PropertyGuru: Time to reduce 15-month waiting periods for ‘downgraders,’ tweak ABSD and bring back estate taxes
Reintroduce the estate tax, reduce the wait time for downgraders of private properties to 15 months, defer stamp duty for Singaporean families purchasing a second home and withhold stamp duties for those who buy a secondary home. PropertyGuru Singapore, a property portal in Singapore, has made these three recommendations ahead of Budget 2024’s announcement on Friday (Feb 16). Reducing the 15-month waiting period for ‘downgraders of private homes’. The government increased the waiting period for private property owners who are selling their properties from six to fifteen months before they can buy public housing on the resale marketplace. The policy change helped to moderate the demand and price increase for Housing and Development Board flats. HDB resale price rose by 4.9 percent in 2023. This is a slowdown from the 10.4 percent increase in 2022. Volume was also down 4.2 percent to 26,735 transactions in 2023 compared to 27,896 in the previous year.
The market has changed, and we need to revisit our assumptions. The resale price, the supply and demand has moderated. Meanwhile, the increase in Build-To Order supply is easing pent up demand.
He warned that the economic climate is more uncertain due to increased geopolitical tensions. External factors could also trigger sharp corrections in the market. If households want to downsize into HDB flats, we should encourage them to be prudent.
He admitted that there was a need to limit the demand for larger apartments, noting the increase in million-dollar deals made by 2023. This indicates a strong demand among other potential buyers, despite the 15 month restriction on downgraders.
The buyers are most likely upgraders looking to buy larger homes that are priced higher than those in the private residential market segment.
The waiting period does not apply for seniors over 55 who are moving to a four room or smaller resale apartment from their own home.
Since the rule was implemented in September 2022, only 25% of requests for waivers – 850 of 3,470 – have been granted.
The removal of the restrictions on HDB flat ownership could result in a sharp rise in prices and a hot housing market. These could be offset by increasing the minimum occupancy period or by imposing a prorated capital gains tax to prevent private home owners from gaming the system.
Refuse ABSD to Singaporeans who buy second home
PropertyGuru proposes that Singaporeans be permitted to purchase a second home for rental, while the Additional Buyer Stamp Duty (ABSD), is withheld.
Singaporeans who buy their second home will now pay 20 percent instead of 17 percent ABSD, and 30 percent instead of 25 cents for those who purchase their third or subsequent property.
The ABSD for Singapore permanent residents has been increased from 25% to 30% on second properties, and from 30 to 35% on third and subsequent property purchases.
Residential properties are reliable assets that preserve value and provide a stable source of income to owners during their retirement years. Couples today adopt a strategy of decoupling home ownership in order to purchase additional property without having to pay the ABSD.
This strategy can lead to financial stress as couples cannot pool their resources and diversify their risk when buying an additional home.
In the future, if the majority of homes are designated as owner-occupied, this could result in a tightening rental market. This scarcity could lead to volatile rental prices that may have long-term negative effects.
The government introduced long-stay apartments to help balance fluctuations in short-term rental demands. However, this policy could have limited impact if only few players on the market participated.
The ABSD should be held back for the second house. Owners will have to pay this amount plus interest when they purchase a third property.
He said that this rule does not apply to homes owned for over 10 years in order to encourage the redevelopment and renovation of older properties.
Capital gains tax would also be imposed if owners sold their property in the next 5-10 years.
Reintroduce estate tax
PropertyGuru also wants to see the return of inheritance tax or estate duty.
Since the government abolished Estate Duty in 2008, wealth and opinions have become increasingly polarised (which) threatens social cohesion.
In order to reduce wealth inequality in Singapore the government has proposed the introduction of an inheritance tax by 2021.
This raises the concern that reintroducing Estate Duty might force affluent people to relocate their assets. This could deter the establishment of Singapore family offices and undermine its status as an Asian financial hub.
To counteract these risks, it could be possible to lower rates for those who invest in environmentally sustainable projects, such as green mark Platinum buildings, or allocate a sum each year to vulnerable social segments, and cross-subsidise the retraining of low-income workers or retrenched employees.
Estate duty is typically only applicable to high-net worth individuals. However, it can be extended to a wider range of people.
He proposed that rates be adjusted in accordance with the type and value of property owned by individuals.
This would allow for a more equitably distributed tax burden among different sections of society.
