Wednesday, January 30, 2013

Property cooling measure round #8: Capital Gains Tax...?

It is a well-publicized fact that Singapore do not have a capital gains tax regime. Even our Malaysian neighbour has a Real Property Gains Tax, which imposes a 15% tax on gains from sales of property bought within 1 -2 years; 10% for those bought within 3 - 5 years and zero tax if one has held on to the property for more than 5 years.

One of our readers has suggested that the most effective way to cool our red-hot property market is via a capital gains tax. 

The wife and I must admit that we do not know enough on the subject and our quest for answers (from the internet) thus far has revealed little.

So we are opening the questions to our readers:

1. Do you feel that a capital gains tax will be more effective than the measures that have been implemented (e.g. lower LTV, additional stamp duties) to cool the property market?

2. If so, why has the Government not taken revisited this option?


K said...

But the Govt did in 2010-11 introduce Seller's stamp duty payable on sold property which was held less than 4 yrs...

Anonymous said...

1996 the Govt took this option. Mkt free fall....

Jay said...

1. yes, quite effective, especially if staged towards long-term investors as you described
2. because the ministers own lots of property themselves..

Anonymous said...

In 2011, when cooling measures were annouced, one new minister put an option fee for property at Newton. To BUY.

The Folks @PropTalk said...

A stamp duty is not quite the same kettle of fish as a tax on capital gain.

Anonymous (30/1/13, 4:26PM):
Many thanks for your comments. Yes, a capital gains tax was indeed introduced in 1996 and subsequently lifted 2001. And yes, the effects on property prices were quite severe after the implementation. But we also wonder if the problem lies with the method or the manner that it was implemented?

Anonymous said...

Well sellers stamp duty is actually similar to a capital gains tax and the government just wants to call it differently because they still want to promote SG as a "capital gain tax free" country for foreign investors.

But the problem is, the SSD amount is too low. For example, if you sell your home after holding for 3 years it is 8% SSD. But currently in 3 years the psf price can go up to $300 psf! So even if you have a small place like 500sqf and it goes up by $300 psf you make S$150,000 and then pay the 8% SSD and you still earn S$138,000! Who does not want that and is the real problem...

The Folks @PropTalk said...

Hi Anonymous (30/1/13, 11:53PM),

We beg to differ: the two may be similar in nature (i.e. both are a form of "tax" and the money go to the Government) but the effects are quite different.

Based on our understanding, one needs to pay the additional sellers' stamp dutyas long as you sell the property within the stipulated period, irrespective of whether he/she makes a profit out of the sale. But a capital gains tax will only be applicabe if there is profit (i.e. capital appreciation) when the subject property is sold.

Anonymous said...

I agree that capital gain tax is only applicable if there is a profit when the property is sold. So technically, additional seller's stamp duty is a even stronger measure than capital gain tax, because whether there is a gain or loss when selling the property, the stamp suty will be imposed.

So stamp duty is more effective. The question is only the percentage of the stamp duty.

Anonymous said...

Yes the tax on sellers was very drastic. I purchased a property then and wanted to sell at a slight loss but the stamp duty made me hold on to my property. I am still holding on with some profit.

Anonymous said...

Yes seller's stamp duty is a much much STRONGER & HARSHER than capital gains tax! SSD taxes u even if u don't make profits & u have to hold on to yr property for at least 4 years (if u don't wana be taxed). It's true that if yr property gains are much higher than the SSD, u can still make profits, but who can guarantee property always make money??

Anonymous said...

Just to give an example of why SSD is harsher than CGT:
U purchased a condo for $2million. And a year later, it increases to $2.5million. U wish to sell it to make profits. Assuming CGT=SSD=16% for 1st year,
1. Under CGT, u r only taxed 16% of $500,000 = $80,000.
2. But under SSD, u r taxed 16% of $2.5million = $400,000!!!

Fergus said...

In my opinion, the 2 ways have very different effects on the mindset.

If you were an investor that believes the property market in Singapore will be in a long term uptrend, you will still buy, regardless of the SSD.

However, let's say if there is a 30% capital gains tax, this essentially makes real estate a less attractive investment vehicle VS alternative asset classes.

So this boils down to what is the resultant mindset and consequence we are looking for.

SSD was a good measure, because the idea is they didn't want people to buy and flip properties for quick gains. This essentially jack up the prices for the 'real' buyers who are looking to buy for own stay, or for rental investment. Flipping essentially exacerbate the inefficient information theory, since it will be those who have access to the deals who will try to catch a quick one out of the deal.

If there was capital gains tax, the basic premise would be that the government wanted to deter people have investment property altogether. This is perhaps why it caused a steep decline back then. What will be the effect now? Nobody knows.

People who say SSD is stronger and harsher are purely focused on the 1 year effect. They have very very different effect I might say.

PS: Love reading your website! :)

Anonymous said...

SSD is a 1 year effect? SSD is a 4-year effect! Just the example above, a one time SSD amt of $400,000, could pay 5 times of CGT amt of $80,000... Not harsh? Seriously!

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