New Reporter
20-07-23, 12:39
Consider tax changes for shophouses as Singapore businesses face being priced out
Jul 17, 2023
MANY locals chase dreams in the competitive food and beverages (F&B) sector.
Open a cafe or restaurant or bar in a trendy shophouse. Work hard, be creative, and capture the hearts of discerning and demanding patrons.
Use the earnings to buy over the shophouse eventually. No need then to fret over the landlord raising rent or taking back the premises. The F&B outlet has a permanent home. The business owner can pass a business plus a physical asset to the next generation.
Alas, owning a shophouse in Singapore is not easy.
The commercial shophouse market here draws keen interest from local and foreign buyers in the private-wealth segment. One also needs deep pockets to buy shophouses in central areas.
Princely sums
Recently, The Business Times reported the S$80 million sale of six adjoining conservation shophouses along Circular Road, near Boat Quay, to a buyer from China.
Also, a seasoned investor is buying a 1,426-square-foot (sq ft), three-storey shophouse at 37 Boat Quay, which sits on a 999-year leasehold site, for S$30 million.
Based on an estimated floor area of 3,700 sq ft, the price works out to around S$8,000 per sq ft (psf) – a record for a conservation shophouse in Districts 1 and 2, which covers the Central Business District and Chinatown.
Such a psf price tops that fetched by the cream of luxury apartments here.
Indeed, top-of-the-range shophouses may command psf prices exceeding other property types, even though they offer extremely skinny net yields.
The net entry yield could be around 1 per cent or just slightly more. Furthermore, owners of conservation shophouses may face massive bills for upkeep and repairs.
Some shophouse buyers are cash-rich, so they need not worry about whether rental income can cover interest costs on loans.
These wealthy individuals may be deterred from buying investment homes due to high transaction costs.
Buyers of commercial shophouses do not pay any Additional Buyer’s Stamp Duty (ABSD). In contrast, Singapore citizens pay 20 per cent ABSD on their second homes and 30 per cent ABSD for their third and subsequent homes. ABSD for non-permanent resident foreigners buying any home is 60 per cent.
Buyer’s Stamp Duty rates for homes are also higher than for non-residential properties.
Getting a yield of close to nothing can therefore work for a cash-rich shophouse investor if there is capital appreciation.
Conservation shophouses are also a good long-term bet, given Singapore’s safe-haven status and the scarcity of such properties. There are an estimated 6,500 conservation shophouses island-wide.
Equity in tax treatment
Where does this leave locals looking to buy shophouses to house business operations? Do they deserve a leg up?
Perhaps, investors parking monies in commercial shophouses should pay higher taxes – in line with those on homes.
There is little equity in a commercial shophouse investor paying much lower taxes than an investor in residential property.
Currently, buyers of commercial shophouses pay much lower transaction taxes versus buyers of investment homes. A Singapore citizen buying a second home worth S$15 million pays over S$3.1 million more in stamp duty than a buyer of a commercial shophouse of the same value.
https://i.imgur.com/2j1qoPX.png
A commercial shophouse owner also pays less in property tax than a residential landlord. Today, the non-owner-occupier residential property tax rates are in the range of 11 per cent to 27 per cent of Annual Value (AV). From 2024, the rates will be in the range of 12 per cent to 36 per cent of AV.
For non-residential properties, the property tax rate is 10 per cent of the AV.
The AV of buildings is the estimated gross annual rent of the property if it were to be rented out, excluding furniture, furnishings and maintenance fees.
The annual property tax of an investor in a home with AV of S$150,000 is S$33,150 this year, and will rise to S$43,200 next year. An owner of a commercial shophouse with the same AV pays annual property tax of S$15,000.
Residential property tax rates are lower for owner-occupiers than non-owner-occupiers.
If the same principles for residential property taxes are applied to commercial shophouses, a business owner who uses a shophouse for his or her own operations should enjoy a lower property tax rate than an investor.
In applying ABSD rates of homes to commercial shophouses, a foreigner buying any shophouse and a local buying multiple shophouses would pay hefty ABSD bills, while a Singapore citizen who buys his first shophouse will pay zero ABSD.
Seller’s Stamp Duty, which applies to homes held for three years or under, can apply to commercial shophouses too.
In short, the government should consider rolling out tax changes to tilt the playing field in commercial shophouses significantly in favour of a Singapore citizen buying his first shophouse for his own use.
Aspirations of locals
Like governments in many countries, the government here needs to raise more revenue to fund the growing healthcare needs of an ageing population.
Higher taxes from physical properties are one way to pay for these needs. Possibly, the government can seek higher contributions from commercial shophouse landlords.
Centrally located shophouses are increasingly seen as trophy assets traded among wealthy families from Singapore and abroad.
Taxing commercial shophouse investors is one way to raise revenue and combat inequality.
Perhaps, the ownership of commercial shophouses should be more widely shared – with more local entrepreneurs able to own commercial shophouses for their own use.
Properties in Singapore attract strong interest from wealthy families. Rich locals and foreigners buying properties here contribute by paying taxes.
Still, in a city where fancy cars, high-end restaurants and luxury boutiques are not uncommon, helping locals buy their first residential or commercial property should be encouraged.
A more cohesive society can be built on the back of more locals being able to fulfil property ownership dreams.
https://www.businesstimes.com.sg/opinion-features/consider-tax-changes-shophouses-singapore-businesses-face-being-priced-out
Jul 17, 2023
MANY locals chase dreams in the competitive food and beverages (F&B) sector.
