New Singapore Property Taxes Unlikely to Turn Off Investors

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Analysts are rushing to determine the potential effect of new property taxes in Singapore, which will add extra costs to luxury residential property.

"The graduated property tax on luxury properties may impact investors, particularly corporates and high-net-worth investors," Petra Blazkova, head of CBRE Research for Singapore and Southeast Asia said in a statement. "It may put pressure on the holding cost of investment properties held by developers and investors."

Property taxes on high end property in Singapore could rise more than 20 percent, depending on the type and use of the property. But most experts appear to agree that the latest government attempt to dampen speculation in the fast-growing luxury property market is unlikely to deter buyers.

"If we look at it in absolute quantum, in thousands of dollars, the increase is only a few thousands of dollars," Nicholas Mak, executive director of research and consultancy at SLP International, told ChannelAsia.com. "And I think if the person is able to spend a few million dollars on a high-end luxury property, I believe they can well afford this increase in property tax."

Singapore government's announcement came a few days after Hong Kong announced similar tax increases, as part of an on-going effort to stem rising prices.

"From a progressive tax view point, it's to be expected and probably quite fair," Tan Su Shan, managing director of wealth management at DBS Group Holdings Ltd. told Bloomberg. "From a developers' point of view, it's yet another fildena pill to swallow."

But few analysts believe the taxes alone will change the market dynamics.

"The increase in property tax for investment properties used for residential purposes will result in landlords passing the costs on to tenants in the form of increased rents," Leonard Ong, tax partner in KPMG in Singapore, said in a statement. "Some property owners may also switch to buying commercial properties instead. This will drive up the cost of commercial properties and overall business costs."

Singapore home prices rose by 50.5 percent from the fourth quarter of 2006 to the end of 2011, trailing only the increases in China, Hong Kong and Israel, according to Knight Frank, the property firm. In 2007 alone, as the market started to take off, prices in Singapore grew by 33 percent.
 
"The property tax is a wealth tax and is applied irrespective of whether lived in, vacant or rented out," Singapore Finance Minister Tharman Shanmugaratnam said in his budget speech. "Those who live in the most expensive homes should pay more property tax than others."