Hikes can be tempered by a one-time rebate on property taxes
Property owners with luxury residential properties can take the new property tax increases in stride, as the tax increase is only a small percentage of the total property value.
Higher property taxes, however, may push buyers to opt in the near future for a slightly smaller home. Buyers becoming more cost conscious may lead to developers being more conservative in their land bidding, preventing land prices from rising further.
The landlords who face higher property costs may not be willing to lower their rents due to the increased property tax.
In the event that the rental market were to continue to deteriorate, landlords might have to lower their expectation, otherwise they would be forced into paying higher taxes on top of increased vacancy expenses.
Lawrence Wong, Singapore’s Minister of Finance announced at Budget 2022 that both the owner-occupied property tax rate and the non-owner-occupied property tax rate would rise in two stages starting 2023. Wong also said that Singapore’s primary method of taxing income is through property tax.
In 2024, owners of residential property will receive a property tax refund, which is a one-time rebate, in order to reduce the cost of living concerns and prepare for the upcoming rise in property taxes, announced the Ministry of Finance of Singapore and Inland Revenue Authority of Singapore on Thursday (30 Nov).
After a 100-percent rebate, the owners of HDB’s smallest flats pay no taxes. Owners in the three, four, and five room flats as well as executive flats receive rebates from 30 to 70%. Private property owner-occupiers get a rebate of 15 percent, with a cap of S$1,000.
Investors will lose their rebate for non-owner occupied property and be hit hard by a double blow from higher taxes and increased values.
Singapore homeowners may face a greater property tax burden in the coming year as annual values (AVs), along with tax rates, increase. In response, the government is offering a rebate.
A rise in property tax has been seen for owner-occupied properties with AV exceeding S$30,000. In 2023, the rate increased from between 4 percent and 16 percent to between five and twenty-three per cent. From 2024 onwards, the rate is expected to be increased from 4 per cent to 16 per cent.
In FY2022, the government collected S$5.1 billion in property taxes, which accounted 7.4 per cent. The amount collected increased by S$9.1 billion from S$4.7 in FY2021.
In 2023 the rate of property tax for residential properties that are not owned by the owner – including investment properties – will increase to between 11 and 27 percent, up from the 10 and 20 percent previously. In 2024, tax rates will be increased to between 12 and 36 percent.
MOF stated that in response to The Business Times questions, HDB apartment owners can expect to see AVs rise by 20-25 percent between 2024 and 2025.
The vast majority of residential properties (80%) will see an increase from 15 to 25%, some by even more. These AV increases are in line with the current market rental trends of the individual properties.
It was not known what the AVs would be in 2023. Iras announced that, before the final AV revision, which will take place on January 1, 2023 Iras estimated that both HDB rentals and private housing rents have risen over 20%, and AVs for residential property will increase to reflect these increases.
Analysts expect the residential market to remain strong and property prices to not be affected.
Budget 2022 had announced the tax hike, but it did not dampen the market. In fact, private home prices rose by 8,6 percent in that same year.
The calculation of property taxes is based on annual values (AVs), which are based on estimated rents if the home was rented. As market rentals for both private and government housing are on the increase since 2022 AVs have also risen.
In the third quarterly of 2023, condominium rents rose 19.3 per cent on an annual basis. HDB rentals in October increased by 14.1% compared to a year before, according data from 99.co SRX.
MOF and IRAS have announced that, in addition to the increases in rates of property tax announced in Budget 2022 in most cases, property taxes will increase for residential properties in 2024.