In recent months, increased additional buyer's stamp duties, including those of up to 35% for individuals and up to 40% for housing developers, have been imposed on Singaporean property buyers. The action might compel developers to concentrate on plans for smaller pieces of property. Could this be the end of Singapore's mega-developments?
Teo Wee Hwee, Partner and Head of Real Estate & Asset Management, Tax at KPMG in Singapore, disagrees.
Wee Hwee discussed the new tax reforms in Singapore with Real Estate Asia Editor-in-Chief Tim Charlton and their effects on both homebuyers wishing to live there and real estate developers.
A few of tax modifications existed that can raise some questions for investors in Singapore real estate. First and foremost, as part of the prolonged cooling property policy that was originally announced a few months ago, there is an increase in the Additional Buyer's Stamp Duties (ABSD). It entails increasing the ABSD rates from a range of 5 to 15 percentage points for specific buyer classes. This has an especially negative effect on people looking to purchase residential property in Singapore because stamp duties might increase to a whopping 35% (or 40% for housing developers).
The rate increase for property taxes that was mentioned in the most recent Budget is the other change. For all non-owner-occupied residential properties, the highest marginal rate will rise from 20% to 27% starting on January 1st, 2023, and then again from 27% to 36% starting on January 1st, 2024. Similar but less significant increases are also included for owner-occupied residential properties. These increases range from a high marginal rate of 16% to 23% starting in January 2023 to a 23% to 32% increase the following year.
Singapore has always been known as a jurisdiction with an attractive tax regime However, they are now really going for it in terms of the taxation increases. At what stage do you think investors think of other parts in Asia?
To be clear, residential investments in Singapore will be affected, not commercial ones. Simply speaking, in comparison to other nations, that might be somewhat expensive in stamp duty. Regarding punitive types of stamp duty rates, Singapore is still competitive with nations like Hong Kong; but, from a pricing viewpoint, Singapore will continue to lag behind other top-tier cities like Hong Kong, Beijing, and Shanghai, for example.
Do you think buyers just take the tax rates into consideration as part of the overall price of a property?
Foreign investors and those who might move to Singapore and eventually naturalise there, in my opinion, would undoubtedly consider the entire cost. Even after accounting for the ABSD, many international visitors to Singapore still perceive Singapore's residential homes to be relatively reasonably priced.
What do you think we can look forward to over the next few years? Do you have a sense of direction as to where the tax policies are going on Singapore properties?
First, I think there might be some changes to the standard Buyer's Stamp Duty that Singapore residents must pay when purchasing a home. Currently, on top of the ABSD that applies to some people based on the amount of properties they are buying, anyone who purchases real estate will still be required to pay standard stamp duties of up to 4%. For homes worth more than $1 million, there is a 4% fee. That's a little odd because you're still just paying the industry standard 4% on anything costing more than $1 million whether you're purchasing a condominium or a high-class home. As the government seeks to tax the wealthy more heavily, I believe that will change. More stamp duty can still be collected.
Singapore has been the REIT centre of Asia, but now other countries are trying to get in on that. Do you think Singapore is still the most competitive for REITs listings in Asia from a tax perspective?
Yes, I agree that Singapore is a very desirable site for a REIT listing. The appeal's actual significance to a sponsor listing a REIT hinges on variables that might not be driven solely by tax considerations. The current tax system that we have in place is already highly desirable. However, that isn't actually the key motivator.
It is more important to achieve worldwide reputation through the establishment of a fund management platform in an international or regional centre for anyone who wants to list their assets in Singapore rather than their native country. More often than not, we observe that listing assets from many jurisdictions, such as the Pan-Asian region, is also important. Singapore is the obvious choice for any customers or sponsors looking for a pan-Asian portfolio or wishing to inject assets from outside the home country into the REIT platform.
Is there anything else you want to add or any other insights you want to let us know?
Regarding how the increase in ABSD will affect developers, in my opinion, they may start choosing smaller plots of land with fewer units rather than purchasing a large plot of land with more than 1,000 units to sell because it is more difficult to sell more houses in a short period of time. You must request a remission from the IRAS, which is one of the problems with ABSD. The remission expires if you are unable to sell your properties during the first five years. This implies that in place of the ABSD that was initially waived when you first constructed the property, you would now have to pay it. Naturally, it will be more difficult for you the more troops you have to offer. It will be more likely that you won't be able to sell every one of those units. In light of the rise in ABSD, in my opinion, more developers will continue to create homes for sale, but they are likely to choose smaller lots with fewer available units.
Could we have seen the end of Singapore's mega condo developments for the time being?
Although I wouldn't call it the end, there may be a shift in emphasis to smaller stories. In Singapore, there is still a shortage of housing as of right now, which is not surprising given COVID-19. Developers will likely continue to bid for land, although they might not be as interested in the larger lots.
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