Published September 7, 2006

Orchard Rd area rent rise? US expats may not pay more
Housing cost for them is already 30-35% up under new US tax law


LANDLORDS of apartments in the Orchard Road area who are thinking of raising rents may face resistance from American expatriate tenants as they have already been slapped with an estimated 30-35 per cent increase in housing cost following a new US tax law that treats the bulk of their housing cost as a taxable benefit.

As many American expatriates working here fall in the 30-35 per cent income tax bracket back home, that effectively means 'the cost of housing for American expats or their employers will go up by 30 to 35 per cent', says Nicholas de Boursac, executive director of the American Chamber of Commerce in Singapore. 'They will consequently not want to pay even more by considering any rent increase on top of this,' he added.

Mr de Boursac was responding to an article BT published last week quoting SC Global Developments' chairman and CEO Simon Cheong as saying that residential rents in the Orchard Road area could go up by about 15-20 per cent next year, after appreciating 10-15 per cent in the remaining months of this year, as a shortage of homes in the area builds up when about 1,000 homes transacted in the area over the past year or so through en bloc sales are pulled down for redevelopment.

But Mr de Boursac says: 'This may not occur because of a strong push back from American tenants. The cost of housing for American expatriates or their employers - depending on who foots the tax bill for the employee - will go up by 30 to 35 per cent because of changes in US taxation of expatriates. They will consequently not want to pay even more.'

Under the Tax Increase Prevention and Reconciliation Act signed into law in the United States in May this year but effective retroactively from Jan 1, 2006, 'high housing costs, much of which previously could be excluded from the computation of US tax, will now be treated as a taxable benefit and often taxed at 30 to 35 per cent', Mr de Boursac points out.

The new tax law, which BT reported in June, raises the cost of hiring Americans abroad.

Previously, the maximum housing cost that could be excluded from taxable income of Americans working abroad was unlimited. The exclusion is now capped at a maximum US$11,536, BT reported earlier.

Says Mr de Boursac: 'These changes will impact the rental housing market here in Singapore. Landlords will face resistance from American tenants who, already facing a hike in housing cost, will not want to consider any rent increase on top of this. In the face of any further increase in housing cost, many may simply choose cheaper housing and move out.'

There are about 16,000 Americans here - translating to around 4,000 households. American expats are generally seen as having bigger budgets for renting homes.

Major property consultants including Colliers International tell BT that their residential leasing teams have yet to feel any impact from US expat tenants. 'All the clientele that are on track to lease homes with us have not raised this as an issue. Neither have the corporate human resource personnel that we work with advised us on any implication or decrease in assigning US employees down to Singapore to work,' Colliers said.

However, Mr de Boursac says it may still be early days. 'HR departments of companies will most likely start to feel the impact of these changes for American expat employees when they develop their 2007 budgets,' he suggests.

Companies that provide housing allowance for US expat employees and who foot their tax bill may clip their housing allowance in order to keep the overall housing cost constant after the higher tax cost, Mr de Boursac reckons. As for American expats who pay their own taxes, they will have to do their sums and decide if it is worthwhile incurring a higher housing cost or move to an apartment with lower rent.

A few may even consider buying a property here since they can deduct the interest expenses on mortgages here from taxable income - provided they don't own any properties back home.

DTZ Debenham Tie Leung executive director Ong Choon Fah reckons that much will 'depend on the dynamics between the expat tenant, the employer and the landlord'.

'The final outcome is not likely to be this, or that, but somewhere in the middle.'

Agreeing, a seasoned market watcher said: 'Some of these expats would be in senior positions and may be able to request their employers to pay for at least part of the cost increase arising from the tax changes. And landlords of newer properties have more bargaining power.'