Budget 2022 property tax: How much more will it cost you? What this means for the market – Property Blog Singapore

In the recent Budget 2022 announcement, the government announced that it would increase property taxes from next year. Although the increase is not significant for most owners, it adds to a series of rising costs for investors and owners; and we expect IRAS to get a few more calls regarding annual value (AV). Here is the summary of the likely effect:

How much are the new property taxes?

Before we look at the new property tax levels, here’s an overview of the existing property tax rates for owner-occupied properties since 2015:

Annual value ($) Effective January 1, 2015 Property tax payable
First $8,000
Next $47,000
0%
4%
$0
$1,880
First $55,000
Next $15,000

6%
$1,880
$900
First $70,000
Next $15,000

8%
$2,780
$1,200
First $85,000
Next $15,000

ten%
$3,980
$1,500
First $100,000
Next $15,000

12%
$5,480
$1,800
First $115,000
Next $15,000

14%
$7,280
$2,100
First $130,000
Above $130,000

16%
$9,380
Owner-occupier property tax (2015-2022). (Source: IRA)

Changes for 2023 and 2024 include both tiers and pricing:

Annual value Price from 1st Jan 2023 Price from 1st January 2024
First $8,000
Next $22,000
0%
4%
0%
4%
First $30,000
Next $10,000

5%

6%
First $40,000
Next $15,000

7%

ten%
First $55,000
Next $15,000

ten%

14%
First $70,000
Next $15,000

14%

20%
First $85,000
Next $15,000

18%

26%
First $100,000
Above $100,000

23%

32%
Homeowner tax rate (from 2023 and 2024). (Source: IRA)

Here’s what an actual property tax calculation looks like based on the old and new system:

Annual value 2015 – 2022 2023 2024
$10,000 $80 $80 $80
$20,000 $480 $480 $480
$30,000 $880 $880 $880
$40,000 $1,280 $1,380 $1,480
$50,000 $1,680 $2,080 $2,480
$60,000 $2,180 $2,930 $3,680
$70,000 $2,780 $3,930 $5,080
$80,000 $3,580 $5,330 $7,080
$90,000 $4,480 $6,930 $9,380
$100,000 $5,480 $8,730 $11,980
$110,000 $6,680 $11,030 $15,180
$120,000 $7,980 $13,330 $18,380
$130,000 $9,380 $15,630 $21,580
$140,000 $10,980 $17,930 $24,780
$150,000 $12,580 $20,230 $27,980

For non-owner occupied residential properties, the current tax rates are as follows:

Annual value ($) Effective January 1, 2015 Property tax payable
first 30,000
Next $15,000
ten%
12%
$3,000
$1,800
First $45,000
Next $15,000

14%
$4,800
$2,100
First $60,000
Next $15,000

16%
$6,900
$2,400
First $75,000
Next $15,000

18%
$9,300
$2,700
First $90,000
Above $90,000

20%
$12,000
Property tax rates for non-owner occupiers (2015 – 2022). (Source: IRA).

From 2023, this is reduced to just three levels:

Tax rate at 1st Jan 2023 Tax rate at 1st January 2024
first 30,000
Next $15,000
11%
16%
12%
20%
First $45,000
Next $15,000

21%

28%
First $60,000
Above $60,000

27%

36%
Property tax rates for non-owner occupiers (from 2023 and 2024). (Source: IRA).

And here’s what the actual property tax would look like based on the old and new system:

Annual value 2015 – 2022 2023 2024
$10,000 $1,000 $1,100 $1,200
$20,000 $2,000 $2,200 $2,400
$30,000 $3,000 $3,300 $3,600
$40,000 $4,200 $4,900 $5,600
$50,000 $5,500 $6,750 $8,000
$60,000 $6,900 $8,850 $10,800
$70,000 $8,500 $11,550 $14,400
$80,000 $10,200 $14,250 $18,000
$90,000 $12,000 $16,950 $21,600
$100,000 $14,000 $19,650 $25,200
$110,000 $16,000 $22,350 $28,800
$120,000 $18,000 $25,050 $32,400
$130,000 $20,000 $27,750 $36,000
$140,000 $22,000 $30,450 $39,600
$150,000 $24,000 $33,150 $43,200

The annual value (AV) is based on the estimated annual rental income, as determined by IRAS. Note that AV is not tied to real rental income, which can be significantly higher or lower.

