Singapore’s home tax cools down prices

Increased cost for subsequent house purchases aims to control demand from investors

Ever see a neat project in another city and wonder: could we do it here? Should we? We have too, and as part of an ongoing series we’ll be taking ideas from around the world and running them through the lens of Toronto.

Toronto’s housing crisis isn’t unique. Cities around the world are struggling with homes being bought up by investors, pushing prices past the means of ordinary people.

Last month Singapore launched what, by Canadian standards, would be a drastic response. It boosted its Additional Buyers Stamp Duty (ABSD) so the more homes you buy, the more you pay.

Under the policy, citizens would see increased taxes for investment properties: from 12 to 17 per cent for second homes; and 25 per cent, up from 15 per cent, for third properties.

Permanent residents will be charged 25 per cent for their second homes and 30 per cent for subsequent home purchases, up from 15 per cent for both.

Also, foreign buyers in Singapore will pay 30 per cent tax on any residential property purchase, up from 20 per cent. (Citizens don’t pay tax on their primary residence, while permanent residents pay five per cent. That hasn’t changed.)

Could taxing Canadian and foreign homebuyers who are investing in two or more properties slow real estate prices in Toronto where first-time buyers are struggling to put a toe on the property ladder?

Economist Michael Smart, the codirector of Finances of the Nation, a research centre focused on Canadian public finance, says we already have a Singapore-style tax.

It’s called the land transfer tax (LTT).

Because Toronto is the only municipality with an LTT, city buyers pay about four per cent on the purchase price of a home in the city. Elsewhere in Ontario, they pay only the provincial portion.

“That’s not as high as Singapore’s but it’s still a lot,” said Smart, a University of Toronto professor.

Singapore also bans chewing gum, he added.

“I’m not sure we want to follow their lead on either item.”

Generally, he said, a property transfer tax, or stamp tax, shifts the burden from existing homeowners to first-time buyers and people moving in from other provinces or countries.

“In other words,” said Smart, “it shifts burdens on to non-voters.”

He says governments would do better to increase the supply of housing, especially rentals, but until mortgage rates rise, it’s unlikely prices will slow. DT Cochrane, an economist with Canadians for Tax Fairness, says he doesn’t buy the comparison to the Ontario Land Transfer Tax because Singapore’s stamp tax hike is aimed at the buyers of multiple homes.

“The people who are buying a second or third home, they are buying those primarily because they are assets. That is what’s making it unaffordable for the people who want a home to live in,” he said.

To those who say the land transfer tax hasn’t done much to cool the real estate market, Cochrane says it’s time to talk about what that tax is supposed to be achieving and whether it needs adjusting accordingly.

He said Canada could adjust the kind of tax Singapore charges by limiting it to buyers of three or more homes, thereby exempting cottage owners.

“Who is buying a third home? That is strictly for speculative purposes and anyone who’s buying a third home to live in, well, they can also afford to pay this tax,” he said.

“That’s just not very many people, but it is very wealthy people,” said Cochrane, who notes that people who have already purchased multiple homes in Singapore will only pay the tax going forward.

Ottawa has already said it plans to levy a one per cent vacant homes tax for foreign buyers. Ontario also has a Non-Resident Speculation Tax of 15 per cent that has raised $610.1 million since it was introduced in 2017 but hasn’t done much to slow home prices, which have soared during the pandemic.

The Singapore approach is based on cooling demand but our issue is supply, said Christopher Alexander, president of Re/MAX Canada. A similar tax here “would have to be very aggressive for it to have any impact,” he said.

“All these measures that have been focused on demand over the last 15 years only have short-term effects on the marketplace,” he said.

Alexander says it might be better to put a tax on refinancing or look for ways to encourage investors to sell their properties rather than holding them.

Mortgage specialist James Laird, president of CanWise Financial, and co-founder of ratehub.ca, says investors are taxed aggressively on the equity of investment properties when they sell.

He agrees government should be looking at boosting housing supply, which is at record low levels in the Toronto region, rather than dampening demand.

Laird says part of the current lack of housing and soaring prices is pandemic related. People want bigger homes.

“Right now we’re in a supply crunch because everyone’s sevenyear-old is in the next room on Zoom,” he said.

‘‘ This is a moment for us to get out of our panic mode and reflect on … what kind of road we want after the pandemic because the next five years are going to be a time of rebuilding. — Megan J. Davies, historian