Singapore to raise property tax rates for luxury homeowners

Singapore plans to raise taxes for luxury homeowners and investment properties, widening a four-year campaign to curb speculation after prices in Asia’s second most expensive housing market rose to a record.

The higher tax will apply to the top one per cent of homeowners who lived in their own residences, or 12,000 properties, Singapore Finance Minister Tharman Shanmugaratnam said in his recent budget speech, without giving a definition of what constituted a high-end home.

The government would also raise tax rates for vacant investment properties or those that were rented out, he said.

Singapore joined Hong Kong in extending anti-speculation measures as low interest rates and capital inflows drove up demand and made housing unaffordable. Residential prices in Singapore climbed to a record in the fourth quarter as an increase in the number of millionaires drove up demand.

“The graduated property tax on luxury properties may impact investors, particularly corporates and high net worth investors,” Petra Blazkova, head of CBRE Research for Singapore and Southeast Asia said in a statement. “It may put pressure on the holding cost of investment properties held by developers and investors.”

The property index tracking 39 developers fell 0.8 per cent to a one-month low in Singapore trading. At the time of writing CapitaLand Ltd, Singapore’s biggest developer by assets, declined 0.5 per cent to S$3.90. City Developments Ltd, the second largest, slid 0.9 per cent to S$11.25.

Singapore’s latest efforts were announced days after Hong Kong increased property taxes. The Hong Kong government last week doubled sales taxes on property costing more than HK$2 million (US$258,000) and targeted commercial real estate for the first time as bubble risks spread in the world’s most expensive place to buy an apartment.

“The property tax is a wealth tax and is applied irrespective of whether lived in, vacant or rented out,” Shanmugaratnam said. “Those who live in the most expensive homes should pay more property tax than others.”

For a condominium occupied by the owner in Singapore’s central region with an assessed annual rental value of S$70,000 (US$56,547), the tax would rise five per cent to S$2,780, according to the budget statement. If that home was rented out, the tax would climb 21 per cent to S$8,500, according to an example highlighted in the statement.

Based on a three per cent rental yield, that property was worth S$2.3 million. Gains in levies for properties assessed at higher rental values would also increase at a faster pace, it said.

For a house with an assessed rental value of S$150,000, worth S$5 million based on the same yield assumption, the tax would rise 60 per cent to S$24,000. The revised taxes would take full effect from January 2015, according to the statement.

Singapore was Asia’s most-expensive housing market after Hong Kong, according to a Knight Frank LLP and Citi Private Bank report released last year that compared 63 locations globally.

“It is a wealth tax,” Yee Jenn Jong, a non-elected member of parliament from the opposition Workers’ Party, told reporters. “There’s been a lot of people that have made a lot of money through property and the government is using that as a way to get additional revenue to offset certain goodies they’re giving to those in the lower income.”

Singapore had since 2009 imposed measures to cool the property market. The government last month said home buyers had to pay five percentage points to seven percentage points more in stamp duties.

It also imposed the added levies for permanent residents when they bought their first home, while Singaporeans would have to pay the tax starting with their second purchase.

In the budget, Singapore also tightened curbs on foreign labour for a fourth consecutive year, as the government sought to reduce companies’ reliance on overseas workers amid a public backlash over the influx.

Increasing wealth in the island-state had contributed to rising property prices. Singapore’s millionaire households rose by 14 per cent in 2011, according to a Boston Consulting study.

The proportion of millionaire homes in the city of 5.3 million people was 17 per cent, the highest in the world, followed by Qatar and Kuwait.

“From a progressive tax view point, it’s to be expected and probably quite fair,” said Tan Su Shan, managing director of wealth management at DBS Group Holdings Ltd, who is also a nominated member of Parliament. “From a developers’ point of view, it’s yet another pill to swallow.” — Bloomberg