Huttons’ comments on the dip in FY2022 property stamp duty

11 July 2023

Property tax collected for FY 2022 increased by 9.1%. This was due to an increase in annual value of properties on 1 Jan 2023 after the residential market saw a sharp jump in rents. At the same time, property tax rates were increased on 1 Jan 2023. These two reasons bumped up the contribution of property tax to tax coffers.

Tax Collected from Property

FY2022 FY2021 Change
Revenue from Taxes
Property Tax $5,095.5 million $4,671.6 million 9.1%
Stamp Duty $5,950.3 million $6,762.2 million -12.0%
Total $11,045.8 million $11,433.8 million -3.4%

Source: IRAS, Huttons Research

The property market was slower in FY 2022 compared to the previous financial year due to high interest rate and price resistance. The residential resale market saw more buyers putting their purchase on hold because borrowing interest rates exceeded 4% compared to around 1% at the start of 2022. Similarly, the commercial market saw a fair bit of slowdown because the borrowing interest rate of above 4% resulted in negative carry and most institutional funds put a stop to their investment plans. The new sale market was relatively insulated from the high interest rate due to its progressive payment structure.

The rental market was slightly slower in FY 2022. With the increase in completion of homes, more tenants were able to move to their new homes. Some tenants moved overseas to work after most countries ended their travel curbs. The steep increase in rents meant there were some adjustments in tenant behaviour. Some of them were displaced from the CCR to RCR, some from the RCR to OCR and some to the HDB market. Some tenants chose to move into a co-living space to save on rental.

Number of Property Transactions

FY2022 FY2021 Change
Private Property 20,688 30,800 -32.9%
EC 3,535 3,816 -7.4%
HDB 27,941 30,370 -8%
Commercial 738 860 -14.2%
Industrial 2,018 2,035 -0.8%
Total Sales 54,900 67,881 -19.1%
Private Property 89,431 99,493 -10.1%
HDB 35,634 42,136 -15.4%
Commercial 29,623 27,785 6.6%
Industrial 12,646 13,219 -4.3%
Total Rental 167,334 182,633 -8.4%
Grand Total 222,234 250,514 -11.3%

Data excludes BTO and non-caveated transactions
Commercial and industrial transactions are based on caveats
Source: URA, HDB, JTC, Huttons Research (data downloaded on 2 Jul 2023)

The relaxation of border controls by Singapore in Apr 2022 and geopolitical tensions saw an increase in the number of foreigners buying residential properties. The stamp duty collected from foreigners however was unable to offset the decline in overall transaction volume.

Purchases of Residential Property by Residential Status

FY2022 FY2021 Change
Sales by Buyer Profile
Singaporeans 19,016 28,139 -32.4%
Permanent Residents 3,866 4,757 -18.7%
Foreigners 1,060 982 7.9%
Company 137 153 -10.5%
Total 24,079 34,031 -29.2%

Source: URA, Huttons Research (caveats downloaded as of 2 Jul 2023)

The doubling of ABSD for foreigners on Apr 27 will reduce significantly the number of residential home purchases for FY 2023. More foreigners may either rent or choose to obtain a PR first before buying. The high interest rate will continue to hobble the resale market and sales are estimated to stay around 12,000 units in FY 2023. Developers are estimated to launch more than 10,000 units for sale. With the strong sales witnessed for project launches in Apr and May 2023, new sale volume for FY 2023 may be around 8,000. Overall residential sale volume may be similar to FY 2022. Prices are likely to remain stable as launches are priced sensitively with affordability in mind.

The HDB market is forecasted to see sales between 24,000 and 26,000 in FY 2023 due to demand being pulled away to the BTO market as the Government will ramp up supply to about 13,000 flats in 2H 2023.

With the collective sales market staying anemic, the Government has stepped up its supply of land to meet the strong demand for housing in its 2H 2023 GLS programme. The harmonization of GFA will result in lower land bids as it reduces the saleable area. Furthermore BSD was also raised to 6% which eats into developer’s margins and will affect their bid for land.

Institutional purchases of commercial and industrial properties are unlikely to pick up in FY 2023 if interest rate remains around 4%. There may be some spillover demand by the foreigners to the commercial and industrial markets but it is not expected to be significant.

On balance, stamp duty in FY 2023 could be lower by up to 10%.

With more completion of homes, increase in rents in FY 2023 is likely to be lower than FY 2022. The slower economic growth meant that companies will bring in less foreign workers thus leading to slower rental demand. Although some foreigners may rent in the interim while waiting for their PR, this demand cannot make up for the slower growth in foreign workers.

The upside is that annual values and property tax rates will increase again on 1 Jan 2024. It may not however be enough to compensate for the lower demand. At best, property tax may be flat or see a slight decline up to 5% in FY 2023.