Will A Higher Stamp Duty Hinder Private Property Market Recovery?

In his budget speech on 19 February 2018, Finance Minister Heng Swee Keat announced that the buyer’s stamp duty for a home priced above S$1 million would be raised from the current three per cent to four per cent with effect from 20 February 2018. Home buyers were caught by surprise. Questions were raised about the purpose of this stamp duty hike and if it will hinder the private property market recovery.

Not a Cooling Measure

Some market analysts are quick to point out that the stamp duty hike is unlikely a cooling measure and the impact on the home buyers is insignificant. First of all, for the majority of home buyers who go for HDB flats, chances of their property price surpassing the S$1 million threshold are very low. Based on the transaction history of HDB flats in the recent years, there are only a few flats which have reaped a price of above S$1 million. Secondly, if we look at buyers of private properties, the average transaction price is around S$1.2 million. With the stamp duty hike, an additional one per cent is levied on the portion above S$1 million. For a home of an average price of S$1.2 million, buyers will need to pay an additional S$2000, which is only 0.167 per cent of the property price.

A Move to Reduce Income Inequality

Buyer’s Stamp Duty is a type of progressive tax. One per cent is levied on the first S$180000 and two per cent on the next S$180000. On the portion between S$360000 and S$1 million, three per cent is levied while on the portion above S$1 million, four per cent is levied. For a luxurious property priced at S$3 million, buyers will need to fork out an additional S$20000, which is 0.667 per cent of the property price, much higher than the 0.167 per cent for a property priced at S$1.2 million. Like any other progressive tax, the buyer’s stamp duty will help reduce income inequality as the rich are paying more in percentage as compared with the poor.

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Singapore’s Prime Minister Lee Hsien Loong earlier ensured Singaporeans the government’s commitment to combat the problem of income inequality. Despite the various government initiatives aimed at re-distributing wealth and bridging the income divide, Singapore’s Gini coefficient after government transfers and taxations is still persistently higher than other developed countries, not to mention developing countries whose Gini coefficients are generally lower.

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Despite the surprising hike in buyer’s stamp duty, market analysts have commented that it is unlikely to deter home buyers and derail the private property market recovery. Private home prices rose 1.1 per cent in 2017, after a three-year slump. With a better than expected economic outlook in Singapore, the momentum is likely to continue. Further, property prices in Singapore are much more affordable compared with other metropolitan cities like London, Tokyo, Shanghai and Hong Kong.

Linda Geng

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