For the first time, we have looked at the costs involved with buying, occupying and selling properties in each of our World Class cities. These taxes and levies can add significantly to the cost of buying for the Savills Executive Unit.

If the costs of buying, selling and occupation taxes are added together over a five year period and apportioned on an annual basis, they can add up to a significant proportion of value. In the cities that are most expensive to transact and occupy – Singapore, New York, Paris, Mumbai and Tokyo – this amounts to over 2% of value on an annual basis. The cheapest city in which to transact and occupy is Moscow.

The cost of purchasing

In some countries, purchase costs can add 10% or more to the price of a property – and some countries are imposing huge penalties for ‘flipping’ or buying and selling property within a short time frame – adding even further to the possible costs of ownership.

Consequently in cities where yields are low, the annualised cost of simply buying a property may not be significantly different from the entire costs of renting. The Corporate decision to grant rental allowances rather than allowing expatriates to buy in these cities might be a pertinent one.

Hong Kong is the most expensive of our cities in which to purchase property, reflecting the high initial cost of property and stamp duty (3% to 4.25%).

Singapore ranks second. The city-state recently announced an additional 10% stamp duty to be levied on foreigners’ property purchases in an attempt to cool the market. For permanent residents, an additional 3% is imposed on second and subsequent residential properties, and 3% for Singaporeans buying their third and subsequent property. These measures are in addition to existing stamp duty costs. This is likely to have an impact on sales, and prices, particularly in the upper tiers of the Singapore market.

London is third, having been pushed up the rankings by the introduction of 7% stamp duty on homes worth over £2 million.

At the other end of the spectrum, Moscow has virtually no purchase costs (just a $300 registry fee), legal fees are covered in the agency fee paid by the seller, and there is no stamp duty.

The cost of occupying

Once a property has been purchased, the taxes associated with its occupation need to be considered. The most expensive three (Hong Kong, Singapore and Paris) all have property taxes calculated as a percentage of the rateable value of the property.

Those with fixed property taxes fare better, London’s banded council tax ranks it fifth, followed by Sydney, Moscow and Mumbai. Shanghai only carries occupancy taxes on investment property calculated on 0.4% to 0.6% on 70% of the property value, while New York carries no direct occupancy taxes (these are captured in income tax).

The costs of selling

Exit costs are an important consideration in the decision to rent or buy. Measures have been introduced in Singapore, Hong Kong and Shanghai to penalise those who sell property within short time periods.

In Hong Kong, property purchased after November 2010 and held for less than six months is subject to a 15% levy. In Singapore, from January 2011, a 16% levy applies if sale occurs within the first year. Lower levies apply if transacted between one and three years. In the upper tiers of the market in Shanghai, a 5.65% ‘business tax’ now applies on the sale price if transacted within five years.

The impact of these measures on the SEU vary depending on the period the property is held. Sale costs account for 16% and 17% of the value of the executive unit in Hong Kong and Singapore respectively, if transacted within six months of purchase. With reduced penalties for a longer hold, transaction costs in these cities fall to just 1.1% and 1% if transacted after five years. At this point, New York, with its numerous property-specific taxes and charges, is the most expensive, at 9%.

Taken from
Insights: World Cities Review Spring 2012