Don't spare private homeowners with plenty of assets but little money from paying hig

Don't spare private homeowners with plenty of assets but little money from paying higher property taxes

Elderly owner-occupiers may be subject to property tax increases if necessary.

January 13, 2025

CONDOsingapore.com

Wealth taxes were increased in Budget 2022 in order to raise money and to reduce social inequality by reinvesting a portion of the wealth stock back into the economy.

Among other things, changes were made to the property tax, which is the main way that wealth is taxed. All non-owner-occupied residential properties now have higher property tax rates. Additionally, higher-end owner-occupied homes now pay a higher property tax.

As we move forward in time, home owners have benefited somewhat, but non-owners have not.

For instance, as of January 1, the owner-occupied home annual value (AV) bands have been expanded. The AV of the property is multiplied by the applicable property tax rates to determine the annual property tax. The estimated gross annual rent of a property, excluding furniture, furnishings, and maintenance costs, is its AV if it were to be rented out.

Additionally, for 2025, the government is offering a one-time property tax refund of 15% for other owner-occupied homes and 20% for Housing and Development Board (HDB) apartments, with a cap of S$1,000.

Additionally, a 24-month interest-free instalment plan is available to qualified property owners 65 years of age and older to pay their property taxes.

The assistance provided to home owners will be a relief to retirees with plenty of assets but little money, including those who own private residences, including landed property.

Think about the S$70,000 in property tax that would be due on a landed home. In 2025, an owner-occupier's annual property tax drops from S$5,080 to S$3,720 due to the wider AV bands, excluding any rebates. On the other hand, a non-owner-occupier of such a home pays S$14,400 in property taxes annually.

The expansion of AV bands lowers the annual property tax for an owner-occupier of a high-end home with an AV of S$100,000 by 28% to S$8,620.

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Cash-poor, asset-rich

If the property tax is changed in Budget 2025 or any subsequent budgets, should careful thought be given to avoiding burdening elderly, cash-poor, and asset-rich local private homeowners? Possibly not.

For starters, Singapore offers a wide variety of high-quality housing options. An HDB home that is more reasonably priced can be purchased by a local private homeowner who is sitting on large paper gains from a home that was purchased years ago. Buying a brand-new, subsidised house straight from the HDB can be a good choice in some circumstances.

Naturally, moving when one is, say, 80 years of age or older can be traumatic, particularly if one is ill. Nonetheless, Singaporeans have been conditioned to plan ahead and are typically pragmatic.

It is crucial that public education on retirement adequacy cover topics like whether an individual approaching retirement should think about increasing recurring cash flow by releasing capital that is locked up in an owner-occupied home.

In summary, it may be wise for a person in his 60s who is still energetic to think about moving.

A private home owner-occupier without an outstanding housing loan may also consider using their property as collateral to raise money in addition to looking into options like selling their property or renting out a room in their house.

With the DBS Home Equity Income Loan, qualified Singaporeans and permanent residents between the ages of 65 and 79 who own private residences can continue to own and enjoy their homes while receiving larger monthly payouts for life insurance annuity plans through the national longevity insurance annuity plan CPF Life.

When older retiree homeowners sell their cherished homes due to the costs of homeownership, it can have both equitable and beneficial results by causing turbulence in the private housing market, particularly in the landed segment.

The private landed housing inventory in land-scarce Singapore has limited space to expand. By selling their houses to young families, elderly landowners can improve housing mobility by assisting the latter in realising their aspirations for landed housing.

In fact, if the new owner invests in rebuilding or renovating, economic value is created when older homes sell. Additionally, the yearly property tax due on a remodelled house may increase.

There is room to raise property taxes on more expensive owner-occupied homes because the difference between the amount of property tax due on a high-end non-owner-occupied home and an owner-occupied one with a comparable AV can be significant. Additionally, the property tax due on a home will rise as its AV rises as a result of inflation and other factors.

Crucially, many owners of more upscale residences have reliable sources of income from investments or employment, so they ought to be able to afford higher property taxes.

Accrual of increases in property taxes

Elderly owner-occupiers can receive some relief, but if higher taxes are required to pay for healthcare and other necessities as well as to fight wealth inequality, owner-occupier property tax rates on homes shouldn't be a sacred cow.

It might be possible to make any increase in the annual property tax payable to qualified cash-strapped local home owner-occupiers who are 75 years of age or older. When a homeowner dies, the beneficiary who inherits the property may be able to pay the outstanding balance, which may grow over time.

Taking a step back, if property taxes are a major way to tax wealth, then gradually increasing them is reasonable in light of urgent financial requirements and the desire to create a more equitable society. In a world where many societies are disintegrating, a more equitable society also fosters social cohesion, which boosts Singapore's economic competitiveness.

Indeed, if property taxes are raised on cherished homes that have been occupied for decades, elderly retirees who are cash-poor but have many assets will feel unfairly treated. Still, these retirees are fortunate to live in a stable, desirable place to work, live, and play in Singapore. For more expensive properties, a comparable percentage increase in home prices results in greater absolute dollar gains.

In the end, the situation of elderly retired home owners who are wealthy but have little money probably amounts to little annoyances. Help for the elderly should continue to concentrate on those who are truly in need, namely the asset-poor and cash-poor, while government efforts to create a more equitable society can take precedence.