Shifting housing demand from Singapore to Johor could offer room to ease ABSD rates

Shifting housing demand from Singapore to Johor could offer room to ease ABSD rates

With the Special Economic Zone and RTS Link, more people may live, work and play across the Causeway

Leslie Yee
The Business Times

Feb 10, 2025

https://www.businesstimes.com.sg/opi...ase-absd-rates

Many observers pick Johor’s property market as a clear winner from two major initiatives that will strengthen ties between Malaysia’s Johor state and neighbouring Singapore, namely the development of the Johor-Singapore Special Economic Zone (JS-SEZ) and the building of the Johor Bahru-Singapore Rapid Transit (RTS) Link.

Think of rising demand for office, warehouse, industrial and hotel space in Johor from businesses investing in the JS-SEZ or higher demand for homes and revenue for malls and hotels from Singapore residents flocking to live and play in Johor’s capital Johor Bahru. Travel time between Bukit Chagar in Johor Bahru and Woodlands North in Singapore will be about five minutes on the RTS Link. The link is targeted to commence passenger service by late 2026.

Subject to effective implementation, the JS-SEZ and RTS Link could yield net benefits to both Malaysia and Singapore. Indeed, closer ties among neighbours might help mitigate rising protectionism globally.

Nonetheless, could closer Johor-Singapore ties drive stronger performance in Johor’s housing market while dampening demand for and prices of Singapore homes?

As Johor Bahru gets more vibrant, has stronger amenities and enjoys better connectivity with Singapore, one can expect many people who reside here to possibly relocate to Johor Bahru where homes are much cheaper than in the Republic.

Housing segments here such as Housing and Development Board (HDB) resale flats and suburban condos could be especially hard hit. For example, local private home downgraders and Singapore permanent resident (PR) households may choose homes across the Causeway instead of HDB resale flats. Locals aspiring to condo homes here could opt for condo or landed homes in Johor Bahru instead.

In particular, living in Johor Bahru can work for local retirees and those with fairly flexible working arrangements who need not battle peak hour crowds when commuting between Johor Bahru and Singapore.

Economic impact

A large shift of housing demand from Singapore to Johor Bahru can have damaging economic consequences here. For one thing, property agents will see livelihoods affected. Banks, housing developers and construction-related businesses could suffer from having a smaller housing market to serve in Singapore.

Crucially, tax revenue here may drop. Lower volume of housing sales will lead to a fall in the amount collected in transaction-related taxes. Slowing growth or decline in housing inventory might affect the amount collected in property taxes. The collection of goods and services tax or GST could be adversely affected should more Singapore residents shop largely in Malaysia.

Nevertheless, there are silver linings if some housing demand shifts from Singapore to Johor Bahru.

Building new HDB homes here can be costly. In its financial year 2023, HDB posted a record net deficit of about S$6.8 billion, of which around S$6.2 billion was incurred for the home-ownership segment. HDB’s home-ownership segment covers the development and sale of flats to eligible buyers under various schemes, as well as the disbursement of various housing grants to eligible households.

In short, there are cost savings if the HDB builds fewer new flats for sale at subsidised prices and disburses less in housing grants.

Importantly, potentially weaker domestic housing demand could alleviate the need to find ever more housing sites in land-scarce Singapore. Might the quality of life of residents here improve if population density falls and more land can be used for say recreation, nature or wellness instead of housing?

Moreover, building fewer homes can improve the environment and Singapore’s carbon emissions.

Conditions to relax ABSD

Using a longer lens, if many Singaporeans live in Johor Bahru, conditions will be conducive to significantly relax tough property cooling measures that weigh on our housing market.

Measures to ensure prudent borrowing so that homebuyers are not financially over-stretched can remain in place. However, there is much room to lower Additional Buyer’s Stamp Duty (ABSD) rates that apply to Singapore citizens and PRs buying multiple homes, as well as non-PR foreigners buying any home.

Currently, ABSD does not apply to a citizen buying a first home, while a PR buying a first home pays 5 per cent ABSD. A citizen pays ABSD of 20 per cent for a second home, and 30 per cent for a third and subsequent unit. A PR pays 30 per cent ABSD for a second home, and 35 per cent for a third and subsequent unit.

In recent times, non-PR foreigners have been hit hard by higher ABSD rates. The rate for non-PR foreigners rose from 20 per cent to 30 per cent in December 2021, and subsequently to 60 per cent in April 2023. Under free trade agreements, nationals and PRs of Iceland, Liechtenstein, Norway or Switzerland, and US nationals enjoy the same stamp duty treatment as Singapore citizens.

In 2024, based on caveats lodged, the share of private non-landed homes excluding executive condos bought by non-PR foreigners was about 1.4 per cent – far lower than in preceding years.

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Potentially, raising demand for homes here from local and PR investors as well as non-PR foreigners can help take up the slack should many Singapore residents choose Johor Bahru abodes over Singapore homes.

As a global city with a sophisticated finance sector, excellent connectivity, world-class public infrastructure, good public safety, rule of law, high-quality healthcare and education, as well as top restaurants and leisure amenities, Singapore can attract home-buying interest from the wealthy in other parts of Asia and beyond if ABSD rates are substantially lower. This is especially as the city-state enjoys political stability and social cohesion in a world rife with geopolitical tensions and fracturing societies.

As in many major cities, housing is a politically sensitive topic here. Boosting Johor Bahru homes as a viable option for Singapore residents may help lower the temperature in discussions around housing here.

Meanwhile, buyers paying top dollar for sought-after HDB resale flats or suburban condo homes should think twice. Looking a few years out, demand for HDB resale homes and suburban condos could face stress from Johor Bahru’s lure as a housing destination for Singapore residents.

Perhaps, buying private homes in prime areas here is more defensive, especially as per square foot prices of condos in prime and non-prime districts narrow. After all, Singapore is a global city that can draw the rich.