New property policies could badly hurt investment demand

You'll be surprised at the tax rates.

According to Knight Frank, the new property tax policies are akin to 'another shot' on top of the existing cooling measures, which could discourage purchase of private properties for investment purposes, while having a marginal impact on owner-occupied residential properties.

Under the new policies, property tax rate for non-owner-occupied residential properties and vacant residential properties are more than twice the rate for owner-occupied properties, given similar Annual Value (AV).

Here's more from Knight Frank:

For example, a property with AV of $60,000 will be subject to property tax rates of up to 5 or 6 per cent if it is occupied by the owners; or up to 13 or 14 per cent if it is leased out or vacant.

In another case, a property with AV of $70,000 will be subject to property tax rates of up to 6 per cent if it is occupied by the owners and up to 15 per cent or 16 per cent if it is leased out or vacant.

In terms of property tax payable, investment properties will also see higher increase compared to owner-occupied properties. For example, a $12,000-AV property saw a decline of 33 per cent in payable tax quantum if it is owner-occupied but saw no change in payable tax quantum if it is leased out or left vacant.

A property of $100,000 AV will experience 23 per cent tax increase under owner-occupation status and 40 per cent tax increase under investment status.

Holding costs for residential homes as an investment asset become higher with this new property tax regime. While ABSD is a one-off initial cost, property tax is an annual expenditure, which adds a fair bit of costs to high-end home owners and investors.

The removal of property tax refund concession for vacant properties further discourages speculators and short-term investors who look for capital gains rather than long-term investment returns.

These buyers can no longer claim tax refund by leaving their units vacant, and letting out is another way to mitigate holding cost with a rental income stream.

With lease contracts varying from 1-year to 3-year term and coupled with initial fitting out costs, it might be more worthwhile for investors to hold their units over a longer period to plough back costs than flipping vacant units for quick capital gains.