Singapore and Hong Kong have imposed the heaviest tax burden on foreign property buyers amongst Asia Pacific markets, according to a Knight Frank report.
“In terms of tax burdens on foreign investors, our analysis indicates that the more mature and open markets of Hong Kong and Singapore have some of the highest, while Cambodia, South Korea, Thailand and Malaysia have more benign tax regimes,” the report said.
Assuming that a foreigner buys an apartment worth US$500,000 as his first investment in a particular country on 1 January 2015 and sells it after five years, his tax in Singapore will account for nearly 30 percent of the total price, while in Hong Kong it is slightly above 20 percent.
Foreign investors in both cities also shoulder a significantly heftier tax burden than their local counterparts. In fact, the tax for Singaporeans and Hong Kong nationals comprise about 16 percent and 7.0 percent of the overall unit price respectively.
On top of that, both markets have the highest tax on property investments sold after two years. In Singapore, the average annual tax burden for such transactions comprises slightly more than 16 percent of the total residential price, while it is nearly 16 percent in Hong Kong.
On the other hand, the average annual tax burden for foreign property investments sold after five years stands at nearly 12 percent for Singapore and 8.0 percent for Hong Kong.
“In Hong Kong and Singapore, divesting a property two years after purchase incurs Special Stamp Duty and a higher Seller’s Stamp Duty respectively, both designed to deter speculation,” Knight Frank noted.
Meanwhile, Australia has the largest ‘investment premium’ or disparity between the tax for owner-occupied properties and those bought for investment purposes. If a foreigner buys a property there that will be leased rather than for own-use, he is subject to 7.4 percent more taxes. But if the residential unit is the second property purchased, then Singapore has the highest investment premium of nearly 9.0 percent, followed by Australia at 6.0 percent.
Notably, the tax burden includes stamp duties, property taxes, rental income tax, value added tax (VAT), capital gains tax and other applicable levies. The hypothetical residential investment also assumes that the property’s value rises by 2.0 percent per annum and has a yield of 4.0 percent. Other considerations are the apartment was leased out immediately upon purchase for two or five years, the owner has no additional income besides rent, and there is no further capital expenditure.
Romesh Navaratnarajah, Singapore Editor of PropertyGuru Group, edited this story. To contact him about this or other stories email romesh@propertyguru.com.sg
Source: PropertyGuru (6 Jan 2015)