Higher Buyer’s Stamp Duty for Purchase of Residential Properties
Singapore’s Finance Minister Heng Swee Keat announced in his Budget 2018 speech on 19 February 2018 that the top marginal Buyer’s Stamp Duty (BSD) rate for residential properties will be raised from 3% to 4%. This rate will apply to the portion of residential property value in excess of $1 million. This new rate applies to all residential properties, which includes private and public homes as well as residential land, and takes effect from 20 February 2018 (Table 1).
Table 1: Buyer’s Stamp Duty
This is the first time that the BSD is raised since 1996. The rationale is to tax the wealthy more so as to make Singapore’s tax system more progressive and fair. That this change should come about following volume recovery and two consecutive quarters of uptick in the private residential price index, as well as an active collective sales market could be a signal that the Singapore government is monitoring the market closely.
The BSD rates for non-residential properties remain unchanged at 1% to 3%. As for mixed-use or mixed-zoning properties, the new BSD rates of up to 4% and 3% apply on the residential and non-residential components respectively.
The additional conveyance duty (ACD) rates – introduced in March 2017 on share transfers in entities primarily holding residential properties – would also need to adjust the BSD portion accordingly. For residential sites purchased from government land tenders and private collective sales, developers will need to price in the 1% hike in the BSD.
Table 2 illustrates the impact of the new BSD on homebuyers. It shows that the additional amount of stamp duty payable is marginal for properties of lower values. For example, for properties priced between $1 million and $2 million, the additional stamp duty payable is up to $10,000, which will be manageable for home buyers in this category. Buyers of luxury properties worth $5 million and above will have to bear a higher increase in the stamp duty compared to the old rates.
Table 2: Impact of the New BSD on Homebuyers
With the announcement still fresh in people’s minds, there could be some knee-jerk reaction from some buyers as they redo their sums. We could also see sellers shouldering part or all of the increase in transaction costs to continue the sale. Our house view is that over time, and if fundamentals remain strong, the market will price in the additional 1% BSD. The market will come to terms that this increase in BSD is not another cooling measure but a mechanism to fine tune our tax structure to become more progressive. We are also mindful that Singapore’s BSD, even at this new level, is still among one of the lowest in the world. The stamp duty for Hong Kong is at 15%, London is up to 12% and for Australia, it is up to 5.75% of the dutiable value depending on the state where the property is purchased. Overall, it is unlikely to affect the buying sentiment of genuine home buyers and developers who still need to replenish their land bank.