Knight Frank says most shoebox units have annual gross rental of less than $55,000
The Business Times | MARCH 02, 2013
Shoebox units could benefit from the new tax policy which imposes a more progressive tax structure on residential homes, even as the investment appeal of high-end homes take a hit.
Shoebox units typically command lower prices compared to bigger units in the same locations and as such are likely to benefit unless they are unable to find tenants, said Knight Frank in a report. This is because most shoebox units have annual gross rental of less than $55,000.
"As the first $8,000 annual value (AV) will have 0 per cent tax rate compared to $6,000 AV currently and the next $47,000 AV will remain at 4 per cent tax rate, shoebox units are likely to experience lower payable tax under the new scheme if they are owner-occupied or leased out," said the consultancy.
The new tax structure, which was announced on Feb 25, imposes higher property tax rates for high-end residential properties, and investment properties in particular.
Under the new policy, the property tax rate for non-owner-occupied residential properties and vacant residential properties is more than twice the rate for owner-occupied properties, given similar AV. AV is assessed based on the estimated yearly rent of property excluding rental of furniture, fittings, and service charge.
High-end homes, on the other hand, face the double whammy of higher property tax rates that will take effect from Jan 1, 2014, and Jan 1, 2015; and higher additional buyer stamp duty rates.
"Coupled with the large impending supply of residential properties of about 86,000 units to be completed by 2017, the leasing market would be more competitive, especially for owners of luxury residential properties," said Knight Frank.
"In addition, the increases in tax payable would lead to further yield compression."
According to the consultancy, about 60 per cent of non-landed residential properties in districts 9, 10, and 11 command gross monthly rental of $4,600 and above, translating into gross annual income of more than $55,000.
About 70 per cent of landed properties in Singapore were leased at $4,600 and above on a gross monthly basis.
This means that high-end home owners and investors can expect to pay much higher property taxes.
An owner-occupied home with AV of $100,000 will see a 23 per cent jump in tax from $4,460 to $5,480 by 2015; a home with AV of $150,000 can expect property tax to increase 69 per cent from $7,460 under the current system to $12,580 by 2015.
Among non-owner-occupied properties, a $12,000-AV property won't have to fork out more in taxes. But a $35,000-AV property will have to pay 3 per cent more tax and a $70,000-AV property will have to pay 21 per cent more. For $150,000 AV properties, the increase is 60 per cent.
Meanwhile, most HDB flats will not be affected by the new tax rules since monthly gross rentals are generally below $2,500, translating into gross annual rental income of less than $30,000.
Homes with AV of $12,000 (such as a five-room HDB flat) will experience tax savings of $80, or 33 per cent of their current property tax bill.
Knight Frank said that it expects downward pressure on market sentiment in 2013, and project for 12,000 to 14,000 developers' new sale units by year- end.
The increased holding cost, lower yields, and ample supply conditions will affect all property investors, holding companies, real estate investment trusts (Reits), and developers in terms of investment returns, added the firm.
"The government is quite adamant in taming the property market and is likely to release more supply this year. Further cooling measures can be expected if prices do not cool," said Knight Frank.
Martin Koh | 86666 944 | R020968Z
Sherry Tang | 9844 4400 | R020241C
Senior Sales Director
DTZ Property Network Pte Ltd (L3007960A)