Budget 2013: Impact on the Property Market

Last week, Finance Minister Tharman Shanmugaratnam gave his Budget Speech for 2013. Amongst the main themes of the speech, the most glaring to me was the re-distribution of costs from the lower-income/lower-wealth group to the higher-income/higher-wealth group. This is a natural progression in a maturing economy and should be expected. Of the items listed as part of this theme, those that pertain to the property market are:

1. Property tax on owner-occupied residential properties will be revised to have a bigger 0% band from the first $6k of Annual Value (AV) to $8k. This reduces property tax on basically all HDBs and most (typical) suburban condominiums.

2. Additional bands of property tax on owner-occupied residential properties. See table below:

Annual Value Tax Rates from 1 Jan 2014 Tax Rates from 1 Jan 2015
First $8,000 0% 0%
Next $47,000 4% 4%
Next $5,000 5% 6%
Next $10,000 6% 6%
Next $15,000 7% 8%
Next $15,000 9% 10%
Next $15,000 11% 12%
Next $15,000 13% 14%
AV in excess of $130,000 15% 16%

3. Property tax on investment/non-owner-occupied residential properties will be increased on properties with AV above $30,000, as below:

Annual Value Tax Rates from 1 Jan 2014 Tax Rates from 1 Jan 2015
First $30,000 10% 10%
Next $15,000 11% 12%
Next $15,000 13% 14%
Next $15,000 15% 16%
Next $15,000 17% 18%
AV in excess of $90,000 19% 20%

4. Concessions of property tax on vacant property will be abolished from 1 Jan 2014.

The measures, once fully implemented, are expected to give a net increase in tax revenues of at least $50 million.

Just looking at the numbers, it doesn’t seem to be significant. The top 1% of owner-occupied residential is about 12,000 households and contribute $25 mil in increased revenue. This is an average of $2,083 per household. As for the tax increase on investment property, doing some back-of-the-envelope calculations, I estimate that the average increase is about $360 per unit, with the increase skewed to the high-end. With landed property in central locations expected to have tax increase of about $10k, I really don’t think that it would make all that much of a difference. If the property is rented out, the increased tax can be covered in less than 1 month’s rent.

Some analysts also talk about the increase in supply of rental units due to the abolishment of property tax concessions on vacant properties. While I think there might be some increase, I don’t think the numbers will be significant. Just imagine, there are people out there who have made a decision not to rent out their property, forgoing income. I’ve met some people who have left their properties vacant for years. I really don’t think an increase in a few thousand dollars tax will make much of a difference to them.

All in all, the property-related items in the Budget seems reasonable, taking more money from the owners of higher-AV properties to benefit owners of lower-AV properties.

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