THE system of property taxation in Singapore, apart from hotels, relies on an assessment of the ‘market rent’ of a property called the annual value (AV). A rate (currently 10 per cent) is then fixed to the AV to arrive at the annual tax payable.

While this system has an obvious benefit of giving the taxman the upper hand to fix the level of property tax, despite market movements, it lacks transparency. The law stipulates that the property owner must pay the tax first, regardless of whether the AV was fixed correctly or not. If he disagrees with the assessment, he can object to it, and eventually go to the Valuation Review Board (VRB) for arbitration.

The channel for objection and appeal seems to provide a fair means to examine the assessment by the authorities, but it suffers two deficiencies.

First, it is time-consuming and an objection can stretch for years and still not be attended to.
Second, it is costly to start an appeal to the VRB because each case costs $200. So if a building has 100 units for appeal, it will cost $20,000.As a start, perhaps the authorities can publish on their website the level of assessment of each year’s review so property owners can know how these assessments compare with market rents.
In the long run, the Government should look into taxing property owners for the actual rents they fetch, with a right to review them if they should appear low compared with market rents.

Patrick Sio

Source: Straits Times, 5 Dec 2009

I APPLAUD the Government for using the property tax system to regulate tax collection from homes in accordance with economic conditions.

For example, the upward revision of annual values (AVs) of HDB flats was delayed from Jan 1 this year. According to a press statement on its website, the Inland Revenue Authority of Singapore (Iras) reviews annually the AVs of all properties, including HDB flats, to ensure they reflect prevailing market rental values for the purpose of determining property tax.

The current reaction to the HDB rent increases was delayed and now the Government will give a one-off rebate to cushion the impact of the taxman’s actions.

However, the announcement is silent on AVs of other properties. I suggest Iras segregate the imposition of property tax according to property type since it tackles a specific group at any one time, even after it has reviewed all properties.

Let me explain. Iras uses an assessment system to determine the property tax payable by homes which are mostly owner-occupied (that is, no rental evidence) and even grants a 4 per cent owner-occupier concession to residential homes.

However, such an assessment system is not efficient for properties that are rented out. Rented-out properties should be taxed on their actual income rather than reply on an assessment which can be prone to error of judgment.

I therefore urge the authorities to have two systems of property taxation – one based on assessment of the property if it is owner-occupied and another based on actual rent if it is leased out.

Patrick Sio


Source: Straits Times, 24 Nov 2009

THE property tax of HDB flats is being raised next year partly to avoid having to introduce a bigger increase later should home prices continue to rise, said Acting Minister for Information, Communications and the Arts Lui Tuck Yew.

He gave the reason yesterday, after being asked at a dialogue with Aljunied-Hougang residents whether the Government could delay it, as the recession has just started to ease.

Noting that the adjustment had been delayed once, Rear-Admiral (NS) Lui said: ‘The problem is, the longer you defer it, the larger the increase will be…if HDB prices continue to go up.’

He also pointed out that the Government is taking steps to soften the impact of the tax rise early next year. It is giving HDB homeowners a one-off rebate, set at 50per cent of the property tax payable and capped at $120. This means low-income families with homes whose property tax is $50 and less will not have to pay any such tax next year.

The property tax rate is 10 per cent of a property’s annual value, although homes that are owner-occupied enjoy a concessionary 4 per cent tax rate. The annual value has increased with rising property prices.

HDB resale prices have risen a hefty 31.2per cent in the past two years, and a further 3.8per cent in the first nine months of this year.

Hence, the Government has decided to raise the property tax ‘to reflect the prevailing movement of HDB prices and also to give rebates’, said Rear-Adm Lui.

He also addressed residents’ concerns about the affordability of HDB flats.

Noting that existing owners gain from their asset’s increasing value, he said: ‘If they eventually need to sell…(it) releases more money for their old age.’

But the anxieties of those planning to buy a flat are not lost on him. He assured them that an HDB flat would not be beyond their means, saying that the Ministry of National Development has matched the prices of different flat types against the salaries of different groups of people in the population. ‘It tries to make sure that for every group, there is a flat type that meets their needs,’ he said.

In doing so, it aims for homeowners to pay no more than 30per cent of their salary every month towards their home loan.

More than 75per cent of HDB dwellers use only the contributions to their CPF savings to make their monthly loan payments, he said, urging residents to buy what is affordable.

