Month: December 2023

Experts say that although the average household’s net worth continues to grow, it could be put under pressure by rising costs of living.

The Department of Statistics reported that the net worth of households rose 7.6 percent to $2.72 billion in the third quarter of the year 2023, but people have been saving less money and their credit card debt is on the rise.

The net worth of a household is the amount left over after all debts have been paid.

A household that has a positive networth is one with more assets than liabilities. This gives it some cushion against unplanned emergencies.

Credit card debt, for example, is a liability. Savings are part of the household’s assets.

The latest Financial Stability Review by the Monetary Authority of Singapore showed that in November, the average personal saving rate in Singapore dropped to 34.6% in the third quarter.

This is above the average long-term of 31%, but it is still down 0.5 percentage points from the same time last year.

The decline in savings is a result of a growth in private consumption spending by 8.4% year-on-year in the third quarter, to $52.7 billion.

Singapore’s consumer price index for all items (CPI) increased to 4.7 percent on an annual basis in October. This is up from 4.1 percent in September.

Core inflation, which excludes private transportation and accommodation, increased to 3.3% in October from 3.0% in September. This reversed five consecutive months of slower growth.

Singaporeans also take advantage of the stronger currency to spend more money on travel abroad.

The CPI data revealed that in October, holiday expenses jumped 7.8% on an annual basis. This was behind only private transportation (11.7%) and alcohol drinks and tobacco (11.1%).

Credit card debt has increased due to the increase in spending.

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According to the most recent household balance sheet data, credit card debt was 3.8 percent of household liabilities. This is 0.4 points below its long-term median of 4.6 percent.

The total household liabilities as a percentage of disposable personal income has been trending lower for eight consecutive quarters due to a combination of lower debt and continued income growth.

Home loans account for 73,9% of average household liabilities. This could indicate a possible downturn on the housing market after months of increasing property prices.

The maximum amount that a household may borrow is determined by the loan-to-value.

The maximum amount of a loan is 75 percent for a bank and 80 percent for the Housing Board.

In general, a downturn in the property market results in a higher loan-to value ratio. This makes it more difficult for homeowners to refinance at a time when interest rates are rising.

While economists are concerned about lower-income families, they also worry about higher-income households.

Poorer households spend more of their incomes on necessities like food, utilities, and transportation.

HDB caught 150 apartment owners between 2018 and 2022 for investing in private properties even though they lived in their flats for less that five years.

Estate agents either misled or ignorantly told many that trust schemes did not have restrictions on purchases, since the purchasers were not buying properties for themselves.

In one case, a couple that had only lived in an HDB apartment for three years wanted invest in a home for private use even though it was not permitted for two more years.

Their estate agent told them that they could purchase the additional property and put it in trust for their child. They were also convinced that the HDB rules would not be broken because the child was the beneficial owner.

The couple didn’t know they had been given inaccurate information because HDB regulations state that an owner still under MOP can’t buy a private home even if the property is being held on trust for someone else.

Unaware of the situation, the couple bought a condo unit. The developer had also employed another agent, so the agent received $7,000 or half the commission.

The HDB informed the couple in February 2020 that they were in violation of MOP rules for buying a private house within the period of prohibition and they could be fined or have their apartment seized by HDB.

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They were ultimately ordered to pay $45,000 in penalties, which was paid as a lump-sum with a cashier’s order.

The agent was found guilty for failing to carry out his work and conduct business with due diligence when he incorrectly told the couple they could purchase the extra house on trust for their son during the MOP of the flat.

The judge ordered him to pay $10,000 as a penalty and legal fees.

Websites of the respective agencies provide information on HDB flats, including the stamp duty payable when investing in property.

It is important that all owners check the rules before dealing with an asset of value. This will ensure they do not become ignorant or fall victim to agents who haven’t done their homework.

These cases demonstrate that you could end up paying a heavy price if caught doing something you could have avoided if only you checked yourself.

A clever property investor devised a “foolproof scheme” – purchase a brand new public housing unit and hire a shady estate agent to then rent out the entire thing, blatantly disregarding HDB regulations. What could go wrong?

As it turns out, pretty much everything. Even though it provides the rest of us a great example of penny-wise pound-foolish behaviour.

The owner of a five-room HDB apartment thought he would be able to circumvent the Housing Board’s minimum occupancy period (MOP), a five-year requirement for most flats. He did this because he had found a realty agent who was willing to go above and beyond.

The agent submitted a fake tenancy contract to cover the crime.

The ruse was discovered a mere month after tenants moved in. HDB seized the flat of the owner, while the rogue estate agent was fined by CEA and suspended.

On the CEA’s website, cases of professional misconduct are highlighted. These serve as warnings to homeowners and offer valuable lessons for protecting their investments.

It is a mistake to believe that you can fool the authorities with false and misleading contracts and assume no one will be checking every line.

The HDB can easily detect illegal rentals, particularly when they involve owners who are yet to complete their MOP.

It is now easier for authorities to detect infractions by simply setting up a system that flags suspicious cases.

