What’s the worst that could happen on Valentine’s Day? No doubt it’s Budget 2023.
The front desk was a sea of flowers and goodies. Yet, nothing was for me. The streets were crowded with lovebirds. But I was ineligible for love. The defeated soul went home alone depressed and drained. Still, they broke the bad news about paying more to buy private properties.
From tomorrow (February 15), Buyer Stamp Duty (BSD) of residential properties between $1.5 million and $3 million will be taxed at 5 percent. Those over $3 million will be taxed at 6 percent. Non-residential properties between $1 million and $1.5 million will be taxed at 4 percent. Those over $1.5 million will be taxed at 5 percent.
My heart sank and my soul ached. In exchange for breaking our heart on Valentine’s Day, the Finance Minister said the higher BSD in Budget 2023 is expected to generate an additional $500 million in revenue per year.
Budget 2023 shattered our heart again
In the past few years, our heart skipped a beat every time when there was an announcement on raise of BSD, ABSD, TDSR or property tax.
Not long ago in mid-December 2021, the government imposed higher ABSD, lowered loan-to-value and tightened TDSR. (“Property cooling measures, here we go again!”, Propertysoul.com) Then in September 2022, the private home market was slapped with higher TDSR and a 15-month wait for private home owners to buy HDB flats.
In Budget 2022, the government announced an increase in property tax over the next two years. From 2023, for property’s annual value over $30,000, property tax for owner-occupied residential properties increased to 5 percent to 23 percent. From 2024, property tax jumped to 6 percent to 32 percent. For investment properties, property tax went up to 12 percent to 36 percent.
Furthermore, last December IRAS said home owners have to pay higher property taxes in 2023 after annual value of most residential properties have been raised to reflect rental increase. Nonetheless, we should be grateful for a one-off 60 percent rebate capped at $60 to offset against property tax raise.
The opposite of love is not hate. It is indifference. We have been hurt so many times that we can’t feel anything anymore.
A Straits Times article published last August said, “Housing Board upgraders’ love affair with private property cooled in the first half of this year following the Dec 16 round of property curbs and higher mortgage rates.”
Singaporeans have a burning desire for private properties. But the blazing fire has been chilled by ten rounds of cooling measures. Low interest rate in the past two years gave us the false hope that we could re-ignite with an old flame. Yet before long, realty hit with lower affordability and higher interest rates and property taxes.
For agencies, silence is golden
Last January developers sold 684 new units. This January they cleared only 391 units. We can’t help but wonder how many of the 34,427 property agents manage to have a slice of the cake.
Despite a 42.8 percent year-on-year dip in new private homes sold, the OrangeTee spokesperson said there is “good sales take-up” and “pent-up demand for housing units”. And somehow the government’s continuous hikes in property taxes will attract “more foreign buyers”.
In January, PropNex urged the government to tweak ABSD in Budget 2023 for married couples upgrading from HDB flats to private homes. Right before the budget announcement, Savills also asked the government to loosen the 15-month waiting time for private home downgraders and waive the ABSD for HDB upgraders.
Contrary to the agencies’ recommendations, the government reacted with higher stamp duties for private property buyers. It seems that every time these industry stakeholders advocate for easing of property cooling measures, the government will react with the opposite to impose even stricter property purchase restrictions. Over the past few years, there is only increase but no decrease of BSD, ABSD and TDSR. (Read “Say it until it comes true”, “MAS makes commentators look foolish again”, “How the 4% Buyer’s Stamp Duty makes speculators look foolish again”, Propertysoul.com)
Proposals raise expectations. When these expectations are not met, it is a slap in the face of the requestor. Above all, it dashes the hope of those who believe in them.
“For industry stakeholders who said confidently that the government would soon ease the property cooling measures progressively, the unexpected additional curb announced by the government was a slap in their face.
From time to time, industry stakeholders speculate or advise the government to lift property cooling measures. Unfortunately, their efforts have time and again proved to be in vain. They never influence the government’s decisions on the introduction or relaxation of property curbs.”
– Vina Ip, Behind The Scenes of The Property Market
BSD increment is not a lot?
Following the Budget 2023 revised BSD, Channel NewsAsia published the article “Impact of rise in buyer’s stamp duty falls mainly on luxury properties: Analysts”. Property agents said local and foreign buyers of residential and commercial properties won’t be deterred by the additional BSD.
“They panic, they think it’s a lot, but actually it’s not a lot,”
“The increase is not too significant, it’s not like it prices people out.”
“The increase in BSD payable is not excessive and it is not insurmountable for buyers.”
Is the increment in BSD really “not a lot”, “not excessive” and “not too significant”? Let’s do the sum for the new and previous BSD for a comparison.
