There was also a slowdown in the commercial market, with transactions falling 14.2 per cent to 738 units in FY2022 from FY2021’s 860, said Huttons senior research director Lee Sze Teck.
This was mainly due to higher interest rates of above 4 per cent, which resulted in “negative carry” – when the cost of holding the property exceeds the return earned – and most institutional funds putting a stop to their investment plans, he said.
Savills Singapore’s executive director of research and consultancy Alan Cheong said the total value of residential transactions in the new sale, resale and sub-sale markets dived 29.2 per cent year on year. This decline was greater than the 12 per cent drop in stamp duty collections, likely due to the inclusion of industrial and commercial transactions in the tax revenue pool, he said.
Cheong noted that there is also “an increasing predilection by ultra-high-net-worth individuals who do not lodge caveats and hence are not reflected in the transaction values”.
Although there was a dip in residential demand in FY2022, property prices continued to “hold their high ground”, mostly due to sellers’ reluctance to reduce prices, said Dr Lee of PropertyGuru. Between Q2 2020 and Q1 2023, private home prices grew 28.1 per cent, Cushman & Wakefield’s Wong noted.
“Furthermore, the escalating cost of replacement homes has induced existing owners to hike their selling prices,” said Dr Lee.
Meanwhile, property tax collection grew 9.1 per cent to S$5.1 billion in FY2022. Collections were around 10 per cent higher than the government’s estimate of S$4.61 billion for FY2022.
Property tax revenue depends on the property tax rate, the number of properties to be taxed and the annual value (AV) of each property, assessed based on the estimated annual rent if the property was rented out.
Sky-high rents and low vacancy rates, fuelled by rising domestic demand, are likely to have driven tax takings up, said Dr Lee.
Savills’ Cheong added that the overall stock across all property sectors increased in 2022, resulting in higher property taxes collected.
Property tax rates also went up in January 2023, with the government raising AVs of most residential properties.
In total, the government’s tax revenue for FY2022 hit S$82.71 billion, a 10.6 per cent increase from the S$74.76 billion collected in FY2021. (*see amendment note)
Cushman & Wakefield’s Wong believes that stamp duty collections – which are “more dependent on market conditions and transaction volumes” – might wane further in FY2023. Heightened interest rates, economic uncertainties and the recent rounds of cooling measures would “continue to weigh on transaction volumes”, he said.
Investment sales for commercial properties might also remain tepid, said Cheong. “Unless we see major multi-billion dollar deals in this space, this sector is unlikely to be the fillip to the drop in total transaction numbers for the private residential market.”
Huttons’ Lee expects stamp duty collection in FY2023 “could be lower by up to 10 per cent”.
OrangeTee & Tie’s Sun said she believes that stamp duty collection for FY2023 might rise marginally or hold steady, barring further cooling measures and economic crisis, as there are “many more project launches this year which may drive demand”.
While Additional Buyer’s Stamp Duty (ABSD) was raised substantially for foreigners, “they constitute a small proportion of total sales”. “Their drop in numbers may not affect the stamp duty collection too significantly,” she said.
Nicholas Mak, chief research officer of Mogul.sg, added that the government will be releasing more land parcels for developers in the coming year. This would mean more developers paying Buyer’s Stamp Duty on land transactions going into the hundreds of millions of dollars, he said.
For property tax revenue, Huttons’ Lee noted that the next hike in tax rates in January 2024 might not be enough to “compensate for the lower demand” for rental homes, especially as more new homes are completed.
With slower economic growth, “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 applications, this demand cannot make up for the slower growth in foreign workers,” he said.
“At best, property tax may be flat or see a slight decline up to 5 per cent in FY2023.”