Property boom to yield record stamp duty

Property boom to yield record stamp duty
Posted by propertyforesight in Tax Matters. add a comment

With the property market setting new records each month, government revenues from stamp duty look set to reach new highs this year.

Property deals in the first five months of this year have yielded more than $1.7 billion in stamp duty. At this rate, the government coffers could get a $4 billion boost for the entire year.

The takings for the first five months of this year have already surpassed the $1.3 billion for all of last year, the latest official statistics showed.

And this is just 7.7 per cent shy of the record $1.8 billion in 1996, the last property market peak.

But with the pace of transactions hotting up over the past few months, some analysts are predicting that the stamp duty collected could rise even more.

‘If the property market continues as it is now - and we are only starting to see it pick up - we are looking at somewhere in the order of

$4 billion to $5 billion in stamp duty,’ said Mr Song Seng Wun, economist and research head at stockbroking house CIMB-GK.

Stamp duty is a tax on commercial and legal documents used in certain transactions. The bulk of it comes from property purchases. Stamp duty ranges from 1 per cent to 3 per cent of the purchase price.

The latest surge in stamp duty is largely due to the jump in property prices and transactions. ‘Stamp duty reflects increased economic activities everywhere, but the main contributor has certainly been the property market,’ said Mr Song.

Mr Nicholas Mak, director of research and consultancy at property firm Knight Frank, also sees a surge in stamp duty, though he is slightly less bullish than Mr Song.

He expects a record 33,000 private homes to be sold this year. The average value of each home is also likely to be higher than in the past, he noted.

This would increase stamp duty, as it is calculated as a percentage of a property’s price. Based on this, he projects tax takings of about $3.2 billion.

A recent tweak in stamp duty rules may also contribute to the boost. In December, the Government stopped deferring stamp duty payments on property sales - a practice started in 1998 that allowed buyers to put off paying it for up to a few years.

Now, property buyers have to cough up stamp duty within 14 days of agreeing to buy. But those who bought properties before December still enjoy deferments.

This means that the stamp duty takings so far this year come not only from new property sales in the first five months, but also from deferred sales in past years, bumping up the figure.

Economists say stamp duty is set to become the third biggest contributor to government operating revenue this year, from being one of the smallest in the past.

It is projected to surpass customs and excise duties, motor vehicle taxes, property taxes and betting taxes. Since 2000, it has consistently fallen behind all four categories.

Analysts also noted that with the bumper take from stamp duty, as well as projected higher takings from the goods and services tax and income tax, government revenues are likely to surpass the $32 billion collected last year.

Source: The Straits Times, 16 July 2007