S$2.03B p.a. private tax exemption vs annuity scheme.
While the rich enjoy, let the poor take care of each other.
For equitable wealth distribution, Govt's outdated tax concessions
for rich must end. Time to abolish freehold titles, time the rich
contribute to 'infrastructural maintenance costs'
[Final updates, full document and live links at
http://moral-property.blogspot.com/2007/09/s203b-pa-naughty-business.html
]
Background; statement of intent:
1) SLA's formula [link] for calculating land value states that the
land value of a new 99year leasehold property is equal to 96% of
its land value should it be a free hold property.
2) MBT [22Jul07]: "The development charge is to take some of that
increase in (land) value to go and improve the infrastructure...
when you increase the plot ratio - build more, higher flats - you
need to provide the infrastructure. So that's what the DC is. You
could say it's a tax on the increase in the value as a result of
government action."
- SG govt has correctly adjusted DC rates to reflect costs of gov
intervention in providing for increased infrastructural needs
coinciding with increased land development intensity.
- However, a $2.03B p.a. glaring tax concession exists (that only
the rich enjoy). The $2.03B pa is an estimate value of the
exemption from LH lease extensions that FH properties enjoy
annually (2007 provisional figure). In and age of high living
costs, high maintenance, defence costs; can Singapore afford to
frivolously maintain this inappropriate yet perpetual tax
concession?
3) The inadequate and unusual method of calculating residential
property taxes is another contention which further proves govt
favouritism/ inadequacy in its administration of tax laws.
4) The current budget challenges in SG mandates a closer look at
national tax collection principles and revenue use. Proposed
legislature: compulsory annuity schemes, hospital means testing may
be delayed by streamlining outdated and inappropriate tax
coincessions.
5) In terms of recuperating land infrastructural maintenance costs-
despite almost similar land values when new, that SG govt by
continuing to administer freehold titles, is giving gross and
inappropriate tax concessions to the rich in Singapore. My
calculation (as follows) estimates this unnecessary concession to
costs the govt $2.03B pa.- not a small sum considering total govt
expenditure (2006) to be $23.463B, and that on healthcare to be
$1.764B.
---The calculation---
BT 6Sep07: En bloc sales slow to a trickle, may pick up later: "the
first seven months of 2007 saw a total of 62 collective sale
transactions worth about $11.86 billion"
[
http://www.sghousing.com/2007/09/06/en-bloc-sales-slow-to-a-trickle-may-pick-up-later/
]
*(it is unknown if 62CSAs include commercial units beside pte
residential ones)*
---
ST 2Sept07: Storeys of dust and noise:
"It is a similar story islandwide with
10,000 flats - sold in
collective deals since the start of 2006, according to CB Richard
Ellis".
[ http://www.sghousing.com/2007/09/02/storeys-of-dust-and-noise/
]
-> Average no. 'old' flats per collective sale = 10k
flats/(70+62)Dvps= 75.8Units/Development.
---
BT 2Aug07: En bloc sales have peaked:
"70 older apartment developments were sold (2006) for S$8.1
billion
data from Knight Frank".
[
http://www.expatsingapore.com/forum/index.php/topic,5525.msg1313903.html#msg1313903
]
==> Assuming consistent data, 'normally distributed':
-> Each collective sale transactions is therefore worth ~
$115.71M (2006), $191.29M (2007); and each 'old' flat costs:
2006= $115.71/75.8U per dvp= $1.53M per unit; 2007: $2.52M per unit
(65% rise cf 2006). [Or average value per 'old' unit over 19mth
period = $1.996M/ flat].
Okay I may have over estimated value of the flats bc maybe
commercial properties were enblocked too (not incl in 10K units
report of ST2Sept), possibly making the total count 25%more: say=
13.3k units, that would still make the 2007 figure = $2.52M / 1.33
= $1.89M per 'old flat'.
