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How does Budget 2022 impact home buyers in Singapore?

sg

Budget 2022 Singapore’s impact for property investors

As we are coming to the end of the 1st quarter of 2022, let’s take a moment to talk about Budget 2022. Budget 2022 was quite eagerly awaited, as it’s still within the crucial Covid-19 period. It was also looked up to by home buyers, who have felt the squeeze of high prices across all housing segments. The bad news is that there’s no immediate relief for house-hunters right now; but there are long term benefits, which could help property buyers in the long run. Here are some of the budget highlights that are most relevant to real estate:

1. Changes to property taxes

budget 2022

The issue of immediate relevance to real estate is an uptick in property taxes. The government is raising these tax rates in two phases, the first on 1st January 2023, and the other on 1st January 2024.

For owner-occupied properties, taxes will change as follows:

*Annual Value (AV) is the estimated annual rental income for the property, as determined by IRAS. Note that this does not neccesarily correspond to any real rental income.

Annual Value* Current Rate Rate from 1st Jan 2023 Rate from 1st Jan 2024
First $8,000
Next $47,000
0%
4%
0%
4%
0%
4%
First $55,000
Next $15,000

6%

5%

6%
First $70,000
Next $15,000

8%

7%

10%
First $85,000
Next $15,000

10%

10%

14%
First $100,000
Next $15,000

12%

14%

20%
First $115,000
Next $15,000

14%

18%

26%
First $130,000
Above $130,000

16%

23%

32%

For properties that are rented out, the tax tiers have been simplified. There are now only three tiers for property tax, as follows:

Annual Value* Rate from 1st Jan 2023 Rate from 1st Jan 2024
First 30,000
Next $15,000
11%
16%
12%
20%
First $45,000
Next $15,000

21%

28%
First $60,000
Above $60,000

27%

36%

Based on these changes, the vast majority of Singaporean home owners will see no effect on their property tax.

As of 2020, the median AV of HDB flats has never exceeded $10,680. Meanwhile, the median AV of most condo units was around $22,200. It is only the most upmarket luxury condos, such as Orchard area condos or penthouses, that can reach beyond the first tier of taxation. It is mostly landed homes, with a median AV of around $34,800, that might feel a slight increase in tax rates.

(You can check the median AVs on SingStat, or contact IRAS for the AV of your home specifically).

In effect, it is only those who own the most expensive properties in Singapore, who are affected by the tax hikes. But those in the highest tiers of taxation (e.g., owners of good class bungalows) will still find their homes well within their means.

That being said, units that are being rented out are seeing a slight bump in property tax, by about one or two percentage points. This is likely to amount to a few hundred dollars per year for landlords. If you’re a tenant, there’s a chance the landlord will pass the cost to you – do be prepared to negotiate, if your lease is expiring.

In theory, the higher property tax rates for rental assets should be the worst for landed units, as they have an AV that more frequently reaches a higher tax bracket. But in practice, most landed properties are purchased for own-stay and not rental; so the impact is quite small.

2. Enhanced GSTV scheme

This is of more immediate concern, to the average HDB flat owner. The enhanced GST Voucher (GSTV) scheme will have three notable changes:

  • Rebates for conservancy fees will now be a permanent part of the scheme
  • You can qualify for GSTV-Cash if your income is not more than $34,000 per year (previously this was $28,000), and the AV of your home does not exceed $24,000.
  • The cash payouts for GSTV are higher, ranging from $500 if your home has an AV of $13,000 or below (the majority of HDB flats), and $250 if your home has an AV of $13,000 to $21,000.

For those in lower income brackets, this could go a long way toward higher savings and home ownership. However, we have to note that GST is also rising to nine per cent starting in 2023, which could mitigate some of the benefits of these rebates.

The use of AV may also irk some Singaporeans, who will find that they “fall between the cracks” so to speak. For example, consider a low wage worker who earns $1,000 a month, but is staying with a relative who owns a condo. Such a person may not qualify for some of these GSTV benefits, just based on the AV of their residential address.

I’m not arguing for or against the fairness of this (that’s a pretty subjective issue); I’m just pointing out that sometimes, the AV connected to your address might “sabotage” you out of an important benefit. Residing in a private property can cause the system to believe you’re more affluent than you really are, and pehaps we should implement more flexibility here.

3. Basic Retirement Sum (BRS) increase

The BRS will be increased by 3.5 per cent per year, for the next five cohorts of CPF members (those turning 55 in the years 2023 to 2027).

The increased BRS has some impact, on those aiming to own two or more residential properties. This is because, if you already used your CPF for your current home, but want to use your CPF for a second property, you must first set aside the BRS. Only any amount above and beyond the BRS can be used for purchasing your next property.

There isn’t much to say here, other than that if you want a second property, it’s important to save up more! You may want to make voluntary CPF top-ups, or simply be prepared to pay more in cash.

4. GST increase to nine per cent

This doesn’t affect residential properties directly. Rather, it may impact someone’s decision to turn to the commercial segment. While commercial properties don’t incur ABSD, they do incur GST – so it’s foreseeable that, for those who aim to own office spaces, industrial properties, etc., they may want to make their move now, before taxes go up.

Some property investors may consider commercial an attractive alternative at the moment, as the nine per cent GST is still less than the ABSD for a second or third property; but keep in mind that commercial properties are a whole different ball game, and you should do your homework before diving into these. Keep in mind that some commercial properties, such as retail spaces, may not perform as well during Covid-19.

On the whole, I’d say Budget 2022 is a small revision to keep up with the times; and the overall impact on the average Singaporean home owner is mild. High demand and diminishing supply are still the main challenges, rather than taxes; and the Singapore private property market remains strongly on the seller’s side for now.

For more on navigating the current property market, drop me a note on Facebook, or follow me on RonChongProperty.sg.

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RON CHONG

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