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Showing posts with label Tax. Show all posts
Showing posts with label Tax. Show all posts
Monday, March 11, 2013
Tuesday, February 5, 2013
Property Cooling Measures Around the World
by SUSAN TEO
While we are familiar with the anti-speculative measures Singapore has rolled out, we may not be as knowledgeable about those taken by other countries. This article looks into what some other countries are doing to stabilise their real estate market.
Dubai, UAE (United Arab Emirates)
Since 2011, the residential property market in UAE showed signs of picking up after a sluggish spell between 2008 to 2010.
This prompted the Central Bank to issue a circular to limit the loan quantum for foreigners to 50% of the valuation for the first property purchase, and 40% for subsequent purchases. For citizens, the limits are pegged at 70% and 60%.
But the circular ignited fierce protests by commercial banks, causing the Central Bank to back down.
However, the Central Bank held onto intentions to introduce new mortgage regulations in the later half of 2013.
Malaysia
Despite Malaysia's liberal foreign homeowners-ship policy, it has a floor price of RM250,00 imposed on residential properties bought by foreigners. In 2010, in a bid to dampen escalating real estate prices, the Federal Government increased the minimum price to RM500,00.
However, State and Federal policies may differ.
In July 2012, the Penang state government raised the bar to RM1 million for apartments, RM2 million for landed properties on the island, and RM1 million for landed properties in Seberang Perai. Further, buyers under the Malaysia My Second Home scheme have a purchase cap of 2 units, with their minimum increased from RM250,000 to RM500,000.
Johor maybe following this trend. News has it that is contemplating upping the threshold to RM1 million as well, with changes to be announced later this year.
Another measure used to curb the flipping of properties is the RPGT (Real Property Gains Tax). The country introduced RPGT in 1977 for Malaysians and companies, and in 1980 for foreigners. RPGT is charged on the gains from the sale of properties that are sold within 7 years after purchase, with rates varying between 5% to as high 40%.
The Government granted a respite from RPGT between 1 April 2007 to 31 December 2009. After which, it was revised to 5% for sale within 5 years. From 2012, it was again changed to 10% for disposal within 2 years, and 5% for disposal between 2 and 5 years.
This year sees a further upward revision to 15% and 10% for a 2-year and 3- to 5-year holding period, respectively.
Hong Kong, China
To avert a property price bubble in the country's red-hot property market, since October 2009, the HK Monetary Authority has taken steps to tighten property mortgage lending across all types of properties.
The loan tenure is capped at 30 years for all new mortgages of any property type.
The loan-to-value (LTV) ratio cap varies from 40% to 70% for residential properties; depending on whether the properties are for owner-occupation or other uses, the value of the home, and if the borrower's income is mainly derived in HK or outside.
The other property types of commercial and industrial have their LTV ratio scaled down to 50% for no-outstanding-mortgage applicants whose income are mainly derived in HK, and 40% for those outside HK.
For borrowers whose income is mainly derived outside HK, and have an outstanding mortgage, their LTV ratio is 10% lower across all property types as compared to those without an outstanding mortgage.
The debt servicing ratio (DSR) cap is set at 50% (40%) for borrowers without (with) outstanding mortgage.
For the full details of these measures, please refer to HK Monetary Authority, “Frequently Asked Questions: J. Loans and Mortgages”.
In a further attempt to cool down the market, the Government imposed a 15% Buyer's Stamp Duty (BSD) on residential property bought from 27 October 2012 by non-Hong Kong permanent residents (i.e. foreigners and Mainland citizens) and companies, whether incorporated in HK or not.
Another measure to affect residential property bought from 27 October 2012 is the Special Stamp Duty (SSD). Introduced in November 2010, the buyer and seller of a property are jointly liable for it, and it ranges from 5% to 15% if the holding period is less than 2 years.
However, in this latest round of measure, SSD has been raised to vary between 10% and 20%, and the liable holding period has been extended to 3 years.
For further readings on BSD and SSD, visit HK Inland Revenue Department, “FAQ: Buyer's Stamp Duty (BSD)” and “FAQ: Special Stamp Duty (SSD)”.
The Government also pledged to increase housing supply and expedite sales of housings to meet increasing demand.
BSD aside, another policy targeting foreigners is the "Hong Kong land for Hong Kong people", under this policy the government prohibits foreigners from buying residential properties on 2 sites.