Source, Straits Times, 23 Nov 2009

More units sold, but these may not match up to last year’s overall value

THIS year’s surprise housing boom may have provided an unexpected windfall for property owners – but not necessarily for the Government.

Developers and individual sellers will probably sell twice the number of private homes this year than they did last year, going by the latest property market figures.

However, the Government is unlikely to see an increase in its revenues from stamp duty, which is a tax on transactions such as property sales.

This is mainly because many of the homes sold in the current boom are much smaller in size and located in the cheaper suburban areas.

So the value of homes sold this year – which determines the amount of stamp duty payable – may not surpass that of last year, when more luxury homes were sold, say property consultants.

Stamp duty takings so far this year bear this out. From January to September, the Government took in $1.37 billion in stamp duty, according to figures from the Department of Statistics website.

This is about 15 per cent less than in the same period last year, even though the property market was slowing down then in anticipation of the financial crisis that hit hard in September that year.

For the whole of last year, the Government received $1.84 billion in stamp duty. This year’s stamp duty collections may be about the same level or even lower, now that the property boom appears to be losing steam, say property consultants.

However, stamp duties look set to exceed the Government’s initial expectations at the beginning of the year, when the recession was at its worst and the property market was in a slump.

In its January Budget, the Government projected stamp duty takings of only $1billion for the 2009 financial year, which started in April and ends in March next year. So far, between April and September, the Government has already collected $1.1 billion.

Stamp duty is a tax on commercial and legal documents used in some transactions such as property sales, which make up the bulk of stamp duty collections.

For housing transactions, stamp duty ranges from 1 per cent to 3 per cent of the purchase price. In the massive boom year of 2007, stamp duty reached a record $4.1 billion.

In the first nine months of this year alone, almost 25,800 private homes were sold – nearly double the number sold in the whole of last year.

But the sizes of the homes sold this year have generally shrunk, said Dr Chua Yang Liang, head of South-east Asia research at Jones Lang LaSalle.

‘Because unit sizes have fallen, the total quantum of the home price is less,’ he said. ‘The market value of transactions this year actually remains at about the same level as last year.’

A spike in demand for smaller mass-market homes means that while property developers are likely to double their sales of new homes this year compared with last year, the total value of sales will be halved, according to recent research by property consultancy CB Richard Ellis (CBRE).

In the coming months to the end of the Government’s 2009 financial year, there may be a pick-up in sales of upmarket homes, which could add to stamp duty collections, said Mr Li Hiaw Ho, executive director of CBRE Research.

He said the higher-end segment of the property market has not moved much in the current boom, but recent improved economic data may attract more buyers.

Foreigners, in particular, could be drawn back into the market early next year after the festive season is over, said Dr Chua.

‘The economy is showing a better outlook, and there is more bullishness compared with six months ago, so there is a potential for more interest in the high-end market,’ he said.

Source: Straits Times, 21 Nov 2009

Set at 50% of tax payable, it is capped at $120; zero tax for one and 2-room HDB owners

THE government will grant a new property tax rebate to all HDB owner-occupiers next year to help them adjust to the increase in annual values (AVs).

The Inland Revenue Authority of Singapore (Iras), which reviews the AVs of all properties, did not revise AVs for HDB flats on Jan 1 this year, given the uncertainty in market rental trends due to the recession.

HDB rentals have since stabilised after a moderate decline and have begun to rise. As a result, current values of HDB rentals, as well as HDB resale prices, are significantly higher than 2007 levels. Iras will therefore revise the AVs of all HDB flat types from Jan 1, 2010. The last AV revision for HDB flats was done last year, based on rental values in 2007.

The new rebate granted to HDB owner-occupiers will apply to property tax payable next year after deducting the 1994 GST Rebate, which is available to all residential property owner-occupiers.

The new rebate is set at 50 per cent of the payable property tax and is capped at $120. To provide additional help to owner-occupiers of smaller HDB flats, the rebate will be the lower of $50 or the actual property tax amount.

With the new property tax rebate for HDB owner-occupiers and the ongoing 1994 GST Rebate, all one and two-room HDB owner-occupiers will continue to pay zero property tax next year.

For average three-room HDB owner-occupiers, the increase in property tax next year, after deducting the special rebates, will be $72 for the year. For four-room HDB owner-occupiers, the average tax increase will be $97 for the year and for five-room HDB owner-occupiers, the average tax increase will be $107 for the year as a whole. For executive HDB owner-occupiers, it will be $103.

