Annual values of homes reflect market rents

We thank Mr David Goh Chee Hoe ("Home prices down, yet property tax unchanged"; Dec 2) and Mr Paul Chan Poh Hoi ("Tax-free property annual value set too low"; Dec 5) for their feedback. We also refer to last Thursday's report ("Property tax cut for one in four private home owners").

The property tax is a wealth tax, levied on property ownership. In determining the value of a property for this tax purpose, we use its annual value (AV) as determined by market rentals of comparable properties, rather than property prices.

This leads, in practice, to considerably less volatility in AVs and property tax payable, as rental values are more stable than property prices. An illustration of this: While the private residential property price index has increased by 56 percent since 2009, the Urban Redevelopment Authority (URA) Rental Index shows an increase of 21.5 percent over the same period.

The AV of Mr Goh's property has not been revised upwards or downwards for a few years, as the market rents of similar properties in the locality have remained relatively stable, despite a significant increase in prices of such properties over the period.

Home owners can visit the URA website (at www.ura.gov.sg >e-Services >Property Market >Check Rental Contracts of Private Residential Properties) to find out rental trends for private residential developments.

In keeping with the prevailing market rents, the AVs for about 26 percent of private residential properties will be reduced from Jan 1 next year, while about 1.4 percent will have their AVs increased.

The AVs of the remaining private residential properties will remain unchanged. We have also reduced the 2015 annual values of HDB flats by 3 percent to reflect the dip in HDB market rentals.

In determining AVs for a property based on market rentals in the same locality, we take into account differences among the homes, for example whether a home has been newly built, or has a swimming pool, leading to higher market rentals. Mr Chan suggested raising the tax-exempt AV band for owner-occupied properties. The tax-exempt AV was raised from $6,000 to $8,000 this year, as part of a more progressive property tax regime, allowing most owner-occupied properties to enjoy tax savings.

For example, three-room HDB flat owners will pay a property tax of $1.60 to $49.60 for next year, about $42 lower than what they paid two years ago.

The Inland Revenue Authority of Singapore will continue to monitor and reflect prevailing market rental conditions in its assessments of annual values.

Kelly Wee (Ms)

Director (Corporate Communications)

Inland Revenue Authority of Singapore

This article was first published on December 15, 2014.
Get a copy of The Straits Times or go to straitstimes.com for more stories.