For a $2 million home, the buyer is paying $69,600 in BSD and $5,000 more than before. If the home price goes up to $3 million, $4 million or $5 million, buyers are paying additional $15,000, $35,000 and $55,000 respectively. Total BSD jumps to $119,600, $179,600 and $239,600 respectively.
If the amount is still insignificant and not a lot, what about adding 17 percent to 35 percent ABSD on top of the new BSD?
To be frank, the large sum payable in advance from the new BSD really made me question my love for Singapore properties. As the saying goes, it’s not true love if they ask for money.
We put so much money into buying properties. Of course we expect a higher return or at least a reasonably good return. For investment, the higher transaction cost eats into yield. For owner occupation, higher stamp duties affect affordability.
No wonder the Channel NewsAsia reporter “called and/or visited a number of condominium showrooms in Singapore on Tuesday evening after the announcement, but they were either closed or empty.”
More rates hikes to come
Besides revenge tax hikes by the government. There is also revenge rate hikes by the banks.
In the first week of January, Singapore’s 3-month compounded SORA was still at 3 percent. When writing this post (February 20), it has already shot up 7.7 percent to 3.23 percent. For heaven’s sake, 3-month SORA was only 0.23 percent a year ago.
The latest US CPI and PPI released last week were higher than expected. Interest rate for 30-year fixed-rate mortgages immediately escalated from 6.39 percent a week ago to 6.83 percent now. CNBC said home loan refinance applications dropped 13 percent for the week. It was 76 percent lower than the same week a year ago.
Together with stronger employment data released earlier this month, all factors are signaling more aggressive rate hike by Fed. A strategist said Fed will drive rate all the way up to 8 percent. Goldman Sachs and Bank of America forecast Fed to raise interest rate three more times this year. UBS expects this will happen in Fed’s March and May meetings.
For those who bet on Fed’s rate cut, the brutal truth is slapping them left, right, and centre. Blind optimism is impractical. It doesn’t matter how reluctance we are. We still have to accept the fact that near zero-interest era is over. Mortgage rate is not under our control. We can only pray for the best, prepare for the worst, and expect the unexpected.
How to heal a broken heart after Budget 2023
The recent rounds of cooling measures have left a deep scar in the property market. From time to time we will still feel the pain. For property investors, the wound is opened every year when we receive a tax filing message from IRAS. They never fail to remind us no matter how hard we try to forget.
Below are three ways to heal a broken heart:
1. Everything happens for a reason.
Be open to see the picture not as it is right now. Know that everything in our life has a bigger meaning. As the government said, it “has to do the right thing to uphold sound management and stewardship of the country’s finances”. Wealth taxes ensure that our future generations “too will always have access to sufficient resources to meet any emergencies, as well as a steady stream of income for their future needs.”
2. Never fall in love with a property.
That property we can no longer afford to buy we may miss it very much. The home we love so deeply and it is hard to forget. Even so, at some point we have to move on.
No one is indispensable. No material thing is a must-have. Once we understand this, we will know that it is not a big deal after all if we can’t have the person or the “thing” we once thought we love so much. Life goes on.
3. Find someone (or something) better.
This is the best time to reflect and a chance to learn to be patient, disciplined and rational. One day, all the frustrations, doubting and waiting will make sense.
You buy a property because you like it a lot. But it is only a home. You buy a property because of its potential return. But it is only an investment. When the numbers don’t look right, walk away or cut loss without shedding a tear.
Sooner or later, you will find investment opportunities that make more financial sense. Someday you will also find another home that is more affordable and suitable for you.
And you will feel complete.
If you need advice on property matters or residential properties in Singapore, you can check out my personal consultation service.
My new book Behind The Scenes of The Property Market is now available for preview and order online. You can also check out my online courses.
How strange and yet appropriate you chose the theme of love to write about V Day. But that is over and done with now.
It is equally strange none mentioned about the men in white’s addiction for money, sorry revenues is the politically right context -i.e. relying on ever increasing amounts to satisfy their urge to pamper to demand for subdidies to be pandered elsewhere.
It is addiction none the less, adding to their coffers until it comes such a time when it is no longer sustainable or viable.
The issue now is how do you treat such addiction ?
Perhaps time for them to get a taste of their own medicine !
We have 28 days this month yet they have to pick Valentine’s Day to announce Budget 2023. How strange!
Billions have been spent on relief packages and monetary tightening. How to pump up reserves? Under inflation, they can’t print more money and keep interest rate low this time. The only option is to raise taxes. Everything comes with a price.
Now with risk-free asset (cash) yielding at 4% (who predicted this – cash can now generate returns too!) , we can look at other attractive valentine dates. 🙂
Falling in love with only one single asset class (and worse own stay with leverage) may end up heart-broken as well as financially-drained. I am really not sure we will go back to low interest era anytime soon.
Well said. Both guys and ladies have limited youth. So make sure that we don’t waste our time and resources investing in the wrong target with low or no return.