This article first appeared in the Business Times on 20 Feb 2018.
THE impact of the 1-percentage point hike in the top marginal buyer’s stamp duty (BSD) rate on the portion of a residential property’s value exceeding S$1million will be felt most for big-ticket purchases.
JLL senior consultant Karamjit Singh said: “These include expensive condo units, bungalows and what is happening more rampantly nowadays – land and en bloc property purchases by developers.”
Property consultants generally said that as the bulk of residential property deals are below S$1.5 million, the change to the BSD is expected to have only a mild impact on property demand.
PwC Singapore’s real estate and hospitality tax leader Teo Wee Hwee said: “This is not a property cooling measure; it’s a measure to collect more revenue, and in line with having a more progressive tax system.”
For a S$1.5 million property, the BSD goes up from S$39,600 to S$44,600 – reflecting an increase of just S$5,000 or 0.33 per cent of the property price.
A seasoned industry watcher said: “Buyers walking into a showflat may use this is as a bargaining point to ask the developer to absorb the higher BSD.
“In a rising property market, developers could stand firm on this, but for PR reasons, they may agree to absorb at least part of the higher BSD; this should help keep people happy and the buying momentum going.”
As the value of a property increases, so does the impact of the BSD hike.
In the case of a S$2 million property, the BSD hike works out to 0.5 per cent of the purchase price; for a S$25 million property, the BSD increase would be 0.96 per cent of the property price.
For a developer buying a S$200 million residential site, its BSD rises from S$5.99 million to S$7.98 million. The S$1.99 million increase translates to nearly 1 per cent of the property price.
Under a drive to make Singapore’s tax system more progressive, Finance Minister Heng Swee Keat annnounced on Monday that the top marginal BSD rate would be raised from 3 per cent to 4 per cent and applied to the value of residential property exceeding S$1 million. The change applies to all residential properties bought on or after Feb 20, 2018.
The additional conveyance duty (ACD) rates – introduced in March last year on share transfers in entities primarily holding residential properties – will also be adjusted accordingly.
Mr Heng noted that the BSD rates for residential properties ranging from 1 to 3 per cent had remained unchanged since 1996.
There is no change in the 1 to 3 per cent BSD rate for non-residential properties.
With the change unveiled during Monday’s Budget announcement , the first S$180,000 of the value of a residential property is taxed at 1 per cent; the next S$180,000 at 2 per cent; the following S$640,000 at 3 per cent and the portion of the value exceeding S$1 million, at 4 per cent.
Before this change, the rates were: 1 per cent for the first S$180,000, 2 per cent for the next S$180,000 and 3 per cent for the amount exceeding S$360,000.
ERA Realty Network key executive officer Eugene Lim also said the current buying momentum in the private property market would not be adversely affected.
Ong Teck Hui, national director at JLL, noted that the increase in the absolute amount payable in the BSD for big-ticket items would be more significant – “and some buyers might calibrate the increase in their purchases”.
His colleague Mr Singh said: “For government land tenders of residential sites, developers will price in the 1 per cent hike in the BSD, and so theoretically, this will mean a 1 per cent drop in land values, everything else being equal.”
For collective sales of residential sites, Mr Singh paints two scenarios:
In the first, he cites the example of an en bloc sale tender that closes without any “suitable” bids meeting the reserve price of say, S$200 million.
“Let’s say that, subsequently a buyer comes along – during the 10-week period after the tender has closed, during which a private treaty deal is allowed under en bloc sale rules – and who is prepared to pay the reserve price, as has happened recently for Brookvale Park, Cairnhill Mansions and Pearl Bank Apartments – the developer will probably need to take the higher BSD in its stride if the deal were to take place from Feb 20.”
The second scenario presents a case of an ongoing tender exercise that has yet to close, a developer that was previously thinking of bidding at S$220 million (vis-a-vis the S$200 million reserve price) may trim its bid to S$218 million to reflect the 1 per cent hike in the BSD, said Mr Singh, who is also chief executive of Showsuite, a new homes portal.
Fleshing out the details of the change, the Ministry of Finance announced a transitional provision for cases in which an Option to Purchase (OTP) has been granted by sellers to potential buyers on or before Feb 19, 2018. For such cases, the former BSD rates, instead of the revised BSD rates, will apply if the OTP is exercised within three weeks of this announcement (that is, on or before March 12) or the OTP validity period, whichever is earlier.
An additional buyer’s stamp duty or ABSD is also payable by Singaporeans on their second and subsequent residential property purchases and by permanent residents and foreigners for any residential property purchase here. ABSD rates, ranging from 5 to 15 per cent, depend on citizenship status and property count.