Recent Regulatory Reforms puts Chinese Investors’ Interests in Singapore Residential Properties on Hold
Money Moving out of China Rises
Data shows that Chinese investors are increasingly keen to get their money out of China as, amongst other factors, confidence in the real estate sector on the mainland wanes. Individuals, Chinese family offices and businesses are often interested in diversifying investments and putting their wealth in a stable, safe place like Singapore. Highlighting this trend, the Chinese have been the largest foreign buyer group in Singapore since 2016 and made up 6.9% of foreign purchases of private apartments last year, according to OrangeTee & Tie data.
In April 2023, Singapore authorities doubled property levies – the Additional Buyer Stamp Duty (ABSD) – for foreigners to 60%, the highest among major global cities, in a bid to cool the housing market. But some HNWI, including many Chinese investors, continue to park their wealth in Singapore.
Looking Back at the History
Strong bilateral ties between China and Singapore have existed for decades, but geopolitical tensions elsewhere could explain why Chinese investors continue to buy in Singapore as it is seen as a safe-haven asset.
Singapore is recognised as one of the most stable and business-friendly countries in the world and is seen as a ‘gateway’ jurisdiction to doing business in Asia – it is a natural entry and exit point bridging Asian jurisdictions and international markets. The country also promotes free and open trade, emphasising its strong and transparent legal system and governance.
In 2021, the Monetary Authority of Singapore (MAS) announced joint financial initiatives with the Chinese government to facilitate improved access and partnerships between investors from both nations. The China-Singapore Demonstration Initiative on Strategic Connectivity then saw 30 cooperation projects in April 2022 including large finance, transportation and logistics intergovernmental and commercial agreements.
Senior Partner and Head of JTJB’s Property & Conveyancing Department, Mabel Tan, remarks: “With ongoing incentives and support from both governments, it is not surprising that growth between the two nations continues to blossom.”
Why Singapore for Property Investments?
According to a 2021 survey by Global Times and DATA100, Chinese nationals regularly choose Singapore as their favourite travel destination and favourite country. Singapore, named the world’s best place to do business by the Economist Intelligence Unit, is financially and politically stable, has a low crime rate and high GDP per capita.
Tan notes: “The ease of integration for Chinese nationals into Singapore’s social system is worth noting – the majority ethnically Chinese population, the prevalence of Mandarin, the well-developed public and private school systems with Mandarin as a language option and even regional Chinese cuisine being readily available – are all pull factors for investors looking to park their funds outside the Mainland.”
Before the latest cooling measures, the number of luxury condominium units bought by foreigners rose to the highest in almost a decade with Chinese buyers making up nearly one-quarter of the buyers of the 425 luxury homes sold in the city in 2022, outnumbering US citizens by more than two to one. Singapore’s residential real estate prices also soared 14 per cent in 2022, according to data from real estate consultancy firm Knight Frank.
What the Future Holds
The latest ABSD rates introduced earlier in the year to tax foreign property buyers at 60% come on the heels of many ultra-wealthy Chinese moving to the city in recent years. Family office assets at Singapore’s banks continue to increase and the cost of apartments, club memberships and cars are soaring, raising concerns about a growing wealth gap.
Furthermore, in early 2022, Singapore police acted on tip-offs regarding various suspicious activities and launched a comprehensive coordinated probe which eventually became a massive, transnational billion-dollar money laundering case. This led to the arrests of 10 foreigners, who are all of Chinese origin but have nationalities and passports ranging from Cyprus to Cambodia. The authorities have seized about $2.8 billion worth of assets, from luxury real estate, and designer handbags to gold bars. These money laundering cases prompted the Singapore Government to strengthen due diligence measures. The banks are taking longer than usual to perform due diligence on clients and even closing accounts in some cases as procedures tighten. Banks are demanding more documents than usual in some cases to verify sources of wealth. These stringent checks and the increase in the ABSD rates are expected to have a significant cooling effect on the property market.
According to Tan: “Banks are now more cautious in providing housing loans, enforcing very stringent checks, and that makes it challenging for foreign investors, especially the Chinese, to purchase residential properties in Singapore. This, alongside the increased tax, is anticipated to have a significant cooling effect on the property market. With the next general election due by 2025 and housing an ongoing issue, authorities are doing what they can to ensure that residential property remains affordable to the locals.”
For more information, please contact:
 |
Mabel TanSenior Partner JTJB Singapore Office |
 |
Ting Chi YenPartner JTJB Singapore Office |
|---|
 |
Joseph TanConsultant JTJB Singapore Office |
 |
Tio Siaw MinAssociate JTJB Singapore Office |
|---|