Can retiring couple afford to hold their house with high AV

Private home rental rates are easing. Based on data provided by the Urban Redevelopment Authority in Q4 2020, private home rentals declined by 2.1 percent quarter on quarter.

Residential landlords are still doing well. Private home rentals increased 8.7% from 2022 to 2023.

But the cheer that residential landlords felt has been dampened because of higher property taxes.

The residential tax rates for non-owners will increase from 10-20% Annual Value (AV), to 12-36% AV in the year 2024.

Property tax rates for residential properties are progressive. Tax rates increase as the value of the property increases.

The estimated annual rental value of a building is its estimated gross rent, excluding the cost of furniture, furnishing and maintenance.

The Business Times reported that in November of last year, the Ministry of Finance informed them that in 2024, AV will increase for 80 percent of private houses, some by more than 25 percent.

If the AV increases on a property, higher taxes will usually be due.

The landlords of vacant homes that are not producing income should pay attention to the costs associated with maintenance, taxes, and installments on their outstanding home loans.

In addition, a landlord retiree with no outstanding home loans must find the money to pay property tax and maintain a vacant unit.

In contrast, owners of residential property enjoy more favourable tax treatment.

Owner-occupiers of homes pay a lower rate than non owner-occupiers. A one-time rebate on property taxes will be given to home owners in 2024. Private home owner-occupiers receive a maximum 15 per cent rebate of S$1,000.

Budget 2024 included good news about home ownership for many. In 2025, residential property rates for homeowners will increase. The property tax of many homeowners is reduced.

Yet, even owners of the most expensive private homes might feel a great deal of pain.

Owner-occupier tax rates on homes increased from 0-16% of AV (2022) to 0-32% (AV 2024). Home prices are reflected in higher tax rates.

Let’s say that the owner of a luxury condominium unit has seen their AV rise by a quarter, from S$70,000 at 2022 up to S$93300 at 2024. In 2022 annual property taxes paid by the homeowner were S$2,780.

In 2025, if the homeowner’s home’s AV stays the same from 2024 to 2025, their annual property taxes will drop by around 29 percent, or S$7.280, because of the change in the AV bands.

However, in 2025 the property tax for homeowners will still be 162 % higher than in 2012.

Many people have paid off their home loans over a period of years and are now debt-free. Being able to retire in a house that’s fully paid off gives one greater peace ofmind. Property taxes may make it difficult for retirees who own their home to enjoy the golden years.

Take a look at a pair of partners that will turn 55 this coming year. Assume that the couple put aside S$308,700 for each member of their CPF accounts.

The couple who are 65 years old could receive a monthly fixed payout of S$4,730 as part of the CPF Life National annuity scheme.

If the couple lives together in a privately owned home with an AV in 2025 of S$70,000 then their annual property tax (excluding any rebates) is S$3,720 which amounts to about S$310 monthly in 2025. This works out at less than 7 per cent their future monthly CPF Life payout.

If, for example the value of a home increases by 4 percent annually, the property taxes will increase to S$1,005 monthly or over 21 percent of CPF’s monthly payout in 30 year time.

Could property taxes increase become unsustainable to retirees who own their homes?

The government looks at property tax as one of the most effective ways to tax wealth. Property tax is effective, as it is hard for people to avoid. Taxing income is a fair way to combat inequality.

It is possible that future increases in the rates of residential property taxes will not leave home owners unaffected. Over time private home-owner-occupiers retiring could find themselves struggling to pay property tax.

It’s true that a retiree who has a private residence can exchange his unit for a Housing and Development Board(HDB) apartment.

You could save money by doing so. HDB flats have lower taxes, and many other ownership costs.

You will incur expenses when you move from one owner-occupied residence to another. Importantly, moving homes in ones 70s and/or 80s because of financial constraints can cause a lot of stress.

The elderly may find it difficult to adapt to a different environment. A new residence could force an elderly individual to change his routine. This can be detrimental to their mental well-being.

Sora Condo Launch Date is scheduled to be 2nd Quarter of 2024.

When planning for retirement, it is vital to consider whether you can afford a privately owned home.

You can easily move from a house to an HDB. HDB has a large number of flats in good locations. HDB towns often have excellent transport connectivity and a wide range of amenities, such as healthcare facilities and recreational activities.

If you’re able and willing to take on the challenges of moving to a HDB, then it might be best to do so when you feel ready.

As one gets older, the longer one is employed, the better it will be to avoid rising costs.

In a society that is ageing, employers will be more inclined than ever to hire older people and create jobs tailored to their needs.


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