In fact, previous cases have shown that enforcement actions can be swift and furious. They can occur within weeks after the offenses are committed.

The owner of this flat had three bedrooms, so he was able to rent two out legally and continue living in the third. This is why the minimum occupancy rule was created, requiring him to stay in the apartment for a minimum of five years after August 2018, when he purchased it.

It is mandatory to pay a fee for every tenancy agreement in order to make it valid. This is a process that neither the tenant nor landlord should try to avoid because both sides risk losing money if they decide to break their agreement.

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In May of 2019, the owner approached an agent in order to rent out the entire apartment, which was a violation by more than four years. The agent still went ahead and marketed the flat, and a couple of foreigners showed up in August for the viewing.

After being assured that they and their children would be able to “use the whole flat”, the couple decided to rent an apartment.

The couple was worried that when signing the agreement they would be signing for “room rental”, but they actually wanted to rent out the entire apartment and not only two bedrooms. The agent told them they could use the entire flat, and that the contract was just “formality”.

The agent then applied to Singapore’s Inland Revenue Authority to stamp and validate the agreement. She made a false statement, stating that the apartment was only partially leased when in fact the tenants owned the entire unit.

The owner was sent a letter by the HDB in September shortly after tenants moved in. It reminded him of his breach of terms and conditions for not living in the apartment or letting the entire unit out without written consent.

HDB officers visited the flat a few days after the letter was received. They found only the tenant, his family and the landlord living there. Further inquiries confirmed that there was no owner and that only the tenant lived in the flat.

The tenant and his family were forced to leave the next month. The tenant and his family suffered from great inconvenience as well as financial loss due to the fact that they were forced to move and search for a home within a short time period.

The HDB acquired the flat later, while the agent received a suspension for four months as well as a $7000 penalty and legal costs.

Singapore homeowners are likely to face higher property taxes next year due to both an increase in annual values (AVs), and a rise in tax rates. The government has responded by offering a one-off refund to help ease the burden.

The Ministry of Finance and Inland Revenue Authority of Singapore announced on Thursday, November 30, that owners of residential properties would receive a special property tax rebate to address concerns about rising costs of living and the upcoming property tax increase.

After a 100% rebate, owners of the smallest HDB apartments will not pay any tax. Owners of executive flats, three-, four-, and five-room apartments, and flats with 3, 4, and 5 rooms will receive rebates ranging from 30% to 70%, while owners of private properties will get a maximum of S$1,000 in a 15% rebate.

The owners of investment properties won’t get a refund for their non-owner-occupied properties, and they will be the ones who will suffer the most from the double blow of increased property values and tax.

The property tax is calculated using AVs. These are revised annually based upon the estimated rent for the year if the house was rented. Since 2022, both market rents of private and public housing have been on the rise.

Condo rents increased 19.3% year-on-year in the third quarter 2023. According to data from 99.co SRX, HDB rents were up 14.1% from a year ago in October.

MOF and IRAS announced on Thursday that rising AVs in conjunction with increases in the property tax rates announced by Budget 2022 will result in an increase in property taxes in 2024 for most residential property.

MOF responded to The Business Times’s queries by saying that HDB flat owners should expect to see their AVs increase between 20 and 25 percent in 2024.

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In the case of private residential properties, 80 percent of them will experience an increase between 15 and 25 percent, while some may even see a rise of more than 25 percent. These increases in AV reflect the rental movements of the properties.

The AV increase for 2023 was not revealed. Iras stated that before the last AV review on Jan 1, 20,23, market rents for both HDB housing and private housing have risen by over 20 per cent. AVs will be adjusted to reflect this.

Analysts do not anticipate that residential property demand or prices will be affected by the tax increase and AV.

Budget 2022 announced the tax increase, but market conditions remained positive. Private-home prices rose by 8.6 percent that year.

The property tax hike will not affect owners of luxury residential properties as it is only a fraction of their property value.

However, higher property taxes could push buyers in the future to choose slightly smaller homes. Developers may be more cautious in their bids for land as buyers become more cost-conscious. This will prevent the land bid prices from increasing further.

Rents could be lowered by landlords if they are faced with higher operating costs.

If the rental market continues to soften, landlords will have to lower expectations or risk higher vacancy costs and higher taxes.

In Budget 2022, Finance Minister Lawrence Wong said that the rates of property taxes for owner-occupied and not-owner-occupied properties will increase in two steps beginning 2023. He also stated that property tax is Singapore’s primary means of taxing its wealth.

Property taxes contributed 7.4 percent of the total revenue in FY2022, or S$5.1 Billion. The total amount collected increased by 9.1 percent from S$4.7 Billion in FY2021.

The property tax on owner-occupied residential homes for the portion of the AV above S$30,000 is also increasing. In 2023 the rate will be raised to 5 – 23 %, up from 4 – 16 %. The rate will increase to 6 per cent to 32 per cent in 2024.

Property tax rates for non-owner occupied residential properties, which includes investment properties, will be raised to 11-27% in 2023 from the previous 10-20%. Tax rates will rise to 12-36% in 2024.