Mainland China
One of the world's largest economy, since 2010, this vast country has been implementing additional measures which run the gamut from financing rules, taxation to restriction on the number of properties that a household can own.
The measures specifically taken by each province and city may vary too. The below covers some of the more prominent measures, but is by no means an exhaustive summary.
The central government in Beijing took the lead in 2010 by mandating that households are allowed to buy only 1 extra home. The screw on this rule was further tightened in 2011 by restricting the number of homes local residents can own to 2, while non-Beijing registered families can only purchase 1 home after paying taxes for 5 consecutive years.
In the same year, the central government raised the minimum down-payment for a second home loan from 50% to 60% and introduced a pilot property taxes scheme in Shanghai and Chongqing. This property tax scheme is expected to spread to other cities.
Many cities across the country have also implemented some restriction or other on housing purchases. Specifically, Guangzhou and Shanghai limited the number of homes local residents can own to 2. From 2012, Guangzhou has also been more stringent in carrying out existing rules that prohibit foreigners from purchasing non-residential properties.
Read more articles at
PropertyBuyer.com.sg/articles
SingaporeHomeLoan.net/blog/
iCompareLoan.com/resources/category/faq/
While we are familiar with the anti-speculative measures Singapore has rolled out, we may not be as knowledgeable about those taken by other countries. This article looks into what some other countries are doing to stabilise their real estate market.
Dubai, UAE (United Arab Emirates)
Since 2011, the residential property market in UAE showed signs of picking up after a sluggish spell between 2008 to 2010.
This prompted the Central Bank to issue a circular to limit the loan quantum for foreigners to 50% of the valuation for the first property purchase, and 40% for subsequent purchases. For citizens, the limits are pegged at 70% and 60%.
But the circular ignited fierce protests by commercial banks, causing the Central Bank to back down.
However, the Central Bank held onto intentions to introduce new mortgage regulations in the later half of 2013.
Malaysia
Despite Malaysia's liberal foreign homeowners-ship policy, it has a floor price of RM250,00 imposed on residential properties bought by foreigners. In 2010, in a bid to dampen escalating real estate prices, the Federal Government increased the minimum price to RM500,00.
However, State and Federal policies may differ.
In July 2012, the Penang state government raised the bar to RM1 million for apartments, RM2 million for landed properties on the island, and RM1 million for landed properties in Seberang Perai. Further, buyers under the Malaysia My Second Home scheme have a purchase cap of 2 units, with their minimum increased from RM250,000 to RM500,000.
Johor maybe following this trend. News has it that is contemplating upping the threshold to RM1 million as well, with changes to be announced later this year.
Another measure used to curb the flipping of properties is the RPGT (Real Property Gains Tax). The country introduced RPGT in 1977 for Malaysians and companies, and in 1980 for foreigners. RPGT is charged on the gains from the sale of properties that are sold within 7 years after purchase, with rates varying between 5% to as high 40%.
The Government granted a respite from RPGT between 1 April 2007 to 31 December 2009. After which, it was revised to 5% for sale within 5 years. From 2012, it was again changed to 10% for disposal within 2 years, and 5% for disposal between 2 and 5 years.
This year sees a further upward revision to 15% and 10% for a 2-year and 3- to 5-year holding period, respectively.
Hong Kong, China
To avert a property price bubble in the country's red-hot property market, since October 2009, the HK Monetary Authority has taken steps to tighten property mortgage lending across all types of properties.
The loan tenure is capped at 30 years for all new mortgages of any property type.
The loan-to-value (LTV) ratio cap varies from 40% to 70% for residential properties; depending on whether the properties are for owner-occupation or other uses, the value of the home, and if the borrower's income is mainly derived in HK or outside.
The other property types of commercial and industrial have their LTV ratio scaled down to 50% for no-outstanding-mortgage applicants whose income are mainly derived in HK, and 40% for those outside HK.
For borrowers whose income is mainly derived outside HK, and have an outstanding mortgage, their LTV ratio is 10% lower across all property types as compared to those without an outstanding mortgage.
The debt servicing ratio (DSR) cap is set at 50% (40%) for borrowers without (with) outstanding mortgage.
For the full details of these measures, please refer to HK Monetary Authority, “Frequently Asked Questions: J. Loans and Mortgages”.
