Knight Frank launches the Asia-Pacific Residential Review for January 2015. Providing a complete view of the major taxes incurred when buying, holding and selling a residential property, the report analyses the costs of residential investment in Asia-Pacific.
Using a hypothetical residential investment scenario, the report investigates the tax liabilities borne by cross-border investors in the region – the focus is on the eight markets in Asia-Pacific that allow foreigners to invest more liberally, without residence requirements in particular.
Key findings
Tax Burden
• Singapore and Hong Kong impose the highest tax burdens on residential property investments in the region, with Cambodia having some of the lowest. Not only are these two markets more expensive than the other markets, foreign investors have to shoulder a significantly heavier tax burden than their local counterparts.
• The disparity between tax burden on foreign and local investors is explained by:
o Australia: A higher income tax* imposed on foreigners
o Hong Kong: A cooling measure of 15% Buyer’s Stamp Duty on foreigners
o Malaysia: A combination of higher income tax* and cooling measure of higher Real Property Gains Tax imposed on foreigners
o Singapore: A combination of higher income tax* and cooling measure of 15% additional Buyer’s Stamp Duty imposed on foreigners
* Please refer to the centre spread (pages 4 & 5) of the report on major taxes for individual homebuyers.
• Japan is the only country that bills locals more, as its local inhabitant tax is only levied on residents.
Investment Premium
• Some markets effectively charge an “investment premium”, essentially the additional tax a purchaser would pay on the property as an investor as compared to self-use. The premium also varies between foreign and local buyers.
• Markets like Cambodia, Japan, Malaysia and South Korea do not impose an investment premium on either local or foreign buyers.
Nicholas Holt, Head of Research for Asia Pacific, says, “Total returns are not the sole concern of investors looking at real estate; there is also a need to understand potential liabilities. One of the most significant of these is undoubtedly tax. Be it a tax on acquisition, holding or exit, returns on all residential property investments are impacted.”
Regional snapshot on price growth
• Australia and New Zealand continue to see solid price growth, sentiment improved in India, while China and Singapore continue to see prices slide.
• With the prospect of the continual implementation of cooling measures, a potential interest-rate rise and the increasing amount of new housing supply, residential prices in Hong Kong are expected to remain stable in 2015.
• Mainland cities experienced different degrees of housing price decreases in 2014. Facing a difficult year for the Chinese property market, most Mainland cities eased home purchase restrictions except first-tier cities in 2014. To further stimulate the property market, Chinese authorities have introduced a series of easing polices, such as “mini stimuli” on housing loans and a cut in benchmark interest rate by the People’s Bank of China. Knight Frank believes that the overall performance of the Chinese property market will improve in 2015 amid an easing policy environment. The total sales volume will pick up, with average prices in first-tier cities growing steadily and those in second and third-tier cities remaining stable in 2015.
• Five out of the ten mainstream residential markets in Asia-Pacific saw prices increase in Q3 2014, as reported in Knight Frank Global House Price Index.