Does Singapore Need to Re-evaluate its Property Tax?
Falling home prices have been a concern since 2013 which led investors, both domestic and foreign alike, into urging the government to re-evaluate its property tax regulations. However, the total number of real estate transactions has been rising over the past 3 years which has resulted in optimism about a stable real estate market but has also led some people into thinking real estate curbs are no longer necessary.
Home prices have been falling for several years with sale prices at an all-time low while investors wait out these regulations. Although the numbers have risen, total annual transactions in 2016 are still well under the number of transactions that occurred in 2012. But the reverse trend of this market indicates that the cooling measures implemented by the government have worked. Now the question is, is it time to let off a little?
The Real Estate Developers’ Association of Singapore is specifically asking for review of taxation on vacant private lands, exemptions for land that is under development, and also buildings that are being remodeled or renovated. Minor tax changes could lead to incentives in the real estate market that would bring about investment, innovation, and development within a stabilized market.
How are the Current Taxes Affecting Singapore?
Several regulations were put in place to control the skyrocketing prices of real estate beginning as early as 2009. One of which was the Additional Buyer’s Stamp Duty (ABSD). ABSD was implemented in 2011 and has helped to bring property prices down to the most affordable levels on record to date. It imposes a 7 to 10% tax on investment properties purchased by Singaporeans and a 15% tax for foreign investors. These measures may have been effective in some ways but critics see that is also has led interested buyers, both domestic and foreign, to invest in other countries.
Singapore would benefit heavily from more investors returning to Singapore. Increased financial revenue would serve only to stimulate the economy which has also shown some signs of decline. The luxury market has been affected most with declines ranging up to 18% loss while the majority of mass consumer homes have suffered an 11% decline since 2013.
These types of statistics should alert the government that some changes may be necessary for the health of their economy. For example, businesses are finding the tax rates a burden to their growth and putting a damper on the funds that they could be reinvesting back into their business. Given the slumping economy and problems that the retail market has been experiencing, revamping the taxes could help stimulate this area as well.
How can Changes to the Tax Code Improve the Real Estate Market?
The government must be careful not to repeal all of the cooling measures they have put in place, otherwise another housing bubble may occur. However, some tax incentives could still be a worthy avenue to stimulate growth for existing businesses or to entice investors. Such incentives could help developers finish their current projects or provide businesses with increased cash flow to reinvest in the renovation and update of their buildings. With environmental concerns on the rise, innovative solutions and green adaptations are necessary for new developments.
However, it is important to remember that removing all the regulations will only bring buyers rushing back into the real estate market. Moving forward, Singapore must find a good balance of stimulating growth as well as having a stable real estate market.
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