In a further attempt to cool down the market, the Government imposed a 15% Buyer's Stamp Duty (BSD) on residential property bought from 27 October 2012 by non-Hong Kong permanent residents (i.e. foreigners and Mainland citizens) and companies, whether incorporated in HK or not.
Another measure to affect residential property bought from 27 October 2012 is the Special Stamp Duty (SSD). Introduced in November 2010, the buyer and seller of a property are jointly liable for it, and it ranges from 5% to 15% if the holding period is less than 2 years.
However, in this latest round of measure, SSD has been raised to vary between 10% and 20%, and the liable holding period has been extended to 3 years.
For further readings on BSD and SSD, visit HK Inland Revenue Department, “FAQ: Buyer's Stamp Duty (BSD)” and “FAQ: Special Stamp Duty (SSD)”.
The Government also pledged to increase housing supply and expedite sales of housings to meet increasing demand.
BSD aside, another policy targeting foreigners is the "Hong Kong land for Hong Kong people", under this policy the government prohibits foreigners from buying residential properties on 2 sites.
Mainland China
One of the world's largest economy, since 2010, this vast country has been implementing additional measures which run the gamut from financing rules, taxation to restriction on the number of properties that a household can own.
The measures specifically taken by each province and city may vary too. The below covers some of the more prominent measures, but is by no means an exhaustive summary.
The central government in Beijing took the lead in 2010 by mandating that households are allowed to buy only 1 extra home. The screw on this rule was further tightened in 2011 by restricting the number of homes local residents can own to 2, while non-Beijing registered families can only purchase 1 home after paying taxes for 5 consecutive years.
In the same year, the central government raised the minimum down-payment for a second home loan from 50% to 60% and introduced a pilot property taxes scheme in Shanghai and Chongqing. This property tax scheme is expected to spread to other cities.
Many cities across the country have also implemented some restriction or other on housing purchases. Specifically, Guangzhou and Shanghai limited the number of homes local residents can own to 2. From 2012, Guangzhou has also been more stringent in carrying out existing rules that prohibit foreigners from purchasing non-residential properties.
Read more articles at
PropertyBuyer.com.sg/articles
SingaporeHomeLoan.net/blog/
iCompareLoan.com/resources/category/faq/
Thursday, January 31, 2013
Things You Should Be Aware of in Commercial Property Purchases
by SUSAN TEO and PAUL HO
With the host of cooling measures rolled out in the residential market by the Singapore's government to avert a property price bubble, investors are gleaning more investment potential in commercial properties. This segment of properties is exempted from Additional Buyer's Stamp Duty (ABSD), Seller's Stamp Duty (SSD) and restrictions on foreigners' ownership – all of which affect the residential market.
In Singapore, there are two ways to buy a commercial property:
This means the downpayment has to be wholly funded by cash.
For the loan repayment, you will have to be prepared to incur cash outlay if the rental yields are inadequate (assuming that you are planning to lease out the property).
But if you fail to lease out the commercial space, you may apply for a vacancy refund of the property tax. This vacancy refund also applies to a residential property.
However, if you are a GST-registered company - all companies with a turnover exceeding S$1million have to register for GST – you can make claims for the GST incurred on your purchases. Thus shrewd individual investors may set up companies expressly for a financial transaction, termed as Special Purpose Vehicles (SPVs), to circumvent the GST payment.
For companies with turnovers below S$1million, GST-registration is on a voluntary basis, subjected to certain requirements. Do note that being GST-registered comes with responsibilities. Check out what these are at IRAS.
Notably, the GST cannot be financed by the property loan. Buyers will have to stump up cash for this.
Generally, the maintenance charge for a commercial unit is expected to be higher than for a residential property. Also, more may need to be splurged on basic setup, particularly for shop units leased out for business.
An exception are HDB shops with their lower maintenance fees of S$170 to S$250. But these properties tend to come with more restrictions such as the type of businesses permitted. Applications must also be made for renovation.
Still, small supply and strong demand can drive up the asset value of strata commercial property, making them worthwhile buys.
