Higher stamp duty for higher-value properties
The government implemented a higher buyer’s stamp duty (BSD) rates for properties of higher value in residential and non-residential properties in Singapore’s Budget 2023, . For residential properties, the portion of the value of the property in excess of $1.5 million and up to $3 million will be taxed at 5%, while that in excess of $3 million will be taxed at 6%, up from 4%. The marginal increase in BSD is expected to see a effect of 15% of all residential properties.
For non-residential properties, the portion of the value of the property in excess of $1 million and up to $1.5 million will be taxed at 4%, while that in excess of $1.5 million will be taxed at 5%, up from the current rate of 3%. This is expected to have an even greater impact, affecting 60% of non-residential properties.
“On its own, this is unlikely to have a significant impact on the market,” adds Song. “However, taking into consideration other earlier wealth taxes and cooling measures for residential properties, as well as higher financing costs for both residential and commercial properties, transaction volumes in both residential and non-residential properties could slow down in the near term. Prices could still be resilient given strong fundamentals of the underlying property sectors.”
Based on the data by URA, 54.7% of all private residential transactions in 2022 were valued at $1.5 million upwards, while 15.4% were valued at $3 million upwards. Meanwhile, 39.2% were valued at between $1.5 million and $3 million, according to OrangeTee & Tie.
CBRE’s Song sees the revision of the buyer stamp duty rates will impact mainly higher-end homes with property values above $10 million. “On its own, they should have minimal impact, particularly for homes with property prices of $2 million, as the incremental BSD to be paid will amount to only 0.25% of the property purchase price,” she says.
The increment of buyer stamp duty rates will have impact on all land transactions too, including collective sales, says Chia Siew Chuin, JLL head of residential research, Singapore. “The higher acquisition cost will widen the existing price gap expectations between buyers and sellers, which could potentially dampen collective sale deals.”
The changes in BSD are expected to impact 60% of non-residential properties. For non-residential properties with values of $1 million to $1.5 million, BSD will increase by one percentage point for the portion of the property’s value in excess of $1 million up to $1.5 million, with effect from Feb 15, 2023.
Higher interest rates have impacted the ability of institutional investors to underwrite larger property deals, notes Song. Coupled with the increase in BSD payable, which is likely to widen the mismatch in pricing expectations between buyers and sellers, investors are likely to continue adopting a wait-and-see approach, she adds. “This should lead to short-term slowdown of big-ticket institutional-grade asset transactions.”
With the new revised buyer stamp duty rates, the industrial property sector is still attractively positioned and with long-term prospect.“ This is due to a positive yield spread despite the higher cost of debt,” says Song. “While the actual impact still depends on the profile of investors, the market could remain competitive especially for good-quality assets.”
In summary, outlook for Singapore’s property market remains positive in the mid to long-term due to its strong fundamentals, coupled with the expected continuation of rental growth, says Song. As such, CBRE Research maintains that investment volumes could pick up in the latter half of 2023 when interest rates stabilise, and there is more clarity on the market outlook.