-----
Generously assuming that the 2007 $1.89M/flat is value of full 99yr
leasehold(LH) land that the flats stand on, (resulting in exemption
from DC charges payable for lease hold extensions)- Note that 99
Leasehold(LH) land is valued at 96% FH value: see SLA
LeaseholdTable: [
http://www.sla.gov.sg/faq/land_sales/LeaseholdTable.doc]
- Assuming that % land value depreciation is proportionate over
99yrs, (SLA table is Disproportionate!!); then ave. per unit annual
value depreciation= $1.89M/ 99yr= $19.09K p.a.
-----
1999SPEECH BY LAW MINISTER: "5,560 units (account for) 7% of the
total (freehold) units".
[
http://app9.internet.gov.sg/scripts/minlaw/hq/newswatch/read.cgi?1,1-224
]
-> Therefore total number of strata titled freehold units =
79,429 units.
Singstats: "(1996): 149,114 PTE residential properties (PRPs)
exists in SG; 2006: 233,364PRPs".
[
http://www.singstat.gov.sg/pubn/reference/yos/statsT-construction.pdf]
-> Therefore such properties increase at approx 5.65% p.a. (non-
compound, cf 1996 figures)- So by approx: in 1999 there were~
174,389.00 PRPs.
-> 79,429 as a ratio of 174,389 is 45.5% ~ (I assume that 45.5%
of all strata titles are freehold @1999 and for later calcs).
------
In 2006: 233,364PRPs exists in SG, which suggests the existence of
106,181 freehold units in SG (@45.5% ratio).
Given that each 99yrLH flat depreciates proportionately @ $19.09k
(1%)p.a, govt has lost revenue (p.a.) worth= 106,181 x $19.09k =
$2,026,988,035.8 ($2.03B) by retaining the 45.5% of all private
property is 'freehold' policy.
-----
Key:
cf: compared to
p.a.: per annum.
"Collective deal"= "enblock sale"
Private residential properties: PRPs
SG: Singapore.
SLA: Singapore Land Authority
ERP: electronic road pricing. MBT: Mah Bow Tan (National
Development Minister)
GCB: Good class bungalows.
Words 'flat' and 'unit' are terms used interchangeably.
DC: development charge. [Latest rates=
http://app.sprinter.gov.sg/data/pr/20070831980.pdf ]
DP: Development premium (see knowledge page for details:
http://www.sla.gov.sg/faq/differential_premium.pdf )
------
Notes on calculation method:
- General:
1. Many big assumptions are made: the 1999 figure of 174,389 PRPs,
45.5% freehold proportion, assuming all collective deals to be of
equal value- these rough values can result in wide margins of
error; however I believe that these calculations serve their
intent, spurring discussion (and accurate calculations) on the long
term consequence of acknowledging freeholds in a land scarce and
human resource dependent country, (with an >$11b annual defence
budget), in accommodating further loss of potential revenue; and
its impact in perpetuating the rich poor divide.
2. As the focus of this study is limited to residential properties,
the revenue loss from commercial and industrial properties though
significant is unascertained due to unavailable data.
- Possible Overestimate:
1. 45.5% being freehold is minister's 1999 figure, may have
decreased by 2007 given possibly more 99yr LH devps.
2. The 2007 $1.89M per unit figure is 65% increase over 2006 due to
enbloc fever and current strong economy property prices, such
sentiments may not be sustained. A figure 65% less then $2.03b
would have resulted if 2006 figures were instead used.
3. $1.89M/ unit fig may be an over estimate of property value as
developers usually offer 30+% above individual valuation to obtain
80% consensus towards a collective deal. Over confidence in the
economy may also cause developers to bid generously to cash in on
the rising economy.
4. There is a current inbuilt DC discount of 30%; this would impact
actual collections even if freeholds were abolished.
- Possible Underestimate:
1. The actual land value of a 99yr lease hold property may be more
as developers still have to pay top up lease (DP charges) to 99yr
on the lease shortfall and fees to increase land use intensity. The
'collective sale transaction price' doesn't include such extra
costs to the developer.
2. $1.89M/ unit would underestimate the value of good class
bungalows, in view of their min floor areas of >1,399
sqMtrs.
[
http://realty-united.blogspot.com/2007/03/demand-for-gcbs-set-to-stay-high.html]-
The $2.03b fig would thus be an under estimate if GCBs were
under-represented in the '10k units' sold.
