The government’s moves to tap the wealthy for a bigger proportion of its tax revenues, might cause a “downward knee-jerk reaction” to the share prices of developers and property agencies, says CGS-CIMB.
“We are surprised by the increase in property tax, especially after the recent hike in Additional Buyers’ Stamp Duty rates and tightening Total Debt Service Ratio announced in Dec 21,” says the brokerage's head of research Lim Siew Khee in her Feb 19 report.
CGS-CIMB believes the higher taxes will have a negative impact on counters such as UOL Group, City Developments, Propnex and APAC Realty.
Nevertheless, given how the property stocks under the brokerage’s coverage are already trading at a hefty discount of 47% off their revalued net asset value, CGS-CIMB is keeping its “overweight” call on this sector.
In his maiden Budget speech on Feb 18, finance minister Lawrence Wong announced that property taxes for owner-occupied residential properties with an annual value in excess of $30,000 will also be increased from the current 4 -16% to 5 - 23% from Jan 1 2023, and to 6 - 32% from Jan 1 2024.
The government estimates that these moves will impact the top 7% of owner-occupied residential properties.
Meanwhile, non-owner occupied residential properties, held by owners for investment and rental income, will be harder hit. With effect from Jan 1 2023, the tax rates will be raised from 10 - 20% currently to 11 - 27%, and subsequently higher to 12 - 36% with effect from Jan 1 2024.
As an example, from a non-owner occupied residential property perspective, the change in tax rates for properties with an annual value of $30,000 - $100,000 could increase by 10 - 80% by Jan 1 2024 or by $300 - $11,200 per annum, or $25 - $933.3 per month.
“We expect some erosion in the rental yield on investment property, particularly for high-end segment. In our view, this could negatively impact demand and selling prices for larger properties in the high end in the near-term,” says Lim.
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However, with rental rates up by around 10% since 3Q2020 amid a lowered island-wide residential vacancy, rental rates could trend up to offset the increase in tax, she adds.
Photo: Samuel Issac Chua / The Edge Singapore
