While the property market’s surprisingly good performance and economic recovery resulted in a lower than expected budget deficit for 2009, the Singaporean Government, in its 2010 Budget, clearly aims to avoid a property bubble from forming, which would disadvantage genuine homeseekers, and to introduce fairer taxation to help homeowners in the lower to middle income brackets.
“Calibrated measures to curb an overheated market saw the removal of the Interest Absorption Scheme in September 2009,” points out PropNex CEO Mr Mohamed Ismail, “as well as the lower Loan-To-Value (LTV) ratio and introduction of Seller’s Stamp Duty (SSD), from 19 February 2010.
“The LTV imposed a cap of 80% on mortgage loans from financial institutions regulated by MAS, while the SSD means that those who sell residential properties and residential lands within one year of their purchase will be liable for stamp duty. These measures aim to discourage property speculation and encourage property buyers to be more prudent when making their purchases. The Budget 2010 now aims to level the playing field further, especially for the lower-income bracket households.”
Last year’s budget saw a 40% property tax rebate for owner-occupied residential properties for 2009, while an increased Additional CPF Housing Grant from $30,000 to $40,000 and a higher household income ceiling of $5,000 was aimed at helping the lower income bracket. Similarly, Budget 2010 aims to benefit the majority of homeowners, especially this segment of the population, by restructuring property tax.
Earlier today in Parliament, as part of Budget 2010, Finance Minister Tharman Shanmugaratnam announced a progressive property tax structure for all owner-occupied residential properties. While all owner-occupied residential properties were taxed at a flat 4% previously, the new scheme would see a zero per cent tax rate for the first $6,000 of a property’s Annual Value (AV), 4% for the next $59,000 and 6% for the amount exceeding $65,000.
This would result in $240 savings per household for all homes with an AV of $65,000 or less, which are a majority of Singaporean homes.
“The Government has done well in taking a page from the Income Tax book,” commends Mr Ismail. “The progressive tax rate is a fairer method of taxing residential properties, which will benefit many Singaporeans while not having a negative impact on the property market.”
Mr Ismail explains that AV is derived from the annual rental value of a property. To exceed $65,000 in AV, a property would therefore need to be able to command over $5,400 in monthly rental, which is limited to a minority of the properties here.
With the progressive property tax rate, and taking into account the 0% tax rate for the first $6,000, only properties with an AV exceeding $77,000 will see an increase in their property taxes; this equates to a mere 3% of private property owners or 0.4% of all property owners in Singapore.
“Overall, these tax rates are still lower than other international cities which will help maintain the attraction of this city state to foreign property investors,” comments Mr Ismail.
On that note, Mr Ismail expects the sales price and volume of properties here to be minimally impacted by the new tax structure, if at all.
“As mentioned previously, the progressive tax structure only affects the top 0.4% of all property owners in Singapore,” he reiterates, “so we should not see any impact on property prices or sales volume.”
Mr Ismail does point out, however, that the AV of properties here has not increased for a few years.
He notes that Minister Shanmugaratnam mentioned that “as HDB homes gradually increase in value over time, so will the tax rates increase over time.”
Mr Ismail feels that with the introduction of a progressive property tax rate, it makes sense for the AV of properties to be re-examined to better reflect the property’s AV based on market value.
For enquiries, please contact:
Mohamed Ismail (CEO) 9487 1414
Adam Tan (Corporate Communications Manager) 9006 8726