In land-scarce Singapore, strata-titled shops/offices are in limited quantity because most of the commercial spaces are owned by real estate investment trusts (REITs), and many of these REITs are in turn owned by the Government through proxies. As of 4Q2011, the supply of strata-titled offices in Singapore is estimated to be of 11.05 million sq ft, making up 14.2% of the total office stock (Bright Spot in Singapore Property Market: Strata-titled Office, Colliers International,pg 2). The stock of strata-titled shops also faces a similar small supply.
In addition, the slew of regulations in the residential market has diverted investors' attention to the commercial sector. Together with today's low interest rate environment, the two have fuelled demand.
Thus investors can make capital gains through direct sales.
Some investors are also looking toward en-bloc sales to make profit. In April 2012, in collective sales, strata office units at Parkway Centre and Burlington Square sold for $1,043 per sq ft and $1,318 per sq ft, respectively.
Besides capital gains, investors maybe hoping to profit from rental yields. However, official statistics on the occupancy rates for strata-titled shops and offices are not available. This makes reliable estimation of rental demand in the past, present and future difficult. Hence investors should be cautious if they are looking to profit from this avenue.
All in all, with more supplies coming on-board - either from strata or non strata developments - downward pressure on property values and rental is possible. Hence, only selective buys are recommended.
For purchases made under a private limited or LLP company, the financiers will evaluate if the company has a cash flow record over the past few years that is sufficient to fund this investment. For instance, a company earning a monthly profit of S$15,000 deposits it into the company's account in a timely manner, the lenders can, thus, lend up to 60 to 80% (typically) of this S$15,000. In other words, you can obtain a loan up to 60 to 80% of the debt servicing ratio (DSR). This is much higher than the DSR for residential property bought by an individual.
Conversely, buying under a private limited or LLP company without adequate cash flow or profit (or if the companies are special purpose vehicles), may result in the banks requiring that the directors guarantee any loans taken by the company under their individual capacity. The directors may also need to be Permanent Residents or Singaporeans. In many cases, these directors will need to furnish documentary proof that most of their incomes are derived from that company. If they earn their income from elsewhere, some banks will not grant the loan even with them as guarantors. While others may.
From time to time, credit officers of the financiers will impose new rules and conduct additional documentation checks. Often, credit officers may ask for more supporting documents if they want to do tighter cross checks.
Read more articles at
PropertyBuyer.com.sg/articles
SingaporeHomeLoan.net/blog/
iCompareLoan.com/resources/category/faq/
References
Michelle Tee and Koh Siok Hui, Bright Spot in Singapore Property Market: Strata-titled Office, Colliers International White Paper March 2012, Web
With the host of cooling measures rolled out in the residential market by the Singapore's government to avert a property price bubble, investors are gleaning more investment potential in commercial properties. This segment of properties is exempted from Additional Buyer's Stamp Duty (ABSD), Seller's Stamp Duty (SSD) and restrictions on foreigners' ownership – all of which affect the residential market.
In Singapore, there are two ways to buy a commercial property:
- As an individual or;
- As a corporation [via private limited or limited liability partnership (LLP)]
No utilisation of Central Provident Fund (CPF)
If you are making the purchase as an individual, do bear in mind that you cannot dip into the savings in your Ordinary Account of the Central Provident Fund to settle the downpayment or monthly loan instalment for the commercial property.This means the downpayment has to be wholly funded by cash.
For the loan repayment, you will have to be prepared to incur cash outlay if the rental yields are inadequate (assuming that you are planning to lease out the property).
Property tax
Same as for a second residential property, or an only residential property that is wholly rented out or left vacant, the tax is a flat 10% of the annual value of the property.But if you fail to lease out the commercial space, you may apply for a vacancy refund of the property tax. This vacancy refund also applies to a residential property.
Goods and services tax (GST)
Unlike for residential properties, the buying of commercial spaces from a GST-registered company is subjected to a 7% GST. An individual making the purchase will have to bear the GST himself.However, if you are a GST-registered company - all companies with a turnover exceeding S$1million have to register for GST – you can make claims for the GST incurred on your purchases. Thus shrewd individual investors may set up companies expressly for a financial transaction, termed as Special Purpose Vehicles (SPVs), to circumvent the GST payment.
For companies with turnovers below S$1million, GST-registration is on a voluntary basis, subjected to certain requirements. Do note that being GST-registered comes with responsibilities. Check out what these are at IRAS.
