CGS-CIMB believes the higher taxes will have a negative impact on counters such as UOL Group, City Developments, Propnex and APAC Realty.
Nevertheless, given how the property stocks under the brokerage’s coverage are already trading at a hefty discount of 47% off their revalued net asset value, CGS-CIMB is keeping its “overweight” call on this sector.
In his maiden Budget speech on Feb 18, finance minister Lawrence Wong announced that property taxes for owner-occupied residential properties with an annual value in excess of $30,000 will also be increased from the current 4 -16% to 5 - 23% from Jan 1 2023, and to 6 - 32% from Jan 1 2024.
The government estimates that these moves will impact the top 7% of owner-occupied residential properties.
Meanwhile, non-owner occupied residential properties, held by owners for investment and rental income, will be harder hit. With effect from Jan 1 2023, the tax rates will be raised from 10 - 20% currently to 11 - 27%, and subsequently higher to 12 - 36% with effect from Jan 1 2024.
As an example, from a non-owner occupied residential property perspective, the change in tax rates for properties with an annual value of $30,000 - $100,000 could increase by 10 - 80% by Jan 1 2024 or by $300 - $11,200 per annum, or $25 - $933.3 per month.
“We expect some erosion in the rental yield on investment property, particularly for high-end segment. In our view, this could negatively impact demand and selling prices for larger properties in the high end in the near-term,” says Lim.
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However, with rental rates up by around 10% since 3Q2020 amid a lowered island-wide residential vacancy, rental rates could trend up to offset the increase in tax, she adds.
Photo: Samuel Issac Chua / The Edge Singapore
