What’s rattling Singapore’s luxury market?

    Domestic spending and Chinese tourists offer hope for the Lion City’s luxury sector as a money laundering scandal and a property tax hike dent confidence.
    The Merlion statue representing a mythical creature with a lion’s head and the body of a fish, is pictured in Singapore’s Marina Bay. Image: Getty Images
    Jing DailyAuthor
      Published   in Macro

    Singapore’s luxury market is facing headwinds as a high-profile money laundering case and increased property taxes for foreign buyers dampen demand.

    The city-state, long a haven for wealthy investors like Meta Platforms cofounder Eduardo Saverin, is grappling with the fallout from its largest money laundering probe to date, which has seen over $3 billion in assets seized and multiple arrests of foreign nationals.

    The case, which came to light in August 2023, involved 10 Chinese nationals accused of laundering proceeds from overseas criminal activities. Authorities have since seized a staggering array of luxury assets, including properties, cars, jewelry, and handbags.

    Six of the accused have already been sentenced to jail terms and hefty fines, agreeing to forfeit over $540 million in assets to the state.

    Revelations of such extravagant purchases in the money laundering scheme have raised questions about the effectiveness of Singapore’s anti-money laundering measures and whether further regulations on luxury purchases may be necessary. Authorities are examining if requirements need to be extended to new asset classes, such as handbags, jewelry, and cars, to prevent exploitation by criminals.

    While the long-term impact of the scandal on luxury spending remains to be seen, observers like Fflur Roberts, head of luxury at Euromonitor International, believe it could lead to a temporary pause in spending as high-net-worth individuals seek to avoid unwanted scrutiny.

    Luxury property downturn#

    Compounding the challenges posed by the money laundering case, Singapore’s luxury property market is contending with a significant drop in foreign demand following a hike in property taxes.

    In April 2023, the Additional Buyer’s Stamp Duty (ABSD) for foreign buyers was doubled from 30% to 60%, leading to a 98% year-on-year plunge in purchases by overseas investors in Q1 2024.

    “Since the introduction of the new ABSD last year, we saw the number of foreign buyers drop significantly,” Professor Sing Tien Foo from the National University of Singapore’s Business School told Mansion Global.

    The punitive tax means a $5 million property now comes with an additional $3 million in duties for foreign purchasers.

    While some ultra-wealthy foreign investors are still drawn to Singapore’s stable currency and safe haven status, the ABSD hike has dramatically shifted the buyer profile of luxury homes. Singaporeans now form the largest group of purchasers in the segment, with locals accounting for 80% of inquiries, according to real estate agents.

    As developers grapple with the absence of foreign buyers, some may lower prices to attract more domestic demand, potentially leading to spillover effects in other parts of the property market. However, observers note that prices are still rising overall, albeit at a slower pace, with private home prices projected to increase by up to 6% in 2024.

    Despite the near-term challenges, Singapore’s luxury market is expected to weather the storm, supported by resilient domestic spending as the country moves firmly into the post-pandemic era. According to Mintel research, 73% of Singaporean consumers are willing to pay a premium for high-quality goods, indicating a potential bright spot for luxury brands that can prove their value proposition.

    Another bright spot is the return of high-spending Chinese tourists.

    Some 327,000 people visited Singapore from China in February, 96% of 2019’s pre-pandemic level, according to data released by Singapore Tourism Board. data reveals the average expenditure per visit has climbed 30% from a year earlier.

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