Owners of HDB flats will receive their valuation notices and property tax bills by Jan 1 next year. Property tax for 2010 is payable by Jan 31 next year.

Iras encourages HDB flat owners to use the Giro payment scheme to enjoy up to 12 interest-free monthly instalments. Application forms can be downloaded from www.iras.gov.sg.

Source : Business Times – 19 Nov 2009

HOMEOWNERS: be prepared to pay higher property taxes next year.
 In line with the rally in home prices, the taxman is revising upwards the value of Housing Board (HDB) homes.

The Inland Revenue Authority of Singapore (Iras) announced yesterday that the annual values (AV) of all types of HDB flats will be raised with effect from Jan 1.

This will mean a hike in property taxes for 2010.

The property tax rate in Singapore is currently set at 10 per cent of a property’s AV, although owner- occupied residential properties enjoy a concessionary 4 per cent tax rate.

To soften the impact, a one-off rebate is being introduced to help HDB homeowners adjust to the increase.

With this new rebate and ongoing GST rebates, low-income households who live in one-room or two- room flats will not have to pay any tax for 2010, Iras said.

Industry analysts yesterday said that Iras’s latest move was ‘not totally unexpected’. HDB resale prices have risen a hefty 31.2 per cent in the past two years, and a further 3.8 per cent in the first nine months of the year.

‘As HDB resale flat prices have exceeded the property peak of 2007, this was inevitable,’ said Ngee Ann Polytechnic real estate lecturer Nicholas Mak.

What was more surprising, however, was the timing of the announcement.

‘There are households who are still reeling from the recession, and unemployment is still high. It could have come a bit later when the job market has recovered,’ said Mr Mak.

Iras last revised AVs on Jan 1, 2008.

It said yesterday that it reviews all property AVs annually, including HDB flats, to ‘ensure that they reflect prevailing market rental values for the purpose of determining property tax’.

AVs of HDB flats were not revised last year, despite HDB rentals increasing by between 31 per cent and 37 per cent in 2008 relative to 2007, it said.

This adjustment was deferred in view of the uncertainty in market rental trends caused by the economic recession. Iras added that there was evidence of rental value declines due to the negative economic outlook at the time.

However, market sentiment has since changed dramatically. Iras noted that HDB rentals stabilised after a moderate decline from late 2008 to the middle of this year, and have since begun to rise.

As a result, current values of HDB rentals, as well as resale prices, are still significantly higher than levels seen in 2007.

‘The AVs of HDB flats will, therefore, have to be adjusted beyond the last revision in January 2008,’ said Iras.

But to help HDB homeowners adjust to the rise, the Government is granting a new property tax rebate to all HDB owner-occupiers for property tax payable in 2010 – set at 50 per cent of the property tax payable and capped at $120. Low-income households will be assisted because flats with a property tax of $50 and below will not need to pay property tax next year.

The average three- room HDB owner-occupier will face an increase, after rebates, of $72 for the year.

The rise will be about $97 for four-roomers, $107 for five-roomers and $103 for executive HDB flat owners.

PropNex chief executive Mohamed Ismail said the rebates will help cushion the blow. He pointed out that HDB owners have enjoyed higher rentals and resale values over the past two years, so the increase in taxes was ‘to be expected’.

HDB homeowner Lim Chye Boon, 48, said he had expected the tax increase to come ‘at some point’ so was not too bothered.

But for Mr Kenny Koh, 27, who has just bought his five-room flat in Sengkang, it was not welcome news.

‘I just spent so much money buying my new home and now have to pay more again,’ he said. ‘But at least, the rebate helps a bit.’

Source: Straits Times, 19 Nov 2009

TUESDAY’S editorial, ‘About the ‘right’ property behaviour tax’, was wrong on the facts of the recent public consultation on income tax treatment for individuals who sold their properties.

There was no proposal that had the effect of ‘making more property deals taxable’. The proposed change was not aimed at doing so, and would not have resulted in more individuals having to pay income tax on gains from selling their properties.

The proposed change, following feedback received over the years, had sought to provide certainty of non-taxation for one group of individual owners (those who had not sold any other property in the preceding four years) without any implications for taxation of other individuals.

For all these other cases, whether the gains from a property sale are subject to income tax would have continued to depend on the facts and circumstances of the case – as has been the longstanding practice of the tax authorities in Singapore as well as many other jurisdictions.

