Why Singapore Leads the World in High Property Transaction Costs

Singapore, the gleaming city state often hailed as a model of economic success, holds an unwelcome title in the global real estate arena. It tops the charts for the highest property transaction costs worldwide, with fees and taxes that can swallow up to 30 percent of a property's value for foreign buyers.

This stark reality stems from a deliberate government strategy to tame an overheated market, coupled with the island nation's unique constraints on land and surging demand. As property prices climb relentlessly, these costs serve as a barrier, reshaping who buys, sells, and invests in one of Asia's priciest housing landscapes.

The Financial Times recently spotlighted this phenomenon, noting how Singapore's average property prices have ballooned over 150 percent in the past two decades. Last year alone, price inflation hit 3.9 percent, following a 6.8 percent surge the previous year. Yet, even as sales volumes dip under the weight of these levies, the total value of transactions keeps rising, fuelled by affluent locals and select overseas investors.

Alan Cheong, executive director of research and consultancy at Savills Singapore, explains the rationale: "The government has tried to calm demand, especially foreign demand, by adding additional transaction costs and preventing an overshooting of prices." This approach, while effective in curbing speculation, has made Singapore's market the costliest to navigate globally.

At the heart of these elevated expenses lies a web of stamp duties and fees designed to cool the market. The Buyer's Stamp Duty, or BSD, applies to every purchase and operates on a progressive scale. For the first 180,000 Singapore dollars of a property's price, the rate stands at one percent. It climbs to two percent on the next 180,000 dollars, three percent on the following 640,000 dollars, four percent on the subsequent 500,000 dollars, five percent up to three million dollars, and six percent beyond that threshold. This structure, updated in February 2023, targets luxury homes, where duties can easily exceed 100,000 dollars.

Layered atop BSD is the Additional Buyer's Stamp Duty, or ABSD, a profile specific tax that varies sharply by buyer category. Singapore citizens pay nothing on their first home, but face 20 percent on a second property and 30 percent on third or subsequent ones. Permanent residents start at five percent for their initial buy, jumping to 30 percent for the second and 35 percent thereafter.

Foreigners, however, confront a steep 60 percent levy on any purchase, while companies shell out 65 percent. These rates, last hiked in April 2023, aim to deter multiple ownership and overseas speculation. For a foreigner eyeing a two million dollar condominium, ABSD alone could add 1.2 million dollars to the bill, pushing total duties close to 25 percent of the price.

Sellers do not escape unscathed. The Seller's Stamp Duty, reintroduced in July this year, penalizes quick flips to stamp out speculation. Properties sold within one year incur a 16 percent duty, easing to four percent for sales between three and four years, with no charge after four years. This measure, absent since 2023, responds to fears of a post pandemic buying frenzy.

Eugene Lim, key executive officer at ERA, observes, "The measures have been very effective at curbing foreign demand. We see very few foreigners buying these days." Indeed, foreign purchases have plummeted, though US citizens, exempt due to a free trade agreement, now account for 40 to 50 percent of remaining overseas deals, surpassing Chinese buyers.

Beyond duties, ancillary fees inflate the total. Legal and conveyancing costs range from 1,800 to 5,000 dollars for buyers and sellers alike, covering document preparation and title transfers. Real estate agent commissions hover at one to two percent for Housing and Development Board flats and two to 3.5 percent for private properties, plus seven percent goods and services tax. Valuation fees add 120 to 400 dollars, while marketing expenses like professional photography and home staging can top 1,000 dollars. For HDB resales, administrative charges and service fees contribute another few hundred dollars. Prorated property taxes, due annually at 10 percent of the annual value for non-owner occupied homes, must also settle at closing.

These components combine to make Singapore's round trip transaction costs far exceed global norms. According to the Global Property Guide, average worldwide fees, including transfer taxes and agent commissions, range from five to 10 percent of property value. In the United States, buyers face two to five percent in closing costs, dominated by lender fees and title insurance. The United Kingdom levies up to three percent in stamp duty land tax for higher value homes, with agent fees at one to three percent. Hong Kong, another Asian hotspot, imposes up to 15 percent in stamp duties for non-permanent residents, yet falls short of Singapore's peaks. Here, foreigners routinely encounter 20 to 30 percent effective rates, driven by the punitive ABSD.

This cost structure traces back to Singapore's founding ethos. Six decades ago, leaders like Lee Kuan Yew championed home ownership as a pillar of national stability, alongside mandatory national service. Policies encouraged citizens to buy, fostering a 91 percent ownership rate today, the world's highest.

The government controls land supply tightly, auctioning parcels for development to balance growth and affordability. Yet, with just 728 square kilometres of territory, scarcity is inherent. High demand from a growing population, now at 6.04 million, exacerbates pressures. Baby boomers, channelling retirement savings into bricks and mortar, join wealthy expatriates fleeing uncertainties elsewhere.

Foreign capital has long shaped the market. In the 1970s, Indonesian tycoons arrived; Chinese high net worth individuals followed in the 2010s. Geopolitical tensions and China's capital controls have since redirected flows toward safe havens like Singapore.

Christine Sun, chief researcher at Realion, points out, "Property prices are still rising despite the increases in stamp duty. There is still a lot of demand for luxury properties, especially among locals." Recent data bears this out: In August, over 900 off plan apartments sold in one weekend, a nine month high.

Critics argue these costs stifle mobility and innovation. Young families, squeezed by duties on second homes, delay upgrades. Affluent locals resort to workarounds, like buying under family members' names or decoupling spousal ownership, though such tactics invite scrutiny. The government offers reliefs, such as ABSD remission for married couples selling within six months, but uptake remains limited.

Looking ahead, the outlook blends caution and resilience. Festive season launches could spur activity, yet global headwinds loom. Rising interest rates, tied to US Federal Reserve moves via the Singapore Overnight Rate Average, add mortgage burdens. Geopolitical risks, from Ukraine to the Middle East, and potential US trade barriers under a Trump administration, could dampen inflows. Still, Singapore's stability endures. As Cheong notes, the system instills a "stake in Singapore," binding citizens to its prosperity.

For buyers, navigating this terrain demands strategy. First time locals leverage zero ABSD, while permanent residents eye commercial properties, exempt from ABSD with BSD capped at five percent. Foreigners, undeterred by costs, focus on exemptions or joint ventures. Developers, hit with 35 percent ABSD, seek remissions through timely completions.

Singapore's lofty transaction costs reflect a calculated trade off: Sacrifice affordability for stability, speculation for sustainability. They underscore a market where value trumps volume, and policy trumps panic. As the city state eyes 2030 goals of inclusive growth, tweaks may come, perhaps easing ABSD for strategic investors. Until then, these barriers stand as sentinels, guarding against bubbles while challenging dreamers to dig deeper. In a world of flux, Singapore's high stakes housing game remains a testament to disciplined ambition.