Prepare to pay up to enjoy the safety of investing in Singapore property

Feb 14, 2023

THIS year’s Budget had some bad news for property buyers: Singapore is introducing higher marginal Buyer’s Stamp Duty (BSD) for higher-value residential and non-residential properties.

The news follows higher property taxes that hit many homeowners. The new taxes, announced in Budget 2022, kicked in this year and will be raised again in 2024.

Still, the hike in BSD is not unexpected. In a column in The Level Ground last month, I argued that there was room for higher taxes on luxury homes and non-residential properties. I thought among possible measures would be higher BSD for pricier homes and non-residential properties.

The BSD regime applies to all purchases as well as receipts of properties as gifts in Singapore. From Wednesday (Feb 15), higher BSD rates kick in. The portion of the value of homes in excess of S$1.5 million and up to S$3 million is taxed at 5 per cent, while that in excess of S$3 million is taxed at 6 per cent. This is up from the rate of 4 per cent.

For non-residential properties, the portion of the value of the property in excess of S$1 million and up to S$1.5 million is taxed at 4 per cent; that in excess of S$1.5 million is taxed at 5 per cent – up from the rate of 3 per cent.

The latest changes in BSD are expected to affect 15 per cent of residential properties and 60 per cent of non-residential properties.

Stamp duties collected on property transactions are an important source of tax revenue. In 2021, stamp duty assessed for BSD on private homes amounted to S$2.81 billion.

Slowdown in transactions

What the increase in BSD means is that a buyer of a S$5 million home will now need to pay S$239,600 in BSD, up nearly 30 per cent from S$184,600 previously. Many home buyers, including those who pay, say, S$1.2 million for a sought-after Housing and Development Board resale flat, will not be affected by the increase in BSD. Also, buyers who pay S$2 million for a suburban condominium unit will pay a manageable S$5,000 increase in BSD.

Indeed, where the pinch of the higher BSD on homes will be felt much more will be with luxury homes. A foreigner buying a S$10 million luxury condo unit will now pay S$539,600 in BSD and Additional Buyer’s Stamp Duty of S$3 million. A local purchasing a landed detached house worth S$20 million as his first home will pay around 45 per cent more in stamp duty – about S$1.14 million, up from S$784,600.

Perhaps the transaction volume of pricier homes will slow as potential buyers adjust to the higher BSD.

However, the impact of the higher BSD will likely be felt much more in non-residential properties. An investor spending S$10 million on a commercial shophouse will pay S$469,600 in BSD – 59 per cent more.

Buyers of major commercial buildings worth a few hundred million dollars or more may become more cautious. As it is, potential buyers of such buildings may already be holding back, given low yields and rising interest rates.

Still, an investor in a non-residential property continues to enjoy paying less BSD than an investor buying a home. The downside of a higher BSD is that it may slow the pace of collective sales of both residential and non-residential sites. Older buildings may thus not be redeveloped in a timely manner into properties that answer the needs of space users today.

Ever-rising taxes

The upshot of Singapore’s ageing population is that government expenditure will have to rise to fund healthcare needs. Invariably, the more financially wealthy will have to contribute more, and should expect to be taxed more in some form or other.

Hitting property investors with higher taxes does not have the drawback of driving talent away from Singapore or deterring companies from growing operations here in the same way that raising of personal or corporate income tax does.

A large part of Singapore’s attractiveness to property investors comes from its safe-haven status and growth as a global business hub. This positioning in turn stems from factors such as good governance, political stability and social cohesion.

Thus, it may only be fair for an investor who wants to enjoy the safety that comes with buying physical property here to make a meaningful contribution to the tax coffers.

Physical property in Singapore has its allure in an uncertain world. For wealthy people seeking safe havens, paying more in transaction and recurrent taxes will not dent the appeal of homes and office buildings here.

Still, while fundamentals for property in Singapore are sound, investors have to be ever more mindful of the risks of paying higher taxes. Budgets in the not-too-distant future could have more swingeing taxes on property.

https://www.businesstimes.com.sg/opi...apore-property