Taxing problems and suboptimal outcomes

Dec 05, 2023

THE majority of Singapore households pay little by way of property taxes, as they reside in public housing which draws a low tax rate. But homeowners living in private property and/or holding properties for investment will be hit hard next year by the double blow of sharply higher property tax rates for higher-value properties and elevated property values.

The property tax rate hikes, rolled out in two stages, were announced at Budget 2022 and are a form of progressive wealth tax in Singapore. Taxes are computed based on the annual value of a property. Come Jan 1, annual values will go up in their yearly revision. That they will be pulled up should come as no surprise, given that AVs are based on the rental value of one’s residential property. Rents of both private and public housing have surged and are only just starting to slow down.

A one-off rebate will be handed out to take the edge off the tax spike. While HDB homeowners will - rightly - have up to 100 per cent of their property tax burden covered by the rebate, private homeowners who are owner-occupiers will get a 15 per cent rebate, and those who own homes for rental get no rebate. Jessie Lim talks to analysts to gauge impact on market behaviour.

With the higher tax rate for non-owner-occupied properties, investors face substantially higher property tax payments, raising their holding costs and immediately eating into returns. The price to pay for investing in Singapore homes will be increasingly stiff, writes Leslie Yee.

Many parents with means want to give their children a leg up on Singapore’s notoriously steep property ladder. The more affluent might consider a purchase in trust for a minor, while others might pitch in to help their young adult offspring with down payments on private property. Such practices (“intergenerational wealth transfer” is the oft-cited term) have fuelled liquidity in both the private and public housing markets. But they actually result in suboptimal outcomes, Leslie writes in The Level Ground.

A trust purchase incurs 65 per cent Additional Buyer’s Stamp Duty that can be fully refunded under certain criteria. However, if the beneficiary wants to eventually buy a Built-To-Order HDB flat with their partner, multiple complications arise from their ownership of the private property. Leslie further argues that buying a new HDB flat can yield higher profits on resale versus a comparable private property. His message for parents: helping your children buy that private property may not help them in the future.

The government’s land sales programme rolled on last week, with a total of six sites put up for sale. Two parcels for executive condominium projects in Tengah and Tampines are expected to be snapped up when the tender closes in February. Going by recent tender results, developers of all stripes have zeroed in on ECs, a market segment where demand is strong at price levels below those of private property and launches sell well.

The private residential market outlook is more sobering for developers, with slowing price growth and sales, higher financing and construction costs, and thinning margins. Four state land plots were put up - in Zion Road and in the Upper Thomson area, with two sites to include “long-stay” serviced apartments, Samuel Oh reports. The new rental category was introduced to meet increased rental demand, writes Ry-Anne Lim, and ease a supply crunch that has led to surging rents.

One Zion Road site looks most attractive, with its location on the fringe of the prime River Valley residential district, next to Great World City and close to Orchard Road. But the size of the project could deter the faint-hearted. A high plot ratio means the Zion Road site has potential for almost 1,200 units, of which over 400 must be long-stay serviced apartments. Land cost alone could top S$1.5 billion, based on estimates guided by the price that Frasers Property paid for a nearby Jiak Kim Street site on which its Rivere project now stands.

Following the trail of the still-widening multi-billion-dollar money laundering probe? OCBC is seeking to repossess the Sentosa Cove villa bought by suspect Su Baolin with an OCBC mortgage. The bank has filed a claim in Singapore’s High Court and is also seeking at least S$19.7 million owed. Read Megan Cheah’s story here for the details.

In other markets

While developers in Singapore may be suffering from a case of the market blues, Hong Kong players are mired in a full-on crisis of confidence. A record number of state land tenders failed this year. A depressed residential market and increased costs for funding and construction kept developers away. A recent report put financing interest rate for Hong Kong development projects at around 8 per cent, and construction costs for mass-market homes at HK$5,000 (S$853) per square foot, which, a few years ago, was the cost for luxury projects. The city sold only one-third of sites put up for public tender in the first 11 months of the year.

Meanwhile, troubled Chinese giant Evergrande will have until January to put together a restructuring plan, a Hong Kong court ruled, extending a deadline previously set for December.

Wealth is flowing from the Gulf into real estate markets elsewhere. Saudi Arabia’s PIF sovereign wealth fund will buy a 49 per cent stake in luxury hotel group Rocco Forte Hotels and help to support its expansion. The deal gives the hotel group an enterprise value of around £1.4 billion (S$2.4 billion), the Financial Times reported. Abu Dhabi developer Aldar Properties bought London-based developer London Square for an enterprise value of US$291.4 million in its first acquisition outside the Middle East. Watch this space for news as more Gulf nations go on the hunt for global deals through their state-backed companies.

News in Reits

The ESR-Quartz saga continues. ESR Group and activist investor Quarz Capital will face off in court over alleged defamatory statements made during Quarz’s push to internalise the management function of Sabana Industrial Real Estate Investment Trust (Sabana Reit). The case is ongoing before the Supreme Court, with the next case conference scheduled for today (Dec 5).

In his Mark To Market column, Ben Paul writes that the latest proposal to rescue Manulife US Reit falls flat, and its sponsor group should perhaps repackage its assets under a new fund or trust somewhere else.

https://www.businesstimes.com.sg/pro...timal-outcomes