(Bloomberg) -- Nevermind that Singapore is experiencing one of the worst property slumps in its history, demand for luxury housing is suddenly coming from an unexpected group: wealthy Indonesians.
This year’s purchases by Indonesian nationals of homes valued at S$5 million ($3.7 million) or more have already nearly quadrupled from last year’s total. The stepped-up buying coincides with the passage of a law in Jakarta aimed at getting Indonesians to repatriate or pay taxes on an estimated $300 billion that had fled to Singapore during previous periods of unrest, lest those who took their money out be found out for tax evasion -- a reason cited by three property agents as a primary reason behind the purchases. Indonesians were the top foreign buyers at the luxury OUE Twin Peaks tower, which went on sale in July.
“We’re seeing a big increase in Indonesians buying the most expensive property,” said Ang Kok Leong, a senior agent at SLP Realty Pte, who cited Indonesians’ concerns about Singapore’s upcoming move to share financial information as the single biggest motivation for his Indonesian clients. “These people are generally in tune with this kind of situation back home, so if I’m not about to let the Indonesians know what I have, I will buy in Singapore.”
Indonesia, Singapore and other countries are adopting global tax reporting requirements to tell each other about nationals holding assets abroad. Indonesians moving money into property are counting on only assets held in banks, not in real estate, being shared, agents and brokers say.
While the numbers in the official data are small, they show surging demand that likely understates the real total. Indonesians bought 30 Singapore properties valued at S$5 million or more between the start of the year and Aug. 17, compared with only eight such deals for all of 2015, according to the government’s Urban Redevelopment Authority. Disclosure of nationality is voluntary.
During the first half of this year, Indonesians bought 189 properties of all values in Singapore, 23 percent more than in the same period last year, data from Cushman & Wakefield Inc. show. While purchases from Chinese and Malaysians declined during the second quarter, transactions by Indonesians rose 19 percent.
Not all Indonesians buying real estate are seeking to avoid taxes, of course, and some may see value in a market that bottomed out in prime areas at the end of 2015. Indonesians are drawn to property in Singapore’s center, especially the Orchard Road area where the OUE Twin Peaks towers are located. Apartment prices there have risen 0.6 percent since their low at the end of 2015, according to Cushman & Wakefield.
At the OUE Twin Peaks development, where luxury condos in the second tower of the 36-story high rises went on sale in July, the developer sold almost half the first batch of 86 units with price tags of as much as S$4 million, with Indonesians the top foreign buyers, according to Propnex Realty Pte, a company handling sales for the project.
A Propnex agent who asked not to be identified said the strong demand from Indonesians came as a surprise. It’s a marked change from past sales of downtown luxury homes, such as the Marina One Residences last year, when Indonesian buyers accounted for just three of about 200 units sold, Cushman & Wakefield data show.
Indonesian President Joko Widodo’s ambitious tax amnesty plan, under discussion since earlier this year and ultimately passed in June, is aimed at repatriating Indonesian cash stashed overseas while giving evaders a way to come clean.
Under the amnesty, Indonesians are to pay a tax rate starting at 4 percent on declared property or funds left overseas. It increases in stages to 10 percent as the amnesty period draws to a close in March. Those who send their money home and keep it in Indonesia for at least three years pay 2 percent and are offered a wide range of possible investments. Those who don’t declare and are found out face paying 200 percent of the tax owed.
The tax amnesty deal may attract S$5 billion to S$9 billion of Indonesian funds deposited in Singapore, Sanford C. Bernstein & Co. analysts Kevin Kwek and Norbert Topouzoglou wrote in a July 21 report. Most of the assets are probably invested in properties, securities or businesses, and are thus less likely to be repatriated quickly, they said.
Wealthy clients typically allocate about 20 percent of their assets to property, according to Evrard Bordier, Singapore-based managing partner of Swiss private bank Bordier & Cie. That percentage might increase because of the new tax transparency standards from the Organization for Economic Cooperation and Development that both Singapore and Indonesia have agreed to, he said. They currently don’t include reporting on real estate holdings.
“This global shift into increased transparency will no doubt result in subtle yet important changes in the portfolio allocation of a typical high-net-worth individual,” said Bordier, noting that the global trend toward sharing information across jurisdictions eventually will make hiding money in property difficult.
In response to a request for comment, the Monetary Authority of Singapore and the country’s Ministry of Finance said Singapore is ready to help in “any case of suspected cross-border tax evasion.”
Singapore and Indonesia have yet to agree to the mechanisms needed for the automatic exchanges of information under OECD tax standards, due to come into effect by 2018. Until then, information transfers including information on property ownership take place upon request between the two tax authorities.
“Expectations of motivating substantial repatriation whilst there are still doubts/lack of clarity may be overly optimistic,” Vishnu Varathan, an economist with Mizuho Bank Ltd., said by e-mail. “Declaring taxable monies to be repatriated could subject their accounts/finances to more scrutiny.”
Singapore is currently mired in its most prolonged housing slump on record. Home prices in the city-state fell for the 11th straight quarter in the three months ending June 30, posting the longest losing streak since records started in 1975.
Singapore’s government is holding steadfast on cooling measures it has rolled out since 2009, for fear of inflating a property bubble. The measures, including a stamp duty on foreign buyers, limit the investment appeal of what is still a key high-end housing market in Asia. Wealth advisers and property agents say property is often seen as a conservative investment option and a way to store wealth at a time of economic uncertainty and mediocre returns in financial markets.
"Indonesians see Singapore as a politically stable safe haven," said Jasslyn Yeo, Singapore-based global market strategist for JPMorgan Chase & Co.’s asset management unit. “This is an important factor, especially at this time when you see so much instability in the region.”
Indonesian wealth fled the country as far back as the 1960s when violence against ethnic Chinese was part of a campaign by President Sukarno to stamp out Communism. Other periods of instability include 1998, when anti-Chinese riots coincided with the ouster of President Suharto, and thousands of ethnic Chinese took refuge in Singapore and elsewhere.
Many Indonesians travel to Singapore for medical checkups and procedures, so locations near hospitals are at a premium, agents say. Indonesian citizens bought 42 of 211 apartments in the range of S$1 million to S$4 million earlier this year in the Cairnhill Nine condo development, within walking distance of two hospitals, Cushman & Wakefield data show. The second-largest group of foreign buyers was Malaysians, with 16 units.
Unlike Singaporeans, who mostly buy to reside in properties and take time to decide, Indonesians often close deals in a matter of days and aren’t picky about details, the agents say. They typically look for amenities such as hot tubs and swimming pools, as well as private elevator entrances, a feature that has become popular in recent years.
“This kind of buyer, sometimes they will come wearing big sunglasses if they’re famous, so you don’t recognize them, and often they come with their own family agent,” said Kent Tan, an agent with realtor Home Guru Pte, who has seen a recent uptick in the number of queries by Indonesians. “These buyers know Singapore’s market very well and have known it for many years.”
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