It has been more than a month since the introduction of the additional buyers’ stamp duty for private home purchases. While the mood has lifted somewhat – many market watchers now expect a smaller price decline of about 10 per cent instead of the 30 per cent talked about in early December – the pessimism among local investors and developers remains.

The new rules require every foreign buyer to pay a stamp duty of 10 per cent on top of the prevailing buyer’s stamp duty of about 3 per cent.

Although figures released by the authorities show that foreign buyers accounted for 19 per cent of all purchases in the second half of last year, the majority of investors and developers reacted to the new measures as if the additional 10 per cent stamp duty applied to all investors.

Permanent residents who buy a second and subsequent residential property pay only 3 per cent more in stamp duty. For Singaporeans, they will have to pay the extra 3 per cent only on their third and subsequent home purchases.

The gloom that surrounded the residential property sector following the December announcement was not unlike that seen last January, when harsh sellers’ stamp duty penalties were imposed on homes resold within four years of purchase – only much worse.

For developers, probably because of the need and difficulty of devising a different pricing strategy for the two separate segments of the market, they appeared to adopt the worst-case scenario, namely treating all buyers as though they were foreign purchasers. More importantly, it was a growing market that was suddenly nipped in the bud.

For local investors, the opportunities to exit profitably from the market were perceived as being drastically reduced – no matter how infrequent such opportunities existed in the first place. It did not matter that there was still a huge potential pool of local investors who had yet to buy their first investment property.

It appears that many do not have a good understanding of the factors that figure prominently in the buying decision of the foreigner. Most foreign buyers, including Singaporeans buying properties overseas, start by speculating or investing in their home markets first.

When they become adept at property investing, they turn to the overseas market, which is usually their third or subsequent investment property. If they are from China, they are likely to have invested in Hong Kong first before Singapore. As such, these property purchases are probably investments most of these investors can afford to lose. If they have that much resources, how significant is an additional 10 per cent?

They may have started off as speculators but their view almost always changes to that of an investor looking at the long term. This is for practical reasons because they are not always in the country or it may be inconvenient for them to closely monitor market trends in their chosen markets.

When you are looking at a long-term buy, you will always start by assessing the country’s economic fundamentals.

You will also look at the strength of its currency and other economic indicators. Singapore ranks very highly on both counts compared with other countries in the region.

For potential buyers from neighbouring countries such as Malaysia and Indonesia, the strength of the Singapore dollar is a strong enough attraction in itself. If the currency movements are in their favour, the additional 10 per cent stamp duty will most likely be more than made up for by the time they exit the market.

And with their home countries in the habit of going through an economic upheaval or political turmoil every four to five years, the investors are further drawn to Singapore.

Also, do not forget that Singapore is an educational hub. If the foreigners intend to send their sons and daughters to schools in Singapore in the near future, would it not be more convenient to buy a home here? Are we forgetting why so many Singaporeans have bought homes in Australia and even as far away as London?

As for pricing, the reference for most foreign buyers is their own home market or the prices in their alternative property investment destinations. When Chinese investors compare home prices in Hong Kong with those in Singapore, you know which country wins hands down.

Lastly, let us not forget that home buying is often an emotional process. Indian and Chinese investors buy properties here because they find it so easy to get around Singapore on their own. No need for a guide. When you feel that comfortable, you will fall in love with the country. Where is the risk? If I cannot exit from the market, I will just come here and live in my property.

By Colin Tan – head, Research & Consultancy, at Chesterton Suntec International