Singapore Budget 2018: Will higher home-buying taxes stop buyers in their tracks?

By EdgeProp Singapore / EdgeProp | February 21, 2018 5:33 PM SGT
Starting 20 February 2018, top marginal buyer’s stamp duty (BSD) for residential properties priced above $1 million will be 4 per cent. This is revised from the previous top marginal BSD rate of 3 per cent for residential properties priced above $360,000.
However, if a buyer is granted the option to purchase (OTP) for a property on, or before February 19 and exercises it before March 12, or the date of expiry of the option’s validity period, he or she may apply to the Inland Revenue Authority of Singapore (IRAS) for remission to follow the previous BSD rates.
The revision is as follows: As the stamp duty is tiered, this means that the first $180,000 will be charged at 1 per cent, the next $180,000 at 2 per cent, the next $640,000 at 3%, and the remaining amount at 4%. Meanwhile, rates for non-residential properties will remain unchanged.
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Table 1: BSD rates before Feb 20, 2018
(Source: IRAS)
Table 2: BSD rates on or after Feb 20, 2018
Note: BSD is rounded down to the nearest dollar
The revised stamp duty is in line with other changes to the tax system to make it more progressive, Minister for Finance Heng Swee Keat said during the Singapore 2018 Budget Speech.
Why higher home-buying taxes will not deter buyers
The current market recovery is unlikely to be dampened by the slight increase in the BSD, said Ong Teck Hui, JLL’s National Director of Research & Consultancy.
Ong explained: “Taking a $1.5 million property as an example, the previous BSD payable was $39,600.
“With the new BSD rate, the new amount payable will be $44,600, or $5,000 more. This absolute sum is not large and is merely 0.3% of the total transaction cost.”
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He added: “As the bulk of residential transactions are below $1.5 million, the effect of the BSD change on market demand is expected to be mild.”
Based on URA caveats, private residential properties priced below $1.5 million accounted for 67 per cent of all sales transactions of private residential properties from January 2017 to January 2018.
Meanwhile, homes valued below $1 million accounted for 36 per cent of private residential property sales transactions within the same period.
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Overall, the vast majority of homeowners will not be affected, as only a small percentage of HDB flats exceed the $1 million mark every year.
However, the increase in the absolute amount payable in the BSD for big-ticket items would be more significant and some buyers might calibrate the increase in their purchases, JLL’s Ong opined.
Meanwhile, Christine Li, head of research at Cushman & Wakefield expects demand to shift towards smaller units or properties in suburban areas, which have a lower quantum.
“The BSD rate increase might also be beneficial for new launches, as the current unit mix tends to be geared towards smaller units,” said Li.
However, Li opined that the move might have an impact on the collective sales market, as the BSD can be hefty for most collective sale deals, which easily run into hundreds of millions of dollars.
HDB resale market expected to get a boost from enhanced Proximity Housing Grant
Under the enhanced Proximity Housing Grant (PHG) in this year’s budget announcement, families buying a resale flat with their parents or children will receive an enhanced Proximity Housing Grant (PHG) of up to $30,000.
Meanwhile, those buying a resale flat near their parents or children will continue to receive a PHG of $20,000.
Singles aged 35 years and above who buy a resale flat to live with their parents will receive a PHG of $15,000, up from $10,000 previously while those buying to live near their parents will enjoy a PHG of $10,000.
In order to give applicants a wider selection of flats, the government has revised the criteria for the PHG to “within 4km”, compared to the previous definition of living in the same town of within 2km.
According to JLL’s Ong, “More families and singles are likely to take advantage of the increased PHG leading to an increase in demand for resale flats.”
He added that the enhanced PHG could contribute to stabilising HDB resale prices, which has been on a mild downtrend. Based on HDB data, the resale price index had fell 1.5% for the whole of 2017.