Analysts See Little Impact as Singapore Raises Property Taxes to as High as 36%

Less than three months after targeting buyers of multiple homes with higher transaction taxes and tightened lending conditions, Singapore is introducing increases in property taxes which could raise rates charged to owners of residential investment properties by one-third or more.

Singapore Finance Minister Lawrence Wong said in his 2022 budget speech on Friday that property taxes on non-owner-occupied homes, which include units purchased for investment, will be raised to 12 to 36 percent by 2024 from the current rates of 10 to 20 percent. Owner-occupied properties would also see rates increase from the current 4 to 16 percent to 6 to 32 percent over the next two years.

“This is an important part of our tax system. Apart from generating revenue, they also help to recirculate a portion of the wealth stock into our economy and in so doing, mitigate social inequalities,” Wong said. “Wealth taxes are therefore needed to build a fairer society where everyone can aspire to succeed regardless of their backgrounds.”

While the government rolls out additional levies on property investment, analysts are already raising questions about whether these latest moves will be sufficient to dampen demand among the city’s deep-pocketed denizens.

Tax Hiked After 7 Years

With Singapore wary of growing income inequality, Wong pointed out that the new system, which imposes higher taxes on more expensive units, places its highest tax rates on homeowners in the top seven percent of the city-state’s income bracket.

The new tax scheme will be implemented over a two year period, with duties on non-owner-occupied properties set to increase to 11 to 27 percent in 2023 and to climb to 12 to 36 percent in 2024.

For owner-occupied homes, properties with annual values greater than S$30,000 will have a property tax of 5 to 23 percent starting next year and this will be increased to 6 to 32 percent in 2024.

After seven years since Singapore last raised property taxes, the latest revision is expected to provide the government S$380 million in additional revenues each year, while having what some see as only limited impact on demand. With the market having absorbed the previous hike in 2015, analysts expect this latest announcement to be little more than a speed bump.

“I don’t see a huge impact on market sentiment and most investors are likely to shrug off the increase in property taxes,” said Wong Xian Yang, head of research head for Singapore at Cushman &  Wakefield. “While an increase in property tax does increase holding costs for property, it is unlikely to dampen demand as the increase in absolute cost is relatively small.”

Wong said demand in mid-tier and suburban markets – the largest drivers of private residential transactions – will stay largely unaffected, especially since the tax hike will only result in an average of S$600 of additional cost each year, or S$50 monthly, on an investment property which could appreciate in value by S$30,000 annually. In the high-end markets, he said investors with deep pockets can easily absorb the higher costs.

With gross rental yields for suburban condos currently averaging 2.8 percent after tax, that level will dip to around 2.7 percent following imposition of the new rates, which he sees as not making a significant dent in the condo market’s appeal to investors.

“Due to leverage, investors tend to look for capital appreciation rather than for yield for private residential property investments. A few hundred dollars increase in property taxes a year isn’t likely to sway investment sentiments,” Wong added.

Rents To Rise

While the new measures are likely to have only limited impact on investment sentiment, analysts say the renters are likely to see higher leasing rates as landlords pass along the new tax costs to tenants.

Tricia Song, head of research for Southeast Asia at CBRE, views the property tax hike as the government’s way to increase taxes on the wealthy rather than serving as a restriction on the housing market, saying that the increased additional buyer’s stamp duty (ABSD) and tightened lending rules imposed on 16 December already pushed investors to temper expectations for the year.

“Cooling measures such as the 5 to 15 percentage points in ABSD and tightening of the total debt servicing ratio (TDSR), will have a greater impact on bringing home prices down, as opposed to rents,” she said.

Song estimates that private home price growth will remain flat at three percent or less this year, while the volume of transactions can be expected to decline to 9,000 to 10,000 units from the 13,118 homes sold last year.

Cushman’s Wong also predicts a slower year for Singapore’s housing market in 2022, and predicts that home prices will rise by 1 to 2 percent, compared to the 10.6 percent surge last year.

Government data released last week showed that Singapore’s residential market remained active in January despite the December cooling measures, with 673 new units sold last month compared to 650 during the preceding 31 days.