Singapore Property

As part of their yearly evaluation of properties to determine property tax due, the Ministry of Finance and Inland Revenue Authority of Singapore (Iras) stated on Friday (Dec 2) that the annual values (AV) of most residential properties will be raised higher beginning on January 1, 2023. Rent projections for the year serve as the basis for the AV valuation.

According to Iras, the market rent for HDB flats and private residential properties has increased by more than 20% since the previous revision of AVs on January 1, 2022. With this in mind, it was stated that residential property AVs will be adjusted as of January 1, 2023.

According to the new rates proposed in Budget 2022, homeowners of expensive homes and landlords with several rental units should expect to pay more in taxes. The structure was updated to be more progressive, with higher rates applied to higher-value and non-owner-occupied residential buildings. The property tax exemption for owner-occupants of one- and two-room HDB apartments remain in place.

Experts predict that investors, especially those who own homes in the OCR and RCR, will begin to feel the effects of this hike rather quickly.

According to CBRE’s estimates, if asking prices rise by 20% in lockstep with residential rents:

  • Properties held by investors rather than owner-occupants in Singapore now have an estimated value (AV) of S$30,000; by 2023, that number is projected to rise to S$36,000. Their property tax bill for the next year will increase by S$1,260, or 42%.
  • If property taxes rise by S$5,190, or 75.2%, the value of a property with a current AV of S$60,000 would increase to S$72,000 the following year.
  • With a S$9,810, or 81.8 percent, increase in property taxes, a property with an existing AV of S$90,000 would have an AV of S$108,000 in the next year.

According to Tricia Song, at CBRE, “this will further reduce the rental profits thus far for investors or non-occupier homeowners.”

Rentals in the OCR and RCR increased by 25-50 percent, or even more in certain cases, in 2022, according to Alan Cheong, executive director of research and consulting at Savills Singapore, therefore property taxes have already increased significantly.

So, “even without the need to increase them,” the amount of property taxes due at the current rates will be much higher.

However, according to Cheong, this increase in property taxes is not expected to dampen demand for real estate as an investment. Because of increasing interest rates and a weakening economy in a robust rental market, some homeowners may “feel the need to lease out their houses to support their monthly costs, such as personal bills or mortgage payments,” he added.

As Nicholas Mak, at ERA Realty, pointed out, this might be used by landlords to increase rents for tenants up for lease renewal.

However, he said, “based on our estimates, the real increase in rental is roughly S$100 per month for an average three-bedroom condo unit in the OCR and RCR.”

Rental prices have been steadily increasing over the last year and a half, and renters are starting to feel the pinch. A landlord’s avarice might lead to the loss of a reliable source of income, thus restraint is required.

In response to rising AVs, the Ministry of Finance and Iras announced on Friday that all owner-occupied residences would get a one-time property tax refund limited at S$60, equal to 60% of the 2023 property tax payment.

This implies that after the rebate, the property tax for the majority of HDB residents would increase by between S$30 and S$70 from this year to the next.

From a lower base of S$3.13 billion in FY20 due to the government’s property tax refund for qualified non-residential buildings from January 1, 2020, through December 31, 2020, government income from property taxes increased 49.3 percent to S$4.67 billion in FY21.

The amount collected in FY21 was down 1.9% from the S$4.76 billion brought in during FY19.

It seems that property tax income will continue to rise as both tax rates and yearly values are increased.

Nonetheless, increasing interest rates and economic uncertainty should worry homeowners more than the increase in property taxes.

Moreover, “we anticipate AVs to stabilize in 2023 as the rent growth is expected to moderate as the supply crisis begins to ease,” he added.

An HDB apartment with five bedrooms would witness a 40 percent rise in property tax due in 2023, from S$40.80 to S$52.80 next year to S$148 to S$196 after rebate.

Taxes on a three-bedroom HDB unit will rise from S$7.20 to S$30.40 in 2023, or from S$20.80 to S$40 after rebate. An extra S$33.60 to S$45.60 in property tax is expected to be paid by owners of four-room HDB flats in Singapore in the next year, bringing the total to between S$107.20 and S$155.20.

Taxes on executive apartments will rise from S$55.20 to S$67.20 to a total of S$176.80 to S$224.80 after rebate in 2019.

Iras noted that homeowners who are having trouble making their mortgage payments may come to them for help by the end of January to work out an appropriate payment plan, which may include a request for an extension.