(Bloomberg) -- Singapore is raising property taxes to cool its red-hot housing market, amid mounting concern that an influx of wealth into the city-state is hurting affordability for locals and its competitiveness as a financial hub.

The government is increasing stamp duties for second-home buyers and foreigners purchasing private property, it said in a statement. For foreigners buying any home, the tax rate doubled to 60% from 30%. Shares of Singapore developers fell. 

The city-state’s property sector has remained buoyant even as countries elsewhere face slowdowns due to soaring interest rates and inflation, partly due to an inflow of money, especially from the wealthy Chinese. A shortage of supply and rising construction costs during the pandemic have also propelled home prices and rents, fueling discontent among residents.

The hike “may slow the frenzy to move money to Singapore, but maybe not as much as you might expect,” said Bloomberg Economics Chief Asia Economist Chang Shu. “The demand for diversifying assets remains strong, and Singapore is still the top destination in Asia.”

Read more on the Singapore tax from Bloomberg Economics here.

Singapore’s housing boom contrasts with rival financial hub Hong Kong, which saw an exodus of residents during the pandemic. Foreigners buying a property in Hong Kong are subject to 30% in property tax, half of Singapore’s new duty rate. Hong Kong in February lowered the tax rate for first-time buyers of properties worth up to about HK$10 million ($1.3 million) in a bid to help people climb the housing ladder. 

Singapore’s latest measures follow tax increases that were imposed in December 2021 and a tightening of home-loan limits in September 2022. While those moves had a “moderating effect,” property prices last quarter showed “renewed signs of acceleration amid resilient demand,” the statement said. The government also raised taxes for buyers of high-end properties earlier this year.

“Demand from locals purchasing homes for owner-occupation has been especially strong, and there has also been renewed interest from local and foreign investors in our residential property market,” the government said. “If left unchecked, prices could run ahead of economic fundamentals, with the risk of a sustained increase in prices relative to incomes.”

The hike on foreign buyers is “draconian” even though the moves were not totally a surprise, Citigroup Inc. analyst Brandon Lee wrote in a note. “We expect a knee-jerk negative impact on shares of residential developers.” 

Citigroup forecasts the rate of price increase to slow over the next few quarters to as much as 2% but not drop given a healthy employment market. Home prices gained 3.2% in the first quarter.

City Developments Ltd. shares slid as much as 6% on Thursday, the biggest intraday decline since October 2020. UOL Group Ltd. dropped as much as 5.3%.

The exuberant property market has also fed into a surge in rents, with Singapore pushing New York off the top spot for the strongest growth in residential rents in the last quarter of 2022, according to a report by Knight Frank.

Both public and private residential rental costs have soared since 2021, by 38% and 43%, respectively, although authorities have said that a boost to post-Covid housing construction should help to alleviate rental costs. 

There have been signs that the property boom is stirring unease among expats and locals alike. A YouGov poll conducted last December found that two out of three people felt the government should place greater focus on housing affordability. A separate survey by the European Chamber of Commerce earlier this year showed that 69% of businesses were considering relocating their staff out of Singapore without any help with rising rents.

The issue is set to feature prominently during presidential elections this year in a vote that will test the nation’s mood ahead of a general election that must be held by November 2025. The ruling People’s Action Party had its worst-ever showing in 2020, but it still won 89% of seats.

Among the measures announced Wednesday, the government raised the so-called Additional Buyer’s Stamp Duty to:

  • 20% from 17% for Singapore citizens buying a second home
  • 30% from 25% for citizens purchasing their third or subsequent home, and for permanent residents purchasing a second residential property
  • 65% from 35% for for entities or trusts purchasing any residential property, except for housing developers.

The increases take effect on Thursday, complementing efforts to ramp up housing supply, according to the statement, which was issued by the Ministry of Finance, the Ministry of National Development and the Monetary Authority of Singapore.

Singapore-based United Overseas Bank Ltd. welcomed the measures. 

“This is a good move in the long term for us because Singapore definitely has what we call a flight-to-quality safety premium,” said UOB’s Chief Financial Officer Lee Wai Fai. “We don’t want it to affect our domestic economy that the average person can’t even afford housing to live in.”

--With assistance from Krystal Chia, Catherine Ngai, Shawna Kwan, Michelle Jamrisko and Philip J. Heijmans.

(Updates throughout with additional context, Bloomberg analysts’ commentary. An earlier version corrected the spelling of Citigroup.)

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