SINGAPORE - When investors buy an overseas property, they look not just at total returns but also at liabilities - especially taxes on acquisition, holding, and exiting.
A Knight Frank analysis report released on Friday has found that the more mature and open markets of Hong Kong and Singapore have some of the highest tax burdens on foreign investors, on top of their already significantly more expensive homes in both land-scarce markets.
Conversely, South Korea, Thailand and Malaysia have more benign tax regimes, while Cambodia has some of the lowest tax burdens on residential property investments in the region.
New taxes are introduced not just to help the government balance its books, but also as a macro-prudential tool to cool residential markets which have been buoyed by stimulus measures and historically low interest rates, said Nicholas Holt, Knight Frank's head of research for Asia Pacific.
"The strong price growth in a number of these markets has led to numerous rounds of interventions by policymakers as they look to address the issues of affordability and household debt, with tax being one of the key tools at their disposal," he said.
In Singapore, the effect of such cooling measures have started to kick in. Private residential property prices fell about 4 per cent last year, coming dangerously close to 2008's 4.7 per cent price decline.
But Hong Kong's cooling measures have been less successful in engineering a market slowdown. Home prices still surged to a record last year, advancing 12 per cent for the first 11 months, led by smaller-sized units.
An expected interest rate hike in 2015 and strong supply in coming years may limit further increases in their capital values, however.
Foreigners buying a property in Singapore and Hong Kong both face higher buyer's stamp duty (at 15 per cent) compared to locals.
Foreign buyers in Singapore also pay a higher rental income tax.
Interestingly, Japan is the only country that bills locals more, as its local inhabitant tax is levied only on residents.
Some markets also charge an "investment premium" - essentially an additional tax that a buyer pays on the property as an investor instead of as an owner-occupier.
The premium varies between foreign and local buyers. Other markets such as Cambodia, Japan, Malaysia and South Korea do not impose such an investment premium on either local or foreign buyers.
Looking ahead, Mr Holt said he is not ruling out future changes to fiscal policy.
"In November 2014, we saw the Chinese authorities try to stimulate the market with monetary policy . . . Elsewhere, a market slowdown could see policymakers tweak some of the taxes brought in over the last few years," he said.
The full research report is available on BTInvest (http://www.btinvest.com.sg/ property/).
This article was first published on January 10, 2015.
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Monday, Jan 12, 2015
The Business Times
Source: AsiaOne (12 Jan 2015)