Notably, the GST cannot be financed by the property loan. Buyers will have to stump up cash for this.
Rental yield and capital gains opportunities
It is estimated by Colliers Internationals that the yearly average gross yield of commercial spaces approximates 5%, compared to 2-3% for residential property. However, this higher gains can be offset by the steeper maintenance cost and renovation works generally required by tenants.Generally, the maintenance charge for a commercial unit is expected to be higher than for a residential property. Also, more may need to be splurged on basic setup, particularly for shop units leased out for business.
An exception are HDB shops with their lower maintenance fees of S$170 to S$250. But these properties tend to come with more restrictions such as the type of businesses permitted. Applications must also be made for renovation.
Still, small supply and strong demand can drive up the asset value of strata commercial property, making them worthwhile buys.
In land-scarce Singapore, strata-titled shops/offices are in limited quantity because most of the commercial spaces are owned by real estate investment trusts (REITs), and many of these REITs are in turn owned by the Government through proxies. As of 4Q2011, the supply of strata-titled offices in Singapore is estimated to be of 11.05 million sq ft, making up 14.2% of the total office stock (Bright Spot in Singapore Property Market: Strata-titled Office, Colliers International,pg 2). The stock of strata-titled shops also faces a similar small supply.
In addition, the slew of regulations in the residential market has diverted investors' attention to the commercial sector. Together with today's low interest rate environment, the two have fuelled demand.
Thus investors can make capital gains through direct sales.
Some investors are also looking toward en-bloc sales to make profit. In April 2012, in collective sales, strata office units at Parkway Centre and Burlington Square sold for $1,043 per sq ft and $1,318 per sq ft, respectively.
Besides capital gains, investors maybe hoping to profit from rental yields. However, official statistics on the occupancy rates for strata-titled shops and offices are not available. This makes reliable estimation of rental demand in the past, present and future difficult. Hence investors should be cautious if they are looking to profit from this avenue.
All in all, with more supplies coming on-board - either from strata or non strata developments - downward pressure on property values and rental is possible. Hence, only selective buys are recommended.
Tenure
Commercial/shop spaces in Singapore usually comes with 30-, 60-, 99-, or 999-year lease. Some may be freehold. For 99-year and shorter leasehold units, buyers should be mindful that financing institutions may quote a lower loan quantum for units running low on their lease.Loans
Borrowers for commercial properties are allowed to take a loan-to-value ratio (LTV) of up to 80%, even with outstanding residential mortgages. The maximum loan tenor typically stands at 30 years. However, loans for commercial property tend to command a higher interest rate relative to residential property loans. Like the latter, these loans come in- Fixed Rate Package
- Variable (Floating) Rate Package
Credit worthiness and approval for commercial loans in Singapore
For purchases made under your name only your income, outstanding debts and credit history will be assessed. The maximum LTV ratio for a commercial mortgage is set at 80%, even with existing housing mortgages. But financing institutions will take a holistic approach in deciding whether to grant you a 80% loan.For purchases made under a private limited or LLP company, the financiers will evaluate if the company has a cash flow record over the past few years that is sufficient to fund this investment. For instance, a company earning a monthly profit of S$15,000 deposits it into the company's account in a timely manner, the lenders can, thus, lend up to 60 to 80% (typically) of this S$15,000. In other words, you can obtain a loan up to 60 to 80% of the debt servicing ratio (DSR). This is much higher than the DSR for residential property bought by an individual.
Conversely, buying under a private limited or LLP company without adequate cash flow or profit (or if the companies are special purpose vehicles), may result in the banks requiring that the directors guarantee any loans taken by the company under their individual capacity. The directors may also need to be Permanent Residents or Singaporeans. In many cases, these directors will need to furnish documentary proof that most of their incomes are derived from that company. If they earn their income from elsewhere, some banks will not grant the loan even with them as guarantors. While others may.
From time to time, credit officers of the financiers will impose new rules and conduct additional documentation checks. Often, credit officers may ask for more supporting documents if they want to do tighter cross checks.
Read more articles at
PropertyBuyer.com.sg/articles
SingaporeHomeLoan.net/blog/
iCompareLoan.com/resources/category/faq/
References
Michelle Tee and Koh Siok Hui, Bright Spot in Singapore Property Market: Strata-titled Office, Colliers International White Paper March 2012, Web
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