Higher stamp duty for higher-value properties

/ EdgeProp Singapore |

February 16, 2023 1:42 PM SGT

The new home sales market to bear the brunt of the BSD change. About 50% of (private resale) transactions may be affected by the increased BSD if last year’s data is any indication. (Picture: Samuel Isaac Chua/The Edge Singapore)

SINGAPORE (EDGEPROP) - In Singapore’s Budget 2023, the government introduced higher buyer’s stamp duty (BSD) rates for higher-value properties in residential and non-residential properties. 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 impact 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.

These two adjustments will apply to all properties acquired from Feb 15. They are expected to result in a 2% increase in total costs for buyers, says Tricia Song, CBRE head of research for Southeast Asia.

“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.”

Impact of higher buyer’s stamp duty rates on higher-value properties

Based on URA data, 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.

“Moving forward, about 50% of (private resale) transactions may be affected by the increased BSD if we use last year’s data as an indication,” says Christine Sun, senior vice president of research and analytics, OrangeTee & Tie.

Sun expects the new home sales market to bear the brunt of the BSD change. Caveats from 2022 show that 71.1% of developer sales were at least $1.5 million. “Therefore, using last year’s data as a proxy and with more than 50% of this year’s new launches in the Rest of Central Region and Core Central Region, we may expect the changes to affect the new sale market more than the resale market,” says Sun.

increase in marginal buyer's stamp - EDGEPROP SINGAPORE

CBRE’s Song sees the revised buyer stamp duty rates affecting 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.

“However, coupled with the higher ABSD (additional buyer’s stamp duty) from December 2021’s round of cooling measures, property tax increases announced in Singapore’s 2022 Budget and higher mortgage rates, this could further deter the overall buying sentiment, particularly in the mid-to-high-end market,” Song cautions.

All in all, CBRE Research maintains its forecast of average private home price growth of 3%–5% in 2023 and new home sales volume at 7,500–8,500 units.

The increase in BSD rates will affect 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 affect 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.

CBRE’s Song expects non-residential properties above $10 million to see BSD cost increase by 59.4% from before. “This could further impact investor sentiment, which has turned cautious since 2H2022 amid sustained rate hikes and a deteriorating global macro-economic backdrop,” she says.

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.”

That said, the industrial property sector is still attractively positioned, even after factoring in the increase in BSD payable, according to CBRE. “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.”

Based on caveats lodged as downloaded from URA Realis, the industrial sector in 2022 saw the highest volume of transactions above $1 million, says JLL head of research and consultancy Tay Huey Ying. She, therefore, expects the industrial sector to be more impacted by the higher BSD.

Overall, the mid- to long-term outlook for Singapore’s assets remains positive 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.

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