Tax changes could shift devs’ focus to smaller projects

INTERVIEW Tax changes could shift devs’ focus to smaller projects

The SG gov’t increased stamp duties for property buyers by 5-15 percentage points.

In recent months, property buyers in Singapore were slapped with higher additional buyer’s stamp duties, including duties of up to 35% for individuals and up to 40% for housing developers. The move could force developers to focus on projects in smaller plots of land. Could this be the end of mega-developments in Singapore?

Not quite, according to Teo Wee Hwee, Partner, Head of Real Estate & Asset Management, Tax of KPMG in Singapore.He spoke with Real Estate Asia Editor-in-Chief Tim Charlton on the recent tax changes in Singapore and their impact on both buyers looking to settle in the country, as well as property developers.

What are some of the tax changes and regulatory changes that have happened in Singapore—and perhaps even since the 2022 budget was announced—that people need to be aware of?

There were a couple of tax changes that could potentially cause some concern to investors in the Singapore real estate space. First and foremost, there is the increase in the Additional Buyer’s Stamp Duties (ABSD) as part of an extended cooling property measure previously announced a few months ago. It involves having the ABSD rates raised for certain classes of buyers from a range between 5 and 15 percentage points. This particularly impacts those who want to buy residential properties in Singapore since stamp duties could go up to 35% (or 40% for housing developers), which can be perceived as extremely hefty.

The other change is the property tax rate increase announced in the recent Budget. The top marginal rate will increase from 20% to 27%, starting on the first of January 2023 for all non-owner-occupied residential properties, followed by another increase from 27% to 36% with effect from the first of January 2024. There is also a similar increase for owner-occupied residential properties - less hefty – ranging from a top marginal rate of 16% to 23% from first January 2023, followed by a 23% to 32% increase in the following year.

Singapore has always been known as a jurisdiction with an attractive tax regime. However, they are now really going for it in terms of the taxation increases. At what stage do you think investors think of other parts in Asia?

To be clear, Singapore residential investments will be impacted, not commercial ones. Purely from a stamp duty perspective, that can be pretty hefty compared with other countries. Singapore is still on par with countries like Hong Kong in terms of the punitive type of stamp duty rates but from a pricing perspective, there will still be a pretty big gap between Singapore and other top tier cities like Hong Kong, Beijing and Shanghai, for instance.

SG residential investments will be impacted, not commercial ones Do you think buyers just take the tax rates into consideration as part of the overall price of a property?

I think foreign investors and also foreigners who may want to move to Singapore and eventually become citizens will definitely look at the overall pricing. A lot of foreigners that come to Singapore still find Singapore’s residential properties quite competitively priced, even with the ABSD being factored in.

Do you have a sense of direction as to where the tax policies are going on Singapore properties?

Firstly, I suspect there could be some adjustments to the normal Buyer’s Stamp Duty that applies to anybody who buys a property in Singapore. Currently, anybody who buys properties will still have to pay normal stamp duties of up to 4%, on top of the ABSD that applies for certain individuals depending on the number of properties they are buying. The 4% is for properties valued in excess of $1m. That’s kind of strange because whether you’re buying a condominium or a good class bungalow, you’re still just paying the normal standard of 4%on anything in excess of $1m. For more on this interview, go to https://realestateasia.com/

Teo Wee Hwee, Partner, Head of Real Estate & Asset Management, Tax, KPMG Singapore