Lower property taxes for bigger HDB flats

By Yeo Sam Jo, The Straits Times, 9 Dec 2014

OWNERS of bigger Housing Board flats will enjoy a reduction in property taxes next year.

This comes as the estimated annual market rents of properties, or annual values (AVs), will be lowered by about 3 per cent on Jan 1, to reflect the weakening rental market, said the Inland Revenue Authority of Singapore (IRAS) yesterday.

The lowering of AVs means owners residing in three-, four-, five-room and executive flats can save about $12 to $14 in property taxes next year compared with this year.

Once the changes to property tax rates this year are factored in, owners living in these flat types will save between $42 and $54 by way of taxes next year, compared with last year. So, someone living in a three-room flat will pay between $1.60 and $49.60 next year, versus between $44 and $92 last year.

Property tax payable on HDB flats is calculated by applying property tax rates on AVs.

Under the more progressive property tax structure from the start of this year, the AV exemption threshold was raised from $6,000 to $8,000 for owner-occupied homes. This means that property owners who live in their homes will not have to pay property tax on the first $8,000 of the AVs of their properties.

Owner-occupiers of one- and two-room flats will continue to be exempt from property taxes next year. HDB flats which are vacant or not occupied by their owners will be taxed at a higher rate of 10 per cent of their AVs.

Cab driver Dickson Kwok, who lives in a three-room Toa Payoh flat with his 72-year-old mother, said the tax savings will help supplement his monthly income of about $1,800.

The 44-year-old bachelor said: "It may not be a lot of money, but $54 can buy three days of meals for my mother and me."

The lowered AVs come amid a cooling HDB rental market.

Overall prices slid by 2.1 per cent between October last year and the same month this year, according to Singapore Real Estate Exchange figures.

A five-room unit in Ang Mo Kio, for instance, had a median rental price of $2,700 in the third quarter of this year, according to HDB data, down from $2,800 in the same quarter last year.

Flat owners will receive their property tax notices and bills by the end of the year, and have to pay up by Jan 31 next year.

Industry observers said property tax for private housing could also be lowered, given the weak private rental market.

Director of property market research company R'ST Research, Mr Ong Kah Seng, said: "I would expect that (IRAS) would either keep private property tax flat or adjust it downwards to better reflect the more cautious market conditions."

Post by IRAS.

Property tax cut for one in four private home owners
Soft rental market sees annual values of many private homes marked down
By Marissa Lee, The Straits Times, 11 Dec 2014

ONE in four private home owners will pay less property tax next year after the taxman marked down the annual values of about 73,300 homes.

Letters have been sent to home owners to outline their levies for the coming year.

This comes on the heels of property tax relief for many owners of Housing Board flats, who saw their annual values cut by about 3 per cent earlier this week.

The Inland Revenue Authority of Singapore (IRAS) reviews property values every year using a mass appraisal system that bases the annual value on rents paid for similar homes nearby.

The slowing rental market has led it to reduce the annual values for 25.7 per cent of private homes from Jan 1 next year.

This is in contrast to the 2013 review for the 2014 levy when only 2 per cent of private homes had their annual values reduced.

This year's reductions come amid a cooling property market where vacancies - a forward indicator of falling rents - are rising.

This is good news for some but not all private home owners.

Oil trader David Goh, for example, has been sent his property tax bill, which has been unchanged for the last three years. Even if rents move down next year, the property tax he will pay over the next 12 months will not change.

Some feel that the volatility in the property market cannot be captured by annual reviews. IRAS, however, pointed out that Hong Kong also reviews the annual values once a year while some countries have longer review cycles of three to five years.

Expediency must be a factor too, noted Rodyk & Davidson partner Lee Liat Yeang: "Maybe IRAS could do a review twice a year. But if the administrative cost is high, is there any value in that?"

Some home owners said their annual values were skewed higher by neighbours who renovated their properties, raising the annual values for the rest of the street.

"In the past, there were more owner-occupiers," said Mr Goh, 54, who lives in a terrace unit in Holland Grove. "Now, I have three expat neighbours renting homes with swimming pools in their backyards."

IRAS maintains that owners can raise objections if they believe there is an error in the annual value calculations, but a lack of good rental information has impeded some from taking that approach.

"It's not that the process is not transparent, but that both IRAS and home owners are handicapped," said KPMG Singapore principal tax consultant Leung Yew Kwong. "It's impossible for IRAS to go into every house to assess the condition it is in, and rental information is difficult for individuals to get."

Property taxes are also a sore point for some private home owners at the higher end of the rental market. This group says it has been paying higher levies since the Government introduced a more progressive property tax schedule at the start of this year.

Higher annual values should be a result of higher annual rents, but such properties are also more difficult to rent out in the soft real estate market.

