Budget 2024: Injecting confidence into Singapore’s property market

Singapore’s once red-hot housing market fuelled by a pandemic-induced supply shortage has shown signs of cooling, amid growing interest rates and macroeconomic uncertainties.

New private home sales in Singapore dropped to a 15-year low in 2023, largely due to high property prices and interest rates.

To inject confidence in the sector, the Singapore government unveiled a slew of measures in the Budget 2024 statement, which was delivered on Feb 16 by Deputy Prime Minister and Minister for Finance Lawrence Wong.

Lower taxes for most homeowners

The first of these was the move to reduce property taxes by raising annual value (AV) bands for owner-occupied properties. AV, by which homeowners are taxed, refers to the estimated annual rent of a property if it were to be rented out.

From January 1, 2025, the lowest AV band threshold will be raised from S$8,000 to S$12,000, while the highest threshold will go up from over S$100,000 to S$140,000. This change will benefit the majority of homeowners, who can expect to pay the same or lower property taxes in the same band, assuming there is no change in their AVs and before any rebate.

Explaining the move, DPM Wong said: “This will still uphold the intent of the Property Tax changes, and ensure that those residing in higher-value properties continue to pay their fair share of taxes.”

The government has also committed to monitoring the property market and offering a tax rebate next year if necessary. This follows the one-off rebate of up to 100 per cent capped atS$1,000 last year.

The move to raise AV bands aims to all eviate homeowners’ financial pressure amid rising costs.

Dr Tan Tee Khoon, PropertyGuru’s Country Manager for Singapore, noted that prior to 2023, most properties had an AV below S$30,000. This meant that homeowners paid just 4 per cent in property tax. However, the recent increase in rental prices has led to several properties crossing the S$30,000 mark, leading to higher property taxes for homeowners. This has unfairly penalised the many homeowners who have not benefitted from rents. “Therefore, the changes are considered fair and beneficial for most homeowners,” he said.

More flexibility for developers

Besides homeowners, property developers in Singapore also stand to benefit. Those who are able to sell at least 90 percent of a project’s units within five years of the land acquisition date will qualify for a lower Additional Buyer’s Stamp Duty (ABSD) clawback rate. This is down from the previous qualifying mark of 100 per cent, giving developers longer timelines to sell their projects.

DPM Wong acknowledged that developers sometimes face challenges selling all their units within the prescribed sale timeline, despite the best of their efforts. The move “ensures that housing supply continues to be released promptly, while providing some flexibility to the developers,” he added.

In a joint statement, the Ministry of Finance and the Ministry of National Development said the Government will continue to adjust its policies where necessary, to ensure the property market remains sustainable.

While some developers are calling for more reforms to account for the different sizes of projects, most welcome the change.

However, most developers will still be motivated to sellout their projects within five years to avoid incurring ABSD, said Dr Tan.

“Even if a developer manages to sell 99 per cent of a project’s units, he is still subject to a 25 per cent ABSD remission clawback with interest (lowered from 35 per cent). This remains a hefty sum on developers,” explained Dr Tan.

“Hypothetically, if the developer had bought a site for S$400 million after 16 Dec 2021 and the project has 500 units, failing to sell the last five units, which make up 1 per cent of the project, within the five-year ABSD deadline would mean an ABSD remission clawback of S$100 million plus interest based on an ABSD rate of 25 per cent – compared with S$140 million plus interest under an ABSD rate of 35 per cent. $100 million is nonetheless a substantial amount. It is therefore more meaningful for developers to offer discounts to prospective buyers and achieve a full sell-out, than to incur ABSD.”

As Singapore faces a fading property boom, the initiatives unveiled in Budget 2024 demonstrates the government’s responsiveness and commitment to addressing concerns of both developers as well as homeowners. They aim to provide both groups with relief and leeway, to weather rising costs and economic uncertainty on the horizon.

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