Property Unpacked: How do the recent changes to property tax impact you?

By Elizabeth Choong

/ EdgeProp Singapore |

February 20, 2024 10:20 AM SGT

Property owners can expect a lower property tax for their owner-occupied home after the adjustment to the AV band is implemented next year. (Photo: Samuel Isaac Chua/EdgeProp Singapore)

SINGAPORE (EDGEPROP) – During the recent announcement for Budget 2024, Deputy Prime Minister and Minister for Finance, Lawrence Wong, announced some adjustments to the annual value bands for owner-occupied residential properties. The changes will be implemented with effect from January 1, 2025.

In this article, we explain what annual value is and its relation to property tax. We also examine how the recent change to AV bands will impact the amount of property tax residential property owners will have to pay.

What is AV?

Annual value (AV) is the estimated gross annual rent of the property if it were rented out, after excluding furniture, furnishings, and maintenance fees. AV is based on the estimated market rents of comparable properties. For example, if the estimated market rent of a property is $2,000 per month, then the AV of the property will be $24,000 or $2,000 multiplied by 12 months. Property owners can check the AV of their property via the IRAS tax portal.

The AV of a property has a significant impact on the amount of property tax payable by the owner because property tax is calculated by multiplying the AV of the property by the applicable property tax rate.

Rising rent is pushing up property tax

Housing rents have increased sharply in the last few years. From 2021 to last year, the average rent for condos surged by 46.1% to $4.82 psf per month, while rent for HDB flats increased by 44.2% to $3.10 psf per month. The year-on-year growth for rents is also significant. From 2022 to last year, the average monthly rents for condos and HDB flats jumped by 20.5% and 21.1%, respectively.

Source: EdgeProp Market Trends (as at 19 February 2024)

The increase in residential rents came on the back of construction delays due to the pandemic. Many owners had to rent a home while waiting for their own to be completed, which increased demand for rental properties. The construction delays also mean that fewer residential properties can be placed on the market for rent by investors, adding fuel to the already tight rental market.

Additional demand came from residents who sold their private residential property and had to wait 15 months before they could purchase a resale HDB flat. Most of these residents turned to the rental market to meet their interim housing needs.

As the AV of a property is based on its estimated market rent, the increase in rent pushed up the AV and hence the property tax. For example, the owner-occupier of a residential property with an AV of $30,000 will pay $880 in property tax based on the tax rates for 2024. However, a 20% increase in rents means that the AV will increase to $36,000. As a result, the owner will have to pay $1,240 in property tax, an additional $360 which is calculated by multiplying $6,000 by the tax rate of 6%.

Due to the higher tax rate for non-owner-occupied residential properties, investors experience a greater impact from the rental increase. The owner of a non-owner-occupied residential property will have to pay $3,600 in property tax if the AV of the property is $30,000. However, if the AV increases to $36,000, the owner will have to pay an extra $1,200, which is calculated by multiplying $6,000 by the tax rate of 20%.

Impact of the recent changes to AV bands

The changes to AV bands announced during Budget 2024 will decrease the property tax payable for residential property owner-occupiers when the changes take effect next year. This is because the adjustments to AV bands mean that a lower tax rate may be applicable.

For example, the owner-occupier of a residential property with an AV of $30,000 will have to pay $880 in property tax before the adjustments. However, the owner’s property tax bill will decrease to $720 after the adjustments.

This is because the owner will only have to pay property tax on an AV of $18,000 at a tax rate of 4%. Prior to the changes, the owner would have had to pay property tax on an AV of $22,000 at the same tax rate of 4%.

The change in tax bands is only applicable to owner-occupied residential properties. As such, investors will not benefit from the adjustments in AV bands for their residential property next year.