The editorial’s musings on whether the Ministry of Finance (MOF) should even have asked people whether they wanted to be ‘taxed more’, were, therefore, misplaced. There was no proposed tightening of the income tax treatment for individuals who sell their properties, or greater likelihood that they would be brought to tax.

This was explained clearly in the MOF’s statement during the public consultation itself, reiterated recently, and carried in The Straits Times’ own reports on the matter.

Following the consultation, MOF decided not to proceed with the proposed change for individuals who sell no more than one property during a four-year period.

While it was desirable to provide certainty of non-taxation to such individuals, there was no neat way of doing so without creating new distortions.

Source: Straits Times, 28 Aug 2009

THE odd feature of the Finance Ministry’s decision to not change the law on taxing gains made in individuals’ property deals was that the public was asked its comment. This was being truly consultative, but was the outcome ever in doubt? There would not be a living person on earth who would say, without a trace of irony: ‘Yes, tax me some more.’ Without prejudice to the merits or demerits of the case, opposition was a foregone conclusion. The ministry received 64 responses to its proposal to make unambiguous the definition of which transactions over how long a period of time are not subject to income tax.

This had the effect of making more property deals taxable as additional personal income. All but four of those who made submissions were opposed. The surprise was that it was not 64-0. Straight off, professional speculators and dabblers alike would be delighted, as the taxability stand is up to the taxman’s interpretation of how ‘regular’ transactions had been. Tax law is better clear-cut than open to interpretation and court challenge.

The announcement last week came smack in the middle of a real estate revival, where prospective price volatility caused partly by speculative behaviour is certain to cause the Government fresh problems. The proposal, the ministry explained, had nothing to do with influencing property cycles but was meant to stabilise the income tax structure. But there is no running away from the fact that disruptive and extreme price swings and the social consequences arising, evident at least since the early 1990s, are better moderated by law if necessary than be left completely to market forces.

If it is the Government’s judgment that speculation – of both the local and foreign moneybags varieties – will have an ever more pernicious effect on real estate in a land-scarce country, it will want to have in its armoury a law to discourage conduct that benefits a few but causes undue anxiety and uncertainty among genuine buyers.

It could consider at some stage a standalone law to corral speculators by levying a tax on a sliding scale over maybe a five-year period. A property sold within the first year will attract the most tax. Thereafter the tax will be on a reducing scale until after the fifth year, when disposals attract no tax. Such tax treatment is biased intentionally against quick resale, but would not punish an investor who may sell only after values have accumulated over a number of years. The Government may well determine that flipping is a minority activity, and it is true not all speculators clear untold riches at the expense of a boring but stable market. In which case, keep a hawk’s eye on mounting buyer anxieties.

Source: Straits Times, 25 Aug 2009

MOF drops proposed change aimed at giving certainty after public consultation exercise

THE government has decided not to change the current income tax framework with regard to individuals who sell their properties, a move that was welcomed by industry players including the Real Estate Developers’ Association of Singapore (Redas).

Under a proposal put up for public consultation, the Ministry of Finance (MOF) had suggested that individuals who sold their properties would be certain that the gains they made would not be subject to income tax if they had not sold any other properties in the preceding four years.

But this was seen by the market as an anti-speculation measure, as it means that those who sell more than one property within four years will not be exempt.

‘We remain believers of the idea that the government may be sending out a signal through this proposal to cool property transactions, especially in the high-end,’ said CIMB analyst Donald Chua in a note last month.

Keen to quell rumours about an anti-speculation drive, MOF then clarified that the proposal is unlikely to lead to more individuals being taxed. Rather, it offers greater clarity on whether gains will be taxed as it proposes a condition that would guarantee no tax: an individual who sells a property on or after Jan 1, 2010 will not be taxed on the gains if he has not sold any other property in the previous four years.

Currently, property sellers do not pay tax on gains unless the Inland Revenue Authority of Singapore (IRAS) sees them as traders and treats the gains as income. IRAS makes its decision on a case-by-case basis, considering factors such as why the properties were sold, how long the sellers owned them and how frequently the sellers transacted properties in the past.

MOF decided not to implement the change following the recent public consultation exercise.

The proposal was put up for feedback under the Income Tax Act public consultation exercise from June 22 to July 14. A total of 64 comments were received on the proposed relaxation of income tax treatment for individuals who sell their properties, and of these, 60 comments were not in support of the proposed change.

