Property stamp duty revenue dipped 2.4 per cent to S$5.81 billion in the Singapore government's financial year ended March 2024, after transaction volumes fell and prices eased in both the property sales and rental markets.

Stamp duty takings have been falling since FY2021’s record high S$6.76 billion, following a slew of market cooling measures introduced between end-2021 and 2023.

Collection of stamp duty for FY2023, which covers the period from April 2023 to March 2024, fell for a second straight year to S$5.81 billion, from FY2022’s S$5.95 billion. The tally is also 14.1 per cent lower than FY2021’s S$6.76 billion, and a notch higher than the government’s initial projection of S$5.75 billion for the year.

Stamp duty is levied on both buyers and sellers in all real estate sale transactions, and is also charged on leasing transactions.

Still, revenue from stamp duty collected in FY2023 was around 38 per cent higher than the S$4.2 billion reaped in the pre-pandemic FY2019, based on data from the Accountant-General’s Department available online through the Singapore Department of Statistics.

Significant slowdown

Singapore’s housing market has slowed significantly over the last year. Sales volume has shrunk while transaction value has fallen with home prices easing, amid broader economic uncertainty and higher interest rates, noted Knight Frank research head Leonard Tay.

Data from the Urban Redevelopment Authority showed private home price growth slowed to 6.8 per cent in 2023, from 8.6 per cent in 2022 and 10.6 per cent in 2021.

This also follows several rounds of cooling measures that have been in place in since 2022, said Tay. These range from higher duties levied on both buyers and sellers of residential property, to higher rates of property tax charged to asset owners.

Between 2021 and 2022, for instance, sales volume shrank by 34.8 per cent and transaction value by 28 per cent, said Tay. Volumes declined by another 13 per cent between 2022 and 2023, and transaction value by 14.5 per cent.

Investment sales volume in the residential segment, covering transactions worth more than S$10 million, fell 14.8 per cent year on year in 2023, said Wong Xian Yang, Cushman & Wakefield's head of research. Commercial market investment sales, including sales of strata-titled commercial space and building sales, plunged by 77.4 per cent year on year.

Data collated by property consultancy Huttons for The Business Times indicated that overall property transactions — comprising private properties, executive condominiums (ECs), resale public homes, as well as commercial and industrial units — fell 6.7 per cent to 49,403 units in FY2023, from 52,932 units in the previous year.

Rental transactions inched down 1.9 per cent to 164,097 units, from 167,334 units in FY2022.

Fewer foreign buyers

Christine Sun, chief researcher and strategist at OrangeTee Group, added that there were much fewer foreign buyers — who face up to 60 per cent Additional Buyer’s Stamp Duty (ABSD) - in the past year.

The number of non-landed homes, excluding ECs, bought by foreigners or non-permanent residents dropped by nearly a third to 618 units in 2023, from 923 units in the previous year. That of permanent residents dipped by 7.9 per cent to 14,013 units in 2023, from 15,215 units in 2022.

While stamp duty collected from individuals buying homes has dropped, stamp duty takings from developers acquiring state land should have risen from the ramping-up of the government land sales (GLS) programme.

Tricia Song, CBRE’s head of research for Singapore and Southeast Asia, noted there were still more GLS sites transacted in FY2023 - totalling around S$8.7 billion, more than double FY2022’s S$3.6 billion. That means developers would have forked out more in their upfront payments of ABSD on their land acquisitions. Developers pay a non-remissable ABSD of 5 per cent on land purchases.

Revenue from developers’ ABSD could have “cushioned the fall”, resulting in a smaller decline in stamp duty collection in FY2023, even with significantly lower transaction volumes, said Alan Cheong, Savills Singapore executive director of research and consultancy.

Meanwhile, the government collected almost S$900 million more in property taxes, which grew 16.5 per cent to S$5.9 billion in FY2023, from S$5.1 billion in the previous year. Collection was 7.1 per cent higher than the earlier projection of around $$5.55 billion in FY2023.

Property tax revenue depends on the property tax rate, the number of properties to be taxed, and the annual value (AV) of each property, which is assessed based on the estimated annual rent if the property was rented out. In the course of the last two years, tax rates as well as AVs were raised, with the biggest increases targeted at the highest value bands.

Sun from OrangeTee noted that more condominiums, excluding ECs, were completed in the past year, adding to the tax pool. The number of completed units more than doubled to 19,968 in 2023, from 9,526 units in 2022.

In February, Second Minister for Finance Chee Hong Tat said residential property tax revenue in Singapore was expected to grow by around S$600 million in 2023 due to higher AVs, which rose in tandem with rents for both private and public housing. This was higher than the S$380 million per year that authorities projected once the increase in property tax had been fully implemented.

Property tax revenue in FY2023 is based on AVs in 2022, which were up 20 to 30 per cent alongside an almost 30 per cent rise in private home rents that year, said CBRE’s Song.

“This was when leasing demand overflowed beyond available units for lease in 2021 and 2022, due to the disruptions caused by the pandemic,” Tay of Knight Frank said.

Although rental demand eased in 2023, rents in “most locations had already escalated to new benchmarks”, said Tay.

The recent softening of rents, only coming through in the last two quarters, has yet to influence AV and tax calculations, said Song.

“The current correction in private residential rent is expected to be mild, with relatively low new supply coming online from 2024 to 2026,” said Cushman & Wakefield’s Wong. On average, there will be just around 7,300 units per year in that period - significantly lower than the decade-long average of around 13,300 units, Wong said. He also expects commercial and industrial rents to grow this year, underpinned by stronger economic growth.

In total, the government’s tax revenue for FY2023 was S$94.3 billion, up 14.1 per cent from the S$82.71 billion collected in FY2022.

According to the Ministry of Finance, stamp duty collection is expected to dip a further 1.3 per cent to S$5.73 billion in FY2024, while property tax revenue may rise 12.4 per cent to S$6.67 billion. Total tax revenue is estimated to grow by around 5 per cent to S$99 billion.

Huttons senior director of data analytics Lee Sze Teck thinks the Housing and Development Board resale market may see higher volumes in FY2024, including the sale of more million-dollar flats, and this could boost stamp duty collection slightly.

Song from CBRE pointed out that even if home sales pick up in the second half of 2024 - presuming that interest rates fall and the economy recovers - demand from investors or foreign buyers is likely to stay subdued, no thanks to high ABSD rates.

But OrangeTee’s Sun said stamp duty collection may increase in FY2024 as fresh supply enters the market with more new launches slated for this year. “Moreover, new home prices may trend slightly higher this year,” said Sun. This could lift transaction values.

Property tax revenue, meanwhile, is expected to trend higher. Wong from Cushman & Wakefield said “it would probably take a sharp correction in property rents or a large property tax rebate” to dent tax revenue, after four years of continued growth.

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Credit: The Business Times