The Singaporean Budget 2023 in the year 2023, Singapore’s government has introduced higher stamp duty (BSD) rates for high-value properties that are non-residential and residential properties. For residential properties the percentage of the worth of the property that is greater than $1.5 million, and that is up to $3 million can be taxed as 5% and those over 3 million is taxed by 6% in addition to 4%. This marginal tax increase for BSD is anticipated to affect 15% on total residential properties.
For non-residential properties The portion of the of the property over $1 million that exceeds $1.5 million is assessed at 4% for the first $1.5 million, and over $1.5 million would be subject to taxation at five% which is an increase from an average of%. The tax is anticipated to be more significant and will affect sixty% in non-residential properties.
These two changes will be applicable to all properties that are purchased from February 15. The adjustments are expected to result in a two% increase in the total cost for prospective buyers, according to Tricia Song. CBRE director of research in Southeast Asia.
“On it’s on its own, this is not likely to have any significant effect to the property market” says Song. “However considering other taxation of wealth in the past or cooling strategies for residential properties in addition to the higher costs of financing for commercial and residential properties transactions in all residential as well as commercial properties may slow in the near-term. However, prices could remain robust given the strong foundations of the property industries.”
The impact of higher tax rates for stamp duty on high-value properties
Based on URA information, 54.7% of all residential residential transactions between 2022 and 2023 were estimated at $1.5 million or higher, while 15.4% were valued at $3 million or more. In addition, 39.2% were valued somewhere between $1.5 millions and $3.2 million as per OrangeTee & Tie.
“Moving forward, approximately 50% in (private sale) transactions could have a negative impact due to the increase in BSD when we take the data from last year to gauge the impact,” says Christine Sun who is the senior vice president of research and analytics at OrangeTee & Tie.
Sun anticipates that the market for new homes to be the primary beneficiary of the BSD changes. A look at the data from 2022 indicates how 71.1% of developer sales were in the range of $1.5 million. “Therefore taking last year’s data as a reference and with over 50% in this year’s brand new launches taking place in Core Central Region and the Rest of Central Region and Core Central Region, we might expect changes to influence the new sales markets more heavily than resales marketplace,” says Sun.
CBRE’s Song examines the new purchaser stamp duty rates impacting mostly high-end properties that have property worth more than $10 million. “On their alone, they’ll be minimally impactful, especially for properties that have property worth $2 million or more because the increase in BSD that must be paid be just 0.25% of the property cost of purchase,” she says.
“However this, when combined with the increased ABSD (additional stamp duty for buyers) that will be in effect from December 2021’s rounds of measures to cool the market, property tax increases announced in Singapore’s 2022 Budget and the higher interest rates for mortgages, it might hinder overall buying attitude, particularly in the middle-to-high-end segment,” Song cautions.
Overall, CBRE Research maintains its prediction of an average private home price increasing by 3-5% in 2023, and new home sales of 7,500-8,500 units.
The rising BSD rates will impact every land transaction including collective sales, according to Chia Siew Chuin JLL director of research on residential properties in Singapore. “The increase in the cost of acquisition will increase the gap in price expectations between sellers and buyers which could affect collective sales.”
The changes to BSD are anticipated to impact 60% of all non-residential properties.
For non-residential properties with values of between $1 million and up $1.5 million. BSD increases by 1 percentage point for the part of the property’s worth over $1 million at $1.5 million, effective starting on February 15, 2023.
CBRE’s Song anticipates that non-residential properties that exceed $10 million will be able to see a BSD costs rise in the range of 59.4% from before. “This could have a further effect on the mood of investors that has been skewed in the wake of constant rate hikes and the deteriorating macroeconomic outlook in the world,” she says.
Increased interest rates have affected the capacity of institutional investors to finance bigger property transactions, according to Song. In conjunction with the rise in BSD payable which could create a greater gap in pricing expectations between sellers and buyers Investors will likely to remain in an approach of waiting and watching and adds. “This could result in a short-term slowdown in big-ticket institutional grade transaction in assets.”
However, the industry property sector is nevertheless well-positioned regardless of the increased BSD payable, as per CBRE. “This is because of an increase in yields in spite of the higher cost of borrowing,” says Song. “While the impact of this is dependent on the type of the investors involved, it is possible that markets is likely to remain competitive particularly for high-quality assets.”
Based on caveats filed as downloads in URA Realis, the industrial sector in 2022 had the most transactions exceeding $1 million, according to JLL director of research and consulting Tay Huey Yang. Accordingly, she anticipates that the industry sector will be the most affected by the increase in BSD.
Overall the mid-to longer-term perspective for the assets of Singapore is positive because of its solid economic fundamentals, and the anticipated continuation of rent growth, according to Song. So, CBRE Research maintains that investments could be booming during the second portion of 2023 as interest rates stabilize and there is greater clarity regarding the outlook for the market.