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Might it be too much of a good thing? National goals, such as home affordability for citizens and competitiveness as a commercial hub, can’t be jeopardized. In that sense, Singapore’s recent success can cut both ways. The island’s standing as the “it” place for business in Asia has rarely been better. This brings in revenue and helps offset a slowdown in the global economy. But it can also stoke frustration and add to a sense that inequality is on the rise. Politicians now talk frequently about the need to make society fairer, well aware the country is preparing for a once-in-a-generation leadership transition. This is the setting for the new steps announced late Wednesday to rein in the housing bubble, including a huge jump in stamp duty for foreigners to 60% from 30%.
Being a magnet is great. Singapore is perceived to have handled the pandemic well and reopened faster than regional competitors such as Hong Kong, Shanghai and Shenzhen. Long seen as the city-state’s principal rival, Hong Kong also looks less compelling after China imposed a sweeping security law, prompting an influx of capital and talent into Singapore. Its allure can be seen in many aspects of life: Demand for places at international schools, tougher-to-get bookings at bars and restaurants and eye-watering bills, busier highways and pricier cars. These all pale when compared with the surging cost of housing, be it buying or renting.
In an effort to let some helium out of the market, the government is increasing stamp duties for second-home buyers and foreigners purchasing private property, it said in a statement. For Singaporeans picking up a second dwelling, the rate edges up to 20% from 17%. The levy was lifted to 30% from 25% for citizens acquiring their third or subsequent home, and for permanent residents investing in a second residential property.
Officials are trying to engineer a slowdown at the same time they navigate a trickier economic outlook. Singapore’s gross domestic product shrank in the first quarter, and the central bank predicts a drag on global investment from tighter credit conditions. A lot of the benefit that Asian economies earned from reopening will fade over the course of 2023, according to a dour outlook sketched by the Monetary Authority of Singapore on April 14 and reiterated Wednesday. The MAS also foreshadowed some relief for renters as bottlenecks ease and more housing units are completed. The disparity between the soaring cost of putting a roof over your head and the less-than-ebullient economic outlook was too much.
Hours later, the stamp duty announcement landed. Citigroup Inc. analyst Brandon Lee called the hit to foreigners “draconian.” That may be the point. The government, which emphasizes the impact of construction delays during Covid rather than a spate of new arrivals as key reason for the spike in prices, has been working to cool the market. More steps had been foreshadowed. Officials clearly decided a blunt instrument was needed both for impact and as a signal of intent.
Housing does have company: Personal income tax is rising for top earners and the cost of putting a car on the road — always hefty — is climbing. The changes will “help to circulate a portion of the wealth stock back into our economy and in so doing help mitigate social inequalities,” Finance Minister Lawrence Wong, likely to be the next leader of the ruling party, told parliament on Feb. 18. “Wealth taxes are therefore needed to help build a fairer society where everyone can aspire to succeed regardless of their backgrounds.”
Every now and then the question of whether to impose a capital-gains tax or inheritance tax bubbles up. It’s not an enormous leap to see some form of one — or both — down the line. Singapore’s population is rapidly aging and persistent efforts to get couples to have more kids aren’t turning around the decline in fertility rates. The city-state’s goods-and-services tax is on the way up.
As Singapore wrestles with some of the byproducts of success, other jurisdictions are striving to make up some lost ground. Hong Kong has proposed new tax breaks to attract ultra-high-net-worth people to set up family offices. The territory launched a new immigration program and is rapidly processing applicants, many of whom are from mainland China. Hong Kong has reopened with purpose, albeit later than Singapore. Perhaps Hong Kong was counted out too soon, even if personal freedoms are greatly curtailed.
It’s also possible to make too much of the competition between Singapore and Hong Kong. Not everything needs to be seen in this context. The escalation in Singapore rents, driven by many of the same supply issues that plague the market for buying, has been painful. After enjoying a small (and brief) reduction during peak-Covid when Singapore’s borders were largely closed, my rent went up by 30% in February. I leapt at the offer and signed almost on the spot. Horror stories abound. A friend doing a well-paid job for a multinational firm was presented with a boost of 140% in his monthly rent. The solution? Move to neighboring Malaysia and commute regularly.
His story probably isn’t unique. How does this benefit Singapore? Every financial hub needs a hinterland, suburban and ex-urban feeders. But Singapore’s happens to be … not in Singapore. The country’s road to prosperity in the years after splitting with Malaysia in 1965 lay in making itself a base camp for global capitalism and the folks who make it tick. Singapore also wants the benefits to be more evenly spread and for its citizens to get a fare shake. That path is becoming trickier to navigate.
More from Bloomberg Opinion:
• Hong Kong Is Finally Doing Two Things Right: Shuli Ren
• Singapore Sends Up a Flare on the Global Outlook: Daniel Moss
• Singapore Will Woo Credit Suisse’s Rich Clients: Andy Mukherjee
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously, he was executive editor of Bloomberg News for economics.
More stories like this are available on bloomberg.com/opinion
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