The majority of homes in Singapore will not even reach a PV of $30,000. The AV of an average HDB apartment is under $10,000, so none of this is really relevant to apartment owners.

Even among private properties, most mass-market condos have an VA of around $22,000 to $24,000. Most properties that exceed $30,000 VA are high end condos, prime area developments, landhouses, etc.

So the vast majority of Singaporean homebuyers are unlikely to notice any difference. Even among homeowners, those renting mainstream condos will likely see an increase of only a percentage point or two.

How will taxes affect the real estate market?

  • Landlords will likely push for higher rent to compensate
  • Not much impact at the top and lowest levels
  • Investors could turn to more mainstream assets
  • Most of the impact concerns main residences

1. Landlords will likely push for higher rent to compensate

Assuming the rental market stays at a peak (likely for 2023, but we don’t know if the momentum will continue through 2024), landlords will likely raise rates. Of course, this is more subject to supply and demand than anything else, but it’s easier to pull off now due to high demand.

We must stress that it’s not just about property taxes: homeowners are also likely to see interest rate hikes in the coming year as the U.S. normalizes its economy after Covid. It’s a combination of rising mortgage rates, along with rising taxes, which are likely to drive up rental rates.

For renters, this is just one more factor that suggests securing a good rate is vital; at present whether you can.

One reporter opined that higher taxes could cause a “bandwagon” effect, where even unaffected landlords would raise rates:

Once someone raises their rent because of higher taxes, there’s a ripple effect; others will also see and increase their rent. The increase may not even match the tax increase, or have anything to do with it.

2. Little impact at the highest and lowest levels

At first glance, it appears that the property tax hikes are the most devastating for sellers in the upscale market; such as those who sell bungalows, penthouses or rent such units. Surprisingly, real estate agents who work with such niche properties say sellers and owners remain unfazed.

landed houses

A real estate agent noted that:

Most landed accommodation is for your own stay and is not bought to be rented anyway; and these properties are purchased out of appreciation for their location and uniqueness. Higher property tax, like higher ABSD, is not a deterrent to buyers (referring to buyers of luxury goods – editor’s note).”

Another realtor pointed out that taxes in Singapore are still low, in a regional context:

Even with the fair changes, Singapore still has no gains tax, no inheritance tax and a proven track record of asset appreciation; many buyers still feel it is a low tax environment compared to other regional alternatives, and we have a positive outlook on sales going forward.

As such, it can be a tax hike that isn’t a big deal for either end of the spectrum. The average buyer is unaffected, while those who can afford homes with an PV over $60,000 are too wealthy to feel the effects.

3. Investors could turn to more mainstream assets

Most mass-market condos won’t cross a $24,000 VA, but some luxury units, like penthouses in prime areas, can exceed a $30,000 VA; and landed houses certainly can.

penthouse residences south beach

As investors are already associated with a higher ABSD since December last year, the combination of higher taxes and stamp duties could drive them to the rest of the Central Region (RCR) or outside the central region (OCR) in the coming years.

This, however, depends on how Covid-19 unfolds. If there is a returning influx of affluent expats in 2024, then higher property taxes may not be an issue.

4. Most of the impact is on primary residences

Most properties that exceed an PV of $30,000 tend to fall into the real estate property category; as such, it is the sellers and owners of these homes who pay the price.

Attached houses are already not a preferred choice for rental assets (the high cost leads to very low returns, compared to a condo). A higher property tax and more maintenance to take care of will further cement the problem.

As for pure owner-occupiers, we don’t think the more affluent buyers will be affected by the changes (see estate agents’ comments in point 2). However, a higher property tax could affect the upper middle income group, such as those who were considering homes with just above a $30,000 AV – this makes a tougher call between a mainstream patio home and a nice condo unit with a lower AV.

Overall, property tax increases come after a while (they were last revised in 2015) and will cause very little fuss. The rise in the GST, however, is another issue.

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Penny D. Jackson