GST is not the only thing on the rise after this year’s Budget announcement. Property buyers now also have to deal with paying up to 4% of the property purchase price in Buyer’s Stamp Duty if they’re paying more than $1 million for their new home. But this is actually not a major penalty on the super-rich, so who in Singapore is really affected by this?
What is BSD?
Buyer’s Stamp Duty, or BSD, is a tax you pay when you buy property in Singapore. You can’t avoid it, but for most people, you don’t have to pay more than 2% of the property purchase price. As of Tuesday, 20th February 2018, properties with a purchase price or market value of more than $1 million have to pay a BSD of up to 4% of the property purchase price.
Here’s how BSD is calculated now:
|Purchase Price or Market Value of the Property||BSD Rates for residential properties||BSD Rates for non-residential properties|
How much BSD do you have to pay now?
This means that if your property costs exactly $1 million, there is no change to your BSD. It is still $24,600, just like before. However, if your property costs more than $1 million, you now have to pay 4% on the amount above $1 million, instead of 3%. A property costing $2 million, for example, would now incur $64,600 in BSD, $10,000 more compared to the $54,600 you would previously have paid.
That… doesn’t seem like a lot more, honestly.
It’s true – the more expensive your property, the more minuscule the BSD seems.
If you were buying some $6 million property in Sentosa Cove, for example, you would now have to pay $224,600 in BSD or 3.74% of your purchase price, compared to $174,600 or 2.91% previously. While that is an increase of $50,000, it’s only an additional 0.83% of your purchase price. What’s $50,000 more to someone who can afford a $6 million property?
But imagine you’ve exhausted all your financing options to pull together just enough funding to buy some modest condominium unit for $1.2 million instead. You’ve barely managed to accumulate the $60,000 in cash for the downpayment.
Now, thanks to the new change, you would now have to pay $32,600 in BSD or 2.72% of your purchase price, compared to $30,600 or 2.55% previously. That’s an increase of $2,000. $2,000 that could’ve helped with the renovations, or with paying your first utilities bill – what with the increase in electricity and water costs in 2018.
Now, what if you gave up on your condo dreams and went with a resale flat instead?
If you can afford a condominium unit in Singapore, even the most expensive resale flat will be well within your reach. Even in a relatively expensive district like Bishan, where 5-room resale flats can cost around $750,000 on average, it’s still a significant difference in price compared to a similar-sized condominium unit in the same area, which will typically cost you $1.25 million.
Just the difference in purchase price alone is already a hefty $500,000. Depending on your income level and whether you plan to stay near or with your parents, you could actually be eligible for up to $120,000 in housing grants. This is thanks to the increase in the Proximity Housing Grant, also recently announced at this week’s Budget.
That means a 5-room resale flat could now cost almost half the price of a similar-sized condominium unit in the same neighbourhood.
What does this mean for property buyers in Singapore in 2018?
At first glance, the increase in the Buyer’s Stamp Duty may not seem like a big change. After all, it is only an increase in the marginal rate from 3% to 4% and will only affect properties that cost more than $1 million.
In the context of making our taxes more progressive, the increase in BSD is in line with other tax changes. Personal income tax rates were increased for top income earners in 2015, and income tax reliefs were capped in 2016. The purpose of these tax changes is to ensure that those who have more, contribute more back to society.
However, property taxes have a funny way of trickling down to those who don’t have as much.
By making it slightly more expensive to buy property above $1 million, the government is driving price-sensitive property buyers, who may have been on the fence about buying a condominium unit, towards relatively cheaper resale flats.
Property buyers in Singapore could then inadvertently find themselves in a self-fulfilling prophecy. If they anticipate that resale flat prices will rise, they may decide to rush to buy resale flats now. This increase in the demand for cheaper housing will then have the exact effect of pushing up the price of resale flats.
According to HDB’s Resale Price Index, resale flat prices have been on a downward trend since mid-2013. While the increase in the Buyer’s Stamp Duty may be seen by some as a hint that the property cooling measures are not going to be lifted anytime soon, it may have the unexpected effect of reversing the drop in resale flat prices.
And that is not good for property buyers in 2018.
What do you think of the announced increase in the Buyer’s Stamp Duty? We want to hear from you.