overstretch their finances to own a landed home. Speak with your trusted banker or mortgage specialist if you require more clarification on this matter. 

Another common pain point that prospective upgraders to the landed segment may face is that moving from a condominium to a landed home might mean sacrificing convenience. There is often a tradeoff between these two categories of property. That is why some investors actually prefer a larger condo to a landed option, which is totally down to personal preference. Some might perceive choosing landed homes as sacrificing convenience, amenities, and easier maintenance for status, privacy, and elevated living experience.

These concerns and tradeoffs are very dependent on the landed enclaves that we are looking at. However, landed homes with more privacy and lesser public traffic would naturally mean that it is located further away from the main road, bus stops, and MRT stations. There are some landed property options that are located close to MRT stations such as Kovan, Thomson, and Tanjong Katong (just as brief examples). Despite the relatively scarce supply of landed homes, there is still ample opportunity to pick one which really suits your lifestyle needs. There is no need to be rushed or pressured into choosing a poor fit because of a complicated timeline.


Finding the Solution to a Complex Problem

That being said, owners with multiple properties face a serious problem when they are trying to make moves in the property market without incurring ABSD. Navigating the journey could be perilous, not to mention improving the appreciation potential of the property portfolio. This article is not to say that every property investor should consolidate their assets into landed homes, rather, we are sharing some of the stories we have heard from the ground on the difficulties faced by property investors. 

Ultimately, each investor needs to have an in-depth understanding of their needs and what they want out of their property portfolio. Finding and executing the solution with the help of experienced realtors with integrity is simply the next step. If you wish to gain more insight into all things property in Singapore sign up for our upcoming webinars, and check out our NOTG YouTube Channel to expand your knowledge while being entertained. You can also read more of our Editorial pieces here.

Should you have any need for personalised advice on your unique property journey, contact us here!

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