Open a cafe or restaurant or bar in a trendy shophouse. Work hard, be creative, and capture the hearts of discerning and demanding patrons.
Use the earnings to buy over the shophouse eventually. No need then to fret over the landlord raising rent or taking back the premises. The F&B outlet has a permanent home. The business owner can pass a business plus a physical asset to the next generation.
Alas, owning a shophouse in Singapore is not easy.
The commercial shophouse market here draws keen interest from local and foreign buyers in the private-wealth segment. One also needs deep pockets to buy shophouses in central areas.
Princely sums
Recently, The Business Times reported the S$80 million sale of six adjoining conservation shophouses along Circular Road, near Boat Quay, to a buyer from China.
Also, a seasoned investor is buying a 1,426-square-foot (sq ft), three-storey shophouse at 37 Boat Quay, which sits on a 999-year leasehold site, for S$30 million.
Based on an estimated floor area of 3,700 sq ft, the price works out to around S$8,000 per sq ft (psf) – a record for a conservation shophouse in Districts 1 and 2, which covers the Central Business District and Chinatown.
Such a psf price tops that fetched by the cream of luxury apartments here.
Indeed, top-of-the-range shophouses may command psf prices exceeding other property types, even though they offer extremely skinny net yields.
The net entry yield could be around 1 per cent or just slightly more. Furthermore, owners of conservation shophouses may face massive bills for upkeep and repairs.
Some shophouse buyers are cash-rich, so they need not worry about whether rental income can cover interest costs on loans.
These wealthy individuals may be deterred from buying investment homes due to high transaction costs.
Buyers of commercial shophouses do not pay any Additional Buyer’s Stamp Duty (ABSD). In contrast, Singapore citizens pay 20 per cent ABSD on their second homes and 30 per cent ABSD for their third and subsequent homes. ABSD for non-permanent resident foreigners buying any home is 60 per cent.
Buyer’s Stamp Duty rates for homes are also higher than for non-residential properties.
Getting a yield of close to nothing can therefore work for a cash-rich shophouse investor if there is capital appreciation.
Conservation shophouses are also a good long-term bet, given Singapore’s safe-haven status and the scarcity of such properties. There are an estimated 6,500 conservation shophouses island-wide.
Equity in tax treatment
Where does this leave locals looking to buy shophouses to house business operations? Do they deserve a leg up?
Perhaps, investors parking monies in commercial shophouses should pay higher taxes – in line with those on homes.
There is little equity in a commercial shophouse investor paying much lower taxes than an investor in residential property.
Currently, buyers of commercial shophouses pay much lower transaction taxes versus buyers of investment homes. A Singapore citizen buying a second home worth S$15 million pays over S$3.1 million more in stamp duty than a buyer of a commercial shophouse of the same value.
https://i.imgur.com/2j1qoPX.png
A commercial shophouse owner also pays less in property tax than a residential landlord. Today, the non-owner-occupier residential property tax rates are in the range of 11 per cent to 27 per cent of Annual Value (AV). From 2024, the rates will be in the range of 12 per cent to 36 per cent of AV.
For non-residential properties, the property tax rate is 10 per cent of the AV.
The AV of buildings is the estimated gross annual rent of the property if it were to be rented out, excluding furniture, furnishings and maintenance fees.
The annual property tax of an investor in a home with AV of S$150,000 is S$33,150 this year, and will rise to S$43,200 next year. An owner of a commercial shophouse with the same AV pays annual property tax of S$15,000.
Residential property tax rates are lower for owner-occupiers than non-owner-occupiers.
If the same principles for residential property taxes are applied to commercial shophouses, a business owner who uses a shophouse for his or her own operations should enjoy a lower property tax rate than an investor.
In applying ABSD rates of homes to commercial shophouses, a foreigner buying any shophouse and a local buying multiple shophouses would pay hefty ABSD bills, while a Singapore citizen who buys his first shophouse will pay zero ABSD.
Seller’s Stamp Duty, which applies to homes held for three years or under, can apply to commercial shophouses too.
In short, the government should consider rolling out tax changes to tilt the playing field in commercial shophouses significantly in favour of a Singapore citizen buying his first shophouse for his own use.
Aspirations of locals
Like governments in many countries, the government here needs to raise more revenue to fund the growing healthcare needs of an ageing population.
Higher taxes from physical properties are one way to pay for these needs. Possibly, the government can seek higher contributions from commercial shophouse landlords.
Centrally located shophouses are increasingly seen as trophy assets traded among wealthy families from Singapore and abroad.
Taxing commercial shophouse investors is one way to raise revenue and combat inequality.
Perhaps, the ownership of commercial shophouses should be more widely shared – with more local entrepreneurs able to own commercial shophouses for their own use.
Properties in Singapore attract strong interest from wealthy families. Rich locals and foreigners buying properties here contribute by paying taxes.
Still, in a city where fancy cars, high-end restaurants and luxury boutiques are not uncommon, helping locals buy their first residential or commercial property should be encouraged.
A more cohesive society can be built on the back of more locals being able to fulfil property ownership dreams.
https://www.businesstimes.com.sg/opinion-features/consider-tax-changes-shophouses-singapore-businesses-face-being-priced-out