Using capital value to assess property tax for owner-occupied homes ‘not appropriate’: Indranee

SINGAPORE - Assessing property tax for owner-occupied properties based on capital value would not be an appropriate approach, said Second Minister for Finance Indranee Rajah during the debate on the Ministry of Finance’s (MOF) budget on Feb 26.

“One should adopt the same valuation basis for all residential properties, regardless of whether it is owner-occupied, rented out or vacant,” she said.

“That is so that there is a common yardstick to assess properties for property tax purposes.”

Ms Indranee was responding to Workers’ Party MP Kenneth Tiong (Aljunied GRC) who had proposed that the valuation of an owner-occupied residential property for property tax purposes should be derived differently from a non-owner-occupied property.

Mr Tiong raised the possibility of a cut on property tax valuations.

He also suggested that the valuation for rented properties should be based on annual value (AV), which reflects rental transactions, while owner-occupied properties should instead be based on capital value.

Capital value represents the total current market worth of a property if sold, whereas AV is the estimated gross yearly rental income a property can generate.

Ms Indranee said the use of rental data to determine AV keeps property taxes, which are assessed annually, more stable and predictable for home owners.

She noted that there are more rental transactions than sale transactions, which provide a more accurate and stable picture of comparable properties to determine the valuation of a given property.

Rents are also generally less volatile and subject to less variability compared with sale prices, as the rents are locked in by the lease agreements over a period of time, and hence, they are less impacted by market sentiments and the property cycle, she said.

“Just because a neighbour may have a better or a more nicely developed home that commands a higher rental or AV doesn’t mean that the neighbour who has a simpler home will have the same AV, because obviously, when valuing, adjustments will have to be made to take into account the necessary attributes.”

However, there are different property tax rates for owner-occupied and non-owner-occupied properties as a concession to owner-occupied properties, Ms Indranee noted. Property tax rates for owner-occupied properties are lower compared with those for non-owner-occupied properties.

The Government, from time to time, provides one-off property tax rebates for owner-occupied properties to help cushion the impact of the property tax, she said.

Meanwhile, shifting to capital value as the basis for property tax assessment does not necessarily lower the assessment.

When a neighbourhood is revitalised, property values typically rise, leading to higher rents and sale prices or higher AV and capital value, she added.