3. GCBs number 2,000 to 2,500 across the island: the majority of
which I'm sure are FH and would yield lots of $ for leasehold
extensions, however their proportion cf 233K current PRPs is not
that great.
4. If the 10K fig was indeed accurate
[http://www.sghousing.com/2007/09/02/storeys-of-dust-and-noise/ ],
making the 25% reduction unnecessary: then the $2.03b deficit would
likewise be corrected to $2.7B.
Discussion:
- The SG gov sells land, extends land leases based on leasehold
tables, (currently, the value of new 99 yr LH land is valued at 96%
of FH land). If SG gov realizes the cost to society of continually
acknowledging FH titles (HDB dwellers and most pte property owners
do NOT enjoy such privileges)- that unnecessarily costs the govt
$2.03B pa, then SG govt would want to convert all FH titles to LH
ones as soon as possible, into 104yr leaseholds.
This is necessary for the long term stability of the island
republic as:
- Like ERP- property (a limited commodity) should be free from
speculation and according to value, raise certain taxes for the
local government from e.g. lease hold extensions.
- Reduced property speculation and fair taxing of property would in
turn stabilize the economy through stable property pricing and
rentals.
- National productivity improves under a competent and meritocratic
govt.
- SG military budget is >$11B per year, freeholders, like
>92.5% of SG population/ foreigners ought to be taxed for the
safe environment they enjoy and the upkeep costs of the
infrastructure around them.
- if SG gov stays true to its own specifications, then it should
seriously consider the consequence of such inequalities existing in
our society. Is an excess of privilege being given to those living
in FH properties? Why retain the 'FH' concept instead of the LH
one; e.g. infrastructure like roads are pay per use, no one besides
govt vehicles on duty should evade ERP, COE, road tax,
charges.
- Should a distinct group of Singaporeans be excused from paying
leasehold extensions in perpetuity, enjoying for little such status
and luxury, in oblivion of the fact that in 2006 $11b was spent on
national security to directly safeguard their properties.
- Does the $2b (or more) loss revenue result in cutbacks in
healthcare, education, or social spending?
- Can the $2b+ defer compulsory annuities, increasing GST further
and other budget (health, MCYS) cutbacks.
- A stratified pay per use system should differentiate property
taxes upon the basis of FH/ LH property taxes, not upon 'owner
occupancy' basis. Those who rent are often expatriates/ poor who
cannot afford to buy; progressive as this existing method might
seem, $2.03B is an omission no adequate govt should overlook. The
following suggestion of an improved 'pay per use system' serves to
stabilize property prices and attract international talents to
relocate here, ultimately safeguarding the security and prosperity
of Singapore and its constiutuents.
- One way out of this situation is to give current FH 2
options:
1) Agree to immediate raise of property tax from current base (of
4-10%) to 33.3%(*) plus base LH property tax rate (shouldn't exceed
3%).
2) Accept conversion to a 104.17yr leasehold with immediate
effect.
*The basis of (1)"33.3%" being that annual(rental) value of a
property is often in excess of 0.96% of the original property value
[this is a gross estimate subject to further debate].
- From my research into the FH/ LH system, it was adopted almost
whole sale from UK laws, which seem to be currently giving
significant legislative problems. Singapore has in fact been
studied by UK for solutions. (see p25>"7.Termination and
insolvency"
[http://www.parliament.uk/commons/lib/research/rp2001/rp01-115.pdf]
), UK parliamentary sittings do seem excessively nebulous, & we
had better not follow a country with growing illiteracy! [url:
http://groups.google.com.sg/group/soc.culture.singapore/msg/165db64f8eeceb4d?hl=en&
]
- for some u'standing of nebulous LH/FH issues in UK:
[http://www.lease-advice.org/levamain.htm#Introduction].
- So instead of perpetuating the increasing rich-poor divide with
stupid legislature, creating more bodies/tribunals e.g. [
http://en.wikipedia.org/wiki/Leasehold_valuation_tribunal] just
crap FHs and let LH extensions be a constant source of
revenue!
- Make the fat cats work!