Among other things, feedback said that the proposed change could bias property purchase decisions towards investing in one bigger property, rather than numerous smaller properties. This is because certainty of non-taxation would be provided for disposal of one property within any four years, regardless of the property’s value.

Concern was also raised that the proposed change could create inadvertent uncertainty for individuals who sell more than one property within any four years – even though there was no change to the current income tax treatment for such cases.

‘The Ministry of Finance sees merits in these points raised in the public feedback to the proposed change,’ MOF said in a statement. It has therefore decided that it is, on balance, best to retain the current framework of income tax treatment for individuals who sell their properties.

Industry players welcomed MOF’s decision.

‘We welcome the Ministry of Finance’s decision not to change the current income tax framework for individuals who sell their properties,’ said a Redas spokeswoman. ‘Redas appreciates the government’s consultative approach and understanding of the industry’s concern on the matter.’

‘We welcome the positive news that the Ministry of Finance has listened to public feedback,’ said Owi Kek Hean, head of tax services at KPMG in Singapore. ‘The decision not to change the current income tax framework for individuals who sell their properties clearly demonstrates how the government takes differing views on-board in its formulation and changes proposed to Singapore tax policy.’

MOF also said that it has accepted for implementation 85 out of the 113 suggestions received on the draft Income Tax (Amendment) Bill 2009. The draft contains proposed legislation to put into effect the income tax changes announced in Budget 2009, as well as other changes arising from the periodic review of the income tax system.

Source: Business Times, 22 Aug 2009

Govt accepts feedback and leaves current framework alone

The Government has decided to back away from changes it had proposed to tax laws dealing with gains made from property sales.

The public consultation process for the proposal attracted 64 responses with 60 opposing the change.

The Finance Ministry (MOF) said yesterday that ‘on balance, it [is] best to retain the current framework of income tax treatment for individuals who sell their properties’.

It said that it had received ‘salient public feedback’ and saw merit in the points raised.

Dr Steven Choo, chief executive of the Real Estate Developers’ Association of Singapore (Redas), welcomed yesterday’s move, adding that he appreciated the Government’s ‘consultative approach and understanding of the industry’s concern on the matter’.

Under the proposal, an individual who sells a property would not be taxed on the profit if he had not sold any other property in the preceding four years.

The measure sparked considerable unease and a two-day slump in property shares when news of it broke last month. Investors initially viewed it as a back-door attempt to impose a capital gains tax or a pre-emptive strike against property speculators.

The ministry’s subsequent clarifications and reassurances about the proposals calmed much of those concerns but public feedback was mostly not in support of the move.

In a statement yesterday, MOF said there was feedback that the proposed change ‘could bias purchase decisions towards investing in one bigger property, rather than numerous smaller properties’.

Respondents also noted that there were many other factors that should allow property sellers to escape tax on a gain other than considering the frequency of their sales.

These include owners who might have held a property for a long time before selling it together with another property within the same four-year period. The circumstances that led to the sale could also be significant.

‘To cater to all such factors would not be straightforward, and would make the income tax treatment for property disposals complex,’ said MOF.

It said concerns had also been raised about the ‘inadvertent uncertainty for individuals who sell more than one property within any four years, even though there was no change to the current income tax treatment for such cases’.

Dr Choo of Redas pointed out that for most individuals, property is not so much a ‘tradeable commodity but a long-term investment’.

Mr Tan Tiong Cheng, chairman of property consultancy Knight Frank, added: ‘The current tax treatment on treating property sales gains has worked well and there is no need to tweak it further.’

KPMG’s head of tax services, Mr Owi Kek Hean, noted that the Government had listened to public feedback in deciding not to go ahead with the proposed tax change.

‘This is a clear demonstration of how the Government takes differing views on board in its formulation and changes it proposed to tax policy,’ he said.

When, how or if to tax property gains is clearly a vexing issue.

MOF said that it had also considered alternatives to give property sellers certainty on when they would not be taxed on the gains but it noted that these alternatives ‘bring drawbacks and complexities of their own’.

The scrapping of the proposed changes means the prevailing tax regime remains in place.

Singapore has no capital gains tax but the Inland Revenue Authority of Singapore assesses a small number of individuals – those who regularly transact in property – each year. It uses yardsticks like the circumstances that led to the sale to determine if the profits should be taxed at the appropriate income tax rate.

Source: Straits Times, 22 Aug 2009