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Property tax hikes unlikely to affect home prices, though tenants in central areas may face higher rents: Analysts

SINGAPORE — Some property analysts expect the recently announced property tax hikes to have minimal impact on housing prices but warned that landlords in central districts may pass on the increase to tenants.

Property tax hikes unlikely to affect home prices, though tenants in central areas may face higher rents: Analysts
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  • Property tax will go up soon and will mostly affect high-end and investment properties
  • Landlords may choose to pass on the tax hike to tenants, especially those who rent private apartments in the central district, analysts said
  • They expect the tax hike's impact on property prices to be marginal, though sales of luxury housing may slow for a while

SINGAPORE — Some property analysts expect the recently announced property tax hikes to have minimal impact on housing prices but warned that landlords in central districts may pass on the increase to tenants.

This is because most of the property tax changes announced during the Budget statement last Friday (Feb 18) would fall on high-end residential and investment properties, they said.

Ms Christine Sun, senior vice-president of research and analytics at property firm OrangeTee and Tie, said: “It may be possible that landlords could try to pass on the costs to tenants for the centrally located condos and landed properties, because the increase in property tax is quite significant for this segment.”

Last Friday, Finance Minister Lawrence Wong said that there would be higher property taxes for owner-occupied residential properties with annual values of more than S$30,000, which make up the top 7 per cent of all owner-occupied housing units.

The tax hike will be introduced in two phases, in 2023 and 2024.

Based on examples given by the Ministry of Finance:

  • An owner of a condominium in a central location with an annual value of S$40,000 will have to pay S$200 more in property taxes by 2024
  • An owner of a “very large” landed property with an annual value of S$150,000 will have to pay S$15,400 more in property tax

Property taxes will also apply over the next two years for all residential properties not occupied by the owner.

By 2024, property tax will be raised by about:

  • S$200 for a non-owner-occupied Housing and Development Board (HDB) flat with an annual value of S$10,000
  • S$1,400 for a private condominium apartment in a central location with an annual value of S$40,000
  • S$19,200 for a larger landed property with an annual value of S$150,000 

WHAT IT MEANS FOR TENANTS

Ms Wong Siew Ying, head of research and content at PropNex Realty, said that although most investors should be able to cope with the property tax hike, she is not ruling out the possibility that some landlords may raise rents to defray the higher tax.

“This could happen, but perhaps, it’s not going to be widespread because landlords will be careful not to price themselves out of the market, especially if there is a plentiful supply of rental properties nearby.”

Dr Tan Tee Khoon, country manager of PropertyGuru Singapore website, estimated that the increased property tax would affect tenants who pay more than S$10,000 in monthly rent, given that the tax hikes are steeper for more luxurious properties.

Mr Andrew Chua, who works as a banker and rents a studio apartment along Beach Road with his girlfriend, said that his landlord has not told him whether the rental fee will be raised when his one-year lease ends in October this year.

However, the 27-year-old does not think that his landlord will raise the rent by much and is not too concerned even if it does happen, because the rent Mr Chua managed to secure is right now below the market rate for a similar unit in that area.

"My landlord is an overseas investor and probably treats this property as an investment for capital gains, so I think he won't be too concerned with the property tax so long as the rent covers his mortgage.”

Even if landlords do not pass on the tax hikes, tenants may still have to pay higher rental fees.

The analysts who spoke to TODAY are expecting the leasing market to continue its recovery. For the whole of last year, rental charges of private residential properties rose 9.9 per cent, after falling 0.6 per cent in 2020, data from the Urban Redevelopment Authority showed.  

Mr Lee Sze Teck, senior director of research at real estate firm Hutton Asia, is expecting another year of growth of up to 8 per cent for this year.

“The current rental market condition is positive and most landlords will seek some rent increment on renewal,” he said.

Ms Wong from PropNex Realty said that the further easing of travel restrictions could result in more foreign professionals coming to Singapore and adding to the rental demand. 

Ms Sun from OrangeTee and Tie said that factors such as inflation and rising interest rates may also drive higher rents.

WHAT IT MEANS FOR PROPERTY MARKET

Analysts said that they do not expect the property tax changes to have a major impact on home prices in Singapore.

Residential property prices are usually influenced by demand-and-supply dynamics and the overall economic sentiment, Ms Wong said. 

“The increase in property tax is aimed at enhancing the tax system, to ensure that it is fairer and more progressive. We do not expect the tax change to affect home sales or price,” she added.

This is because buyers and investors generally take a longer-term view on property purchases, focusing on the long-term returns, capital growth potential and as a means to preserve their wealth.

Professor Sing Tien Foo, who heads the real estate department at the National University of Singapore (NUS), said that the property tax changes will have no or marginal impact on the bulk of owner-occupiers in HDB flats and mass-market private residential properties.

However, he noted that the taxes will start to rise significantly for investment properties with an annual value above S$60,000, which he estimates to be those worth about S$2.4 million.

His colleague, Dr Lee Nai Jia, deputy director at NUS’ Institute of Real Estate and Urban Studies, said that the sales of luxury or high-end properties may slow down as high-net-worth individuals recalibrate their allocations in their portfolio.

“There may be some knee-jerk reactions, but demand for homes has been quite resilient,” Dr Lee added.

Mr Nicholas Mak, head of the research and consultancy department at ERA Realty Network, said that the increased property tax will do little to deter property investors.

This is because the tax is a small price to pay when compared to bigger financial hurdles such as the Additional Buyer’s Stamp Duty for those buying their second or third residential property or the Total Debt Servicing Ratio for property loans, both of which were adjusted last December when the Government introduced cooling measures.

“On the whole, if property investors are willing to fork out the other expenses and taxes that are necessary to invest in real estate, the incremental property taxes will also be something that they could accept,” Mr Mak said. “It will not be the straw that breaks the camel’s back.”

Related topics

property HDB condominium property tax Budget 2022 housing

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