March 8, 2022
Singapore Property To Become Even More Expensive
Property taxes rates for both owner-occupied and non-owner-occupied residential properties here will go up in 2 steps starting from 2023, but analysts do not expect this to dent demand for homes.
The Government’s “strong commitment” to building infrastructure and maintaining a high quality of life here will continue to draw investors and buyers, said Christine Li, senior director of research at property consultancy Cushman & Wakefield. “It is not by chance that Singapore is one of the most liveable cities in the world, and that does not come cheap!” she said.
Singapore’s property tax regime – which has been unchanged since 1970 – is also relatively low and progressive compared with other cities, according to JLL.
Finance Minister Lawrence Wong announced in his Budget 2022 speech that along with a higher personal income tax rate for top-tier earners and an additional levy on luxury cars, property taxes will be raised.
A higher property tax rate would shift some of the tax burden from personal income taxes towards property taxes while improving progressivity, said JLL national director Ong Teck Hui.
The higher tax on non-owner-occupied homes would also help cool investor demand in the public housing market, he added.
Even so, prices are expected to remain elevated in the short term as demand stays strong, though they could stabilise after measures kick in later this year.
Mr Wong said that Singapore is not alone in facing such challenges, and noted how countries such as Germany, France and Denmark have stopped levying taxes on individuals' net wealth.
The number of OECD (Organisation for Economic Cooperation and Development) countries that levy net wealth taxes has dropped from 12 in 1990 to only three in 2020, he added, noting that this is partly because of the difficulties in effectively implementing net wealth taxes.
The revision of property tax rates comes amid Singapore's booming property market, which prompted new cooling measures to be introduced last December.
The latest round of property cooling measures included tightening of the total debt servicing ratio for borrowers and higher additional buyer stamp duty on purchases of residential properties.
Prices for private homes surged 10.6 per cent for the whole of 2021 - the highest annual growth since 2010 when they climbed 17.6 per cent.
The resale market for Housing Board flats also saw its steepest full-year climb in a decade last year, as prices rose 12.7 per cent.
Table: STRAITS TIMES GRAPHICS Source: MINISTRY OF FINANCE
Tax Hike Targeted at “Top End of The Market”
The Government has announced a “progressive” hike in property tax for non-owner occupied properties. The rates will be hiked by between 5 and 10 percentage points for residential properties with an annual value of S$30,000 or more. For those with an annual value of less than S$30,000, the rate will rise by 5 per cent.
This means that for a property with annual value (AV) of S$90,000 and above, the new tax rate is now 16 per cent instead of 8 per cent previously; while for those with AV below $90,000, the new rate is 10 per cent instead of 5 per cent previously.
But don’t worry… this is just a wealth tax!
According to Ms Tricia Song, head of research for Southeast Asia at CBRE Singapore: “This hike is more regarded as a wealth tax as it is targeted at the top end of the market. For example, the maximum 80 per cent hike of S$9,600 for a S$90,000 annual value investment property can chip away about 8 per cent of its gross annual rental income.”
Budget 2022: Property tax rates for homes to rise from 2023, analysts don’t expect demand to dampen
While an increase in property tax does increase holding costs for property, it is unlikely to dampen demand as the increase in costs seem manageable, highlighted Wong Xian Yang, head of research at Cushman & Wakefield.
Citing figures from IRAS, Wong noted that the median AV of non-landed private properties (including executive condos) and landed properties was S$22,200 and S$34,800 respectively in 2020. “Assuming an investment property with an annual value of S$22,200, the increase in tax would only come up to S$444,” he calculated.
Nicholas Mak, head of research and consultancy at ERA, said: “Most of the increase in property taxes will fall on the more expensive properties with higher AVs. These residential properties are usually high-end properties in the Core Central Region that are owned by the wealthy, who can easily afford the increase.”
Chief of real estate consultancy Delasa, Karamjit Singh, pointed out that investments into homes are not driven solely by yields, but more by emotional, utility and capital preservation needs. As such, “the increases are not expected to change buying behaviour or dampen prices of premium homes,” Singh added. “The impact of the higher taxes are also somewhat mitigated by risen values and rents, especially in the case of landed properties.”
Similarly, Knight Frank’s head of research, Leonard Tay, does not expect the bump in the property tax rate to detract owner-occupiers from their upgrading aspirations.
Meanwhile, Ismail Gafoor, chief of PropNex Realty, reckons that some residential landlords of investment properties could hike rents to help offset the higher tax payable. “Some investors who own multiple properties may perhaps explore investing in commercial properties, which have a flat property tax rate of 10 per cent,” he added.
The reduced net rental yield for residential properties, arising from the revised property tax, also means that investors would need to rely more heavily on capital appreciation when they invest in real estate, Mak reckons.
The property taxes comes in the wake of a fresh round of cooling measures in December 2021, which included higher Additional Buyer’s Stamp Duty (ABSD) rates for Singaporeans and Permanent Residents purchasing their second and subsequent properties. Meanwhile, foreign buyers saw ABSD go up from 20 per cent to a stiffer 30 per cent.
Tay added: “Between the ABSD and the property tax rate increases, ABSD would comparatively have more of a dampenening effect than property tax.”
Table: BT Digital Source: MOF
Table: BT Digital Source: MOF
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