REDAS asks for review of property tax in Budget 2017
By Michael Lim
Tan: We saw renewed interest in property launches in recent months but it is still too soon to conclude that a market recovery is in sight,
The Real Estate Developers' Association of Singapore (REDAS) has called on the government to review the property tax regime. The association is asking the government to reduce property tax for vacant land; tax exemption for land under development and those that have yet to commence development; tax exemption on buildings undergoing renovation, provide tax concessions for vacant properties; and to make the valuation process more transparent.
It has also proposed that the current basis of tax assessment for vacant land be reviewed to reflect the land's lease term. The other items on REDAS’ budget wish list includes reducing business cost and regulatory fees, as well as to provide special training grants to enhance maintenance skills and technical expertise.
Augustine Tan president of REDAS says the proposals were made on concerns that Singapore’s open economy is vulnerable to external shocks and negative sentiments can weigh heavily on the property market. “These considerations will go a long way to help companies contain costs and ensure business sustainability,” says Tan, who was elected as president of REDAS for a second two-year term for 2017/18.
‘Still too soon to conclude that a recovery is in sight’
However, the most notable absentee from the association’s budget wish list was a request to review of the cooling measures for the residential sector. “We saw renewed interest in property launches in recent months but it is still too soon to conclude that a market recovery is in sight,” says Tan.
Transaction volume of new private homes has fallen 50% from 15,900 units in 2011 to just below 8,000 units in 2016. Industry experts are forecasting that the private residential sale volume for this year to come in between 7,000 and 8,000 units.
He says the 2017 outlook remains murky with uncertainties surrounding global geopolitics and macroeconomic developments. “With the weakened labour market, slower growth in employment and earnings, declining population growth, coupled with the prospect of rising interest rates, the current slowdown is expected to continue this year," adds Tan.
Slower sales also meant the number of unsold homes remains high. “Although there is a reduction in pipeline supply to some 41,000 private residential units at the end of last year, nearly half still remain unsold,” says Tan.
At the current sales level, it will take three years for the existing stock to be absorbed, barring unforeseen circumstances, he warned. The large unsold stock has also translated to a higher vacancy rate. According to URA’s 4Q2016 data, vacancy rate for private homes was at 8.4%. That is close to the high of 8.6% in 2005 when there was an oversupply of private housing stock and this has inadvertently put pressure on rents, which fell 4%, notes Tan.
Persistent oversupply situation affecting all sectors
The persistent oversupply situation, rising vacancy rates and weak demand is affecting all segments of the property market. Office prices and rentals have also come under pressure due to oversupply and lackluster demand, falling 2.8% and 8.2% respectively in 2016. Island-wide vacancy rate at the end of 4Q2016 rose to 11%, which is close to the last high of 11.7% in 1Q2012.
The retail sector is also hurting, with vacancy rate spiking from 4.5% in 4Q2013 to 7.5% in 4Q2016. Industry experts are forecasting a ‘bumpy ride’ ahead with vacancy rate hovering around 8% to 10%.
In the industrial sector, demand for industrial space has also been lackluster. Supply has outstripped demand for seven consecutive quarters on the back of weak rents and soft capital value. Industrial prices had fallen 9.1% y-o-y, while rents have fallen 6.8% y-o-y. Vacancy rate rose to 10.5% at the end of 2016 compared to 9.4% in 2015.
This year's Budget will be announced on Feb 20. REDAS says it looks forward to contributing to key areas drawn up by the committee on the future economy, including developing and adopting digital capabilities for the real estate industry and to play a part in developing Singapore into a connected and sustainable city.
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