The negative impact of higher property tax on home values

Some Singaporeans think that owning a home to live in while renting another property out for rental income or capital gains is a good way to fund their retirement.

There are many obstacles that prevent you from becoming a landlord. Home loans have become more expensive due to high interest rates and a sharp rise in private home prices.

Singaporeans who purchase multiple properties now pay an Additional Buyer’s stamp duty (ABSD) ranging from 20 to 30%.

Those who have multiple homes acquired in the past when ABSD was not yet implemented or ABSD rates had been much lower are lucky. A Singaporean couple can also own two houses under different names without being charged ABSD.

Private residential landlords could be facing a bleak future. In 2024, property tax bills, particularly for higher-valued homes, will increase substantially.

Calculate the annual property tax by multiplying the value of the property (AV) with the tax rate.

The estimated annual gross rent for a building is its estimated value, excluding furnishings, maintenance and furniture. The AV of a building is calculated based on the estimated market rents for comparable properties.

In 2024 the AV for many homes will increase, reflecting an overall rise in home rents since 2022. The Urban Redevelopment Authority (URA)’s rental index for private residential properties rose by 19.3 percent from the previous year and by 44 percent compared to the fourth quarter in 2021.

In 2024, the tax rate on non-owner occupied homes will rise from 10% to 20% to 11% to 27%. In 2024 the first S$30,000 of AV will attract tax at a rate of 12 percent, followed by a tax between 20 and 28 percent, and any amount above S$60,000 is taxed 36 per cent.

Consider a non-owner occupied condominium unit that has an AV of S$52,000 by 2023. This year’s tax bill is S$7.170.00 If the AV increases to S$60,000 by 2024, then the tax bill for next year will be S$10800, a 51 percent increase.

Landlords of residential property may need to adjust to the possibility that property taxes will continue to rise.

The Continuum

Property tax is a major source of wealth taxation for the government. Property tax is effective because it is difficult to avoid. Taxing wealth to fight inequality is fair and vital.

Even so, landlords of residential properties are still being hit by higher tax bills.

Rents for private non-landed houses rose by 0.2 percent in Q3, compared to the previous quarter’s 2.3 percent.

The URA has stated that the URA expects to complete about 20,400 private homes, including executive condominiums, by 2023. This would be the largest annual completion of private housing since 2017. Between 2023 and 25 there are estimated to be 39,700 private homes, including executive condominiums.

Tenants will have more options and bargaining power if housing is completed in the public and private market. It may be difficult for landlords of residential properties to pass higher property tax costs on to tenants.

Some landlords are also facing higher financing costs due to rising interest rates. Fear of having a vacant unit for an extended period and the higher tax bill that would result could lead landlords to reduce their asking rents in order to attract tenants.

In 2024, property taxes will rise for owners of private homes with higher values and higher property tax rates. There is a reprieve, however, in the form a one-time property tax rebate.

Owner-occupiers who own more expensive private homes, however, should still be aware that the rebate on property taxes is a one-time event and that their property tax burden may increase. Owner-occupiers with expensive home loans and retired people who have low cash flow may be hit hard by increased property taxes.

Singapore houses are a good investment because the country is constantly improving as a place to live, work, and play.

Singapore is the leader in long-term planning. Imagine the recently announced land reclamation project that will develop 800 ha of “Long Island”, on the eastern shore of Singapore, which will create new land and strengthen the country‚Äôs water resilience and protect the city-state against rising sea levels.

The price of investing in Singapore properties can become increasingly steep. Singaporeans are living longer and need to find alternative instruments to building retirement funds.

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