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 per cent from 30 per cent. Shares of Singapore developers fell.

The city-state’s property sector has remained buoyant even as other countries face slowdowns because of soaring interest rates and inflation, partly due to an inflow of money, especially from wealthy Chinese.

A shortage of supply and rising construction costs during the pandemic have also propelled home prices and rents, fuelling discontent among residents.

The increase “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.”

Singapore’s housing boom contrasts with rival financial hub Hong Kong, which suffered an exodus of residents during the pandemic. Foreigners buying a property in Hong Kong are subject to 30 per cent 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 $HK10 million ($1.9 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 in the past 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 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 per cent, but not drop given a healthy employment market. Home prices gained 3.2 per cent in the first quarter.

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

The exuberant property market has also fed into a surge in rents. Singapore pushed 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 per cent and 43 per cent, 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 per cent 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 per cent of seats.