"As you go up the annual value ladder, those in the high end are affected by a double whammy of high taxes and (no one to rent to)," said Mr Lee.

There are about 70,000 landed residential properties and 215,000 private high-rise flats here.

In the 12 months to March 31, property tax contributed $4.2 billion - 10 per cent of total tax revenue. Of that, taxes on private residences contributed $720 million, and Housing Board flats contributed $150 million.

Home prices down, yet property tax unchanged

I JUST received my property tax bill for next year and was surprised to see that my property value has remained unchanged for the last 31/2 years. I checked with friends and they, too, face the same situation.

Government data and property analysts' latest reports show that both private and public property prices and rents have dropped over the last 18 months.

Developers and owners are trying to offload properties by lowering prices, resulting in private condominium prices sliding by not less than 20 per cent in many instances.

Some properties have been put up for auction, and owners are defaulting on mortgage instalments.

So it is surprising that the Inland Revenue Authority of Singapore still maintains the same annual values for many properties.

It is time to revise the annual values of residential properties.

David Goh Chee Hoe

ST Forum, 2 Dec 2014

Tax-free property annual value set too low

I AGREE with Mr David Goh Chee Hoe that property taxes should be reduced to more "realistic" levels during the current slowdown in the property market ("Home prices down, yet property tax unchanged"; Tuesday).

The authorities have said property tax is a tax on wealth in the form of property ownership, regardless of whether that property generates rental income ("Vacancy refund for property tax removed to ensure consistency" by the Ministry of Finance; Dec 23, 2013).

If the property is sold, the capital gain is tax-exempt, but holding on to it attracts yearly taxes that are levied on the "unrealised" rental income.

I am not against paying property tax as it is for the public good, but over-taxing owner-occupiers goes against the spirit of home ownership. In fact, it makes owning a home to live in a liability when one retires.

According to the Inland Revenue Authority of Singapore, no tax is levied on the first $8,000 of an owner-occupied property's annual value. This is unrealistically low.

The median subletting rent of an HDB flat is about $1,900 for a three-room unit and $2,600 for a four-room unit. This works out to $22,800 and $31,200 in annual value respectively.

It would be fairer to use the rental yield of a three-room flat as a reference, and raise the untaxed annual value to, say, $22,000. This would be more in line with the policy of progressive taxes.

Paul Chan Poh Hoi
ST Forum, 5 Dec 2014

Annual values of homes reflect market rents

WE THANK Mr David Goh Chee Hoe ("Home prices down, yet property tax unchanged"; Dec 2) and Mr Paul Chan Poh Hoi ("Tax-free property annual value set too low"; Dec 5) for their feedback. We also refer to last Thursday's report ("Property tax cut for one in four private home owners").

The property tax is a wealth tax, levied on property ownership. In determining the value of a property for this tax purpose, we use its annual value (AV) as determined by market rentals of comparable properties, rather than property prices.

This leads, in practice, to considerably less volatility in AVs and property tax payable, as rental values are more stable than property prices. An illustration of this: While the private residential property price index has increased by 56 per cent since 2009, the Urban Redevelopment Authority (URA) Rental Index shows an increase of 21.5 per cent over the same period.

The AV of Mr Goh's property has not been revised upwards or downwards for a few years, as the market rents of similar properties in the locality have remained relatively stable, despite a significant increase in prices of such properties over the period.

Home owners can visit the URA website (at www.ura.gov.sg >e-Services >Property Market >Check Rental Contracts of Private Residential Properties) to find out rental trends for private residential developments.

In keeping with the prevailing market rents, the AVs for about 26 per cent of private residential properties will be reduced from Jan 1 next year, while about 1.4 per cent will have their AVs increased.

The AVs of the remaining private residential properties will remain unchanged. We have also reduced the 2015 annual values of HDB flats by 3 per cent to reflect the dip in HDB market rentals.

In determining AVs for a property based on market rentals in the same locality, we take into account differences among the homes, for example whether a home has been newly built, or has a swimming pool, leading to higher market rentals.

Mr Chan suggested raising the tax-exempt AV band for owner-occupied properties. The tax-exempt AV was raised from $6,000 to $8,000 this year, as part of a more progressive property tax regime, allowing most owner-occupied properties to enjoy tax savings.

For example, three-room HDB flat owners will pay a property tax of $1.60 to $49.60 for next year, about $42 lower than what they paid two years ago.

The Inland Revenue Authority of Singapore will continue to monitor and reflect prevailing market rental conditions in its assessments of annual values.

Kelly Wee (Ms)
Director (Corporate Communications)
Inland Revenue Authority of Singapore
ST Forum, 15 Dec 2014

Post by IRAS.