The Ministry of Finance and the Internal Revenue Service announced in a joint announcement on Friday (Dec. 2) that the annual value of most homes, including private homes and HDB flats, will be increased from Jan. 1 next year to reflect the rise in the rental market.
The authorities also announced that all owner-occupied properties will receive a 60 percent one-time property tax rebate of up to $60 next year.
The announcement pointed out that after the last round of residential annual value adjustment in January this year, rents for HDB and private homes rose by more than 20 percent.
The IRS reviews the annual value of homes for real estate tax calculation purposes every year.
The annual value refers to the estimated annual rent of a rental property, which is estimated from the market rent of similar properties.
One- and two-bedroom HDB flats will continue to have an annual value of less than $8,000 next year and will therefore continue to be exempt from real estate taxes, while larger HDB flats will be subject to higher real estate taxes.
In the case of three-bedroom HDB flats, after receiving the rebate, owner-occupiers will have to pay $20.80 to $40 in real estate taxes next year.
This is $7.20 to $30.40 more than this year; as for the largest apartment-style HDB flats, owner-occupiers will have to pay between $176.80 and $224.80, $55.20 to $67.20 more than this year.
The government announced in this year's budget that the real estate tax will be increased in two years starting next year, with the most adjustments for high-end private homes.
The marginal tax rate for the annual value portion of owner-occupied real estate above $100,000 will be 23% next year and then rise to 32% the year after.
The marginal rate for non-owner-occupied properties above $60,000 will be 27% next year, rising to 36% the year after.
According to CBRE's Southeast Asia research head Mingwei Song's estimates, the annual value of a house would rise by an average of 20 percent next year.
A house currently worth $30,000 a year would rise to $36,000, and property taxes would increase by 42 percent, equivalent to $1,260.
She noted that this would undercut the profits that investors and non-owner-occupiers earn from renting out their homes.
ERA's head of industrial research and consulting, John Mak, pointed out that after the latest adjustment, the annual property tax for a three-bedroom mass and mid-range private house will increase by about $1,200, and some landlords who are about to renew their leases may take the opportunity to raise their rents, which is equivalent to a monthly increase of $100.
He said, "Many tenants have already been suffering from rent increases over the past year and a half and it is important that homeowners do not get too greedy and kill the goose that lays the golden eggs."
Savills senior director of research and consultancy Michael Cheung believes that with interest rates continuing to rise and a slowing economy, some owner-occupiers may be renting out rooms to help cover expenses.
"The point is that rents have gone up quite a bit, is there a need to raise property taxes in a slowing economy? Also, with rents remaining high and hitting record highs, this will be the basis for future rent and annual value calculations, which in turn will affect real estate tax changes."
According to Ismail Gafoor, president of Bona Industries, the real estate tax increase is still manageable because the increase in rents is expected to offset the tax increase.
Homeowners who signed long term leases with tenants before the rent increase may not benefit from the rent increase and therefore will be most affected by the annual value increase.
