Tax on empty homes; remedy for supply crunch for renters?
Would a tax on empty homes in residential properties in Singapore motivate owners to lease out their vacant units? And hence pump up the supply into the rental market, the article from Institute of Real Estate and Urban Studies (Ireus) said.
This may potentially encourage owners to find a tenant to avoid getting taxed while investors may avoid from purchasing the properties altogether.
“It is much like pushing idle money into circulation in the economy, an empty homes tax may also push idle homes into circulation in the rental market. In theory, this may then have the potential to improve housing availability for renters in Singapore,” said Ireus director Qian Wenlan.
Increasing supply to reduce rents
Ireus is a research institute at the National University of Singapore (NUS). It conducts real estate and urban economic research. The newsletter released by them are largely read by those working in the real estate industry and NUS faculty members.
An article first published on 29th September 2023 studied how empty homes which are common in some Canadian cities could be applied to Singapore. How it increase supplies an in the rental market. As supply increases, rents may come down.
Housing Development Board rents increase for the 38th consecutive months as at August 2023. While private condominium rents take a dip by 1% in August it rose 17.3 % year on year.
Rents rose during Covid-19 pandemic
The crunch in supply of new homes due to delays in construction and increase in demand from Singaporeans coming back from overseas due to the pandemic inevitably made rents climb.
In Singapore property tax for owner occupied properties are subjected to lower tax rates compared to those that were leased out. Tax rates are progressive and residential properties assessed with higher annual value are taxed at higher. The lower owner occupied rates are meant to encourage home ownership in Singapore according to the IRAS website.
“It is not unexpected that housing taxation have thus far focused on encouraging wide spread ownership among the population at large. At the same time managing the distribution of homes via fiscal measures to ensure that the housing stock is not overly concentrated among a selected minority of rich landlords.,”said Qian.
For Singaporeans purchasing their 2nd property the Additional Buyer Stamp Duty payable is 20% and 30% for the 3rd and subsequent properties.
The Ireus article went on to explain that while Singapore’s property tax regime distinguishes between owner occupied homes and it does not take into account tenancy status.
According to recent research paper published in January 2023 by Lu Han, Derek Stacy and Hong Chen , the empty homes tax implemented in Vancouver in 2017 increased the availability go rental housing in the city.
The tax is currently fixed at 3% of a vacant property’s assessed taxable value annually and a property is considered empty if it has been unoccupied for a minimum of 6months in the year with some exceptions.
Studies on empty homes in Vancouver
The 3 researchers developed a mathematical model. They compared listings and prices of residential rentals in Vancouver before and after the introduction of the empty home tax. The findings showed that the listings increased initially when the the empty home tax was introduced and then it fell thereafter but the effect was not conclusive.
The empty home tax also distorted incentives for landlords as they face the risk of having their properties considered as vacant after 6 months. It has instead skewed supply towards the rental market where take up rates were mostly higher according to the Ireus articles.
In short, the empty homes tax could worsen both the availability and and affordability of owner occupied homes.
This situation runs contrary to the objective of encouraging widespread home ownerships here in Singapore. Hence more thought needs to be put into before an empty homes tax in Singapore is introduced, Ireus commented.
It is unsure how authorities will be able to determine that homes have been vacant for long periods and not just temporarily empty. It may be difficult for them to enforce such tax.
As for Vancouver the 6month deadline needs to be tweaked and adjusted to ensure there is a healthy supply of homes for owner occupation and rent.
As of Q2 of 2023, the vacancy rates of completed private residential (excluding executive condominiums) in Singapore stood at 6.3% from 6% in Q1 of this year.
Article credit to businestimes.sg