International investors are offered the lowest property costs in Shanghai according to a report by Knight Frank and EY. The Global Tax Report 2015, analyses the buying, holding and selling costs for foreign buyers of prime residential property over a five year period (2010 – 2015) as well as providing illustrative taxation costs in 15 key cities worldwide. The report analyses the costs for individuals buying property in their own name as an investment, to rent out over the five year period. Whilst Shanghai offers the lowest property costs out of the 15 cities, it is Monaco which offers the lowest taxation when purchasing a property at both US$1m and US$10m.
Liam Bailey, Global Head of Research at Knight Frank says, “We are often asked how property costs and taxes compare around the world. Whilst Shanghai and Monaco offer favourable property and taxation costs (2.9% and 3.5% respectively), other cities have produced interesting results. Hong Kong and Singapore for example, offer low property costs at 3.7% and 4.3% respectively for a $1m property but the stamp duties for foreign buyers mean taxes are relatively high at 22.4% and 19.0% respectively.”
The overall property costs remain largely the same for a $1m and $10m property in some cities (Sao Paulo, Mumbai, Geneva) whilst others see a significant reduction in percentage terms at the $10m level (New York and Paris).
Considering the tax costs however, Dubai and Paris follow Monaco offering low tax levels for non-residents purchasing property at the $1m level. Investors here incur combined tax charges of 3.6% and 7.0% respectively over the five year period. This level of taxation remains roughly the same when purchasing a $10m property however Paris sees its percentage figure jump to 12.8%.
Carolyn Steppler, Private Client Tax Services Partner at EY, UK & Ireland, says, “When purchasing property as an investment, tax is not necessarily the first concern but it is important because it is often the after-tax return that measures the success of the investment. Our research shows that the tax burden across the cities in this report varies considerably both in amount and extent. From 3.5% or 3.6% of the property price in year five in Monaco and Dubai respectively, to over 30% in Sao Paolo. However a common thread across all these countries, which shows no sign of slowing, is a continuing focus on property as a source of taxation.”
Currency shifts, wealth flows, tax changes and fluctuating levels of supply and demand have all had a bearing on the performance of prime residential markets worldwide. As the rate of price growth slows in many global city markets, transaction costs and taxation are becoming increasingly important considerations for investors.
London sits neatly in the middle of the 15 cities when analysing both property costs and tax costs. Foreign investors are charged 7.8% and 5.4% respectively in property costs when buying at the $1m and $10m level. Looking at the tax costs – including stamp duty land tax, investors buying in their own name expect to pay 9.7% for $1m investment and 20.7% for $10m.
When analysing those cities where property costs are highest, Knight Frank and EY have determined Paris (15.3%), Berlin (13.3%) and Geneva (12.6%) to impact foreign investors with the highest property costs at the $1m mark. Geneva replaces Paris when considering property costs at the $10m level, charging investors 13.2% of the five year sales price, followed by Berlin (11.3%) and Monaco (10.8%).
Considering the tax costs across the 15 cities, it is a different story. Taxation is highest in Sao Paulo both at the $1m and $10m level, costing investors 31.5% over the five year period. It is followed by Hong Kong. Investors here are charged 22.4% of the $1m property cost over a five year period but Sydney replaces Hong Kong at the $10m mark charging foreign buyers 26.0% in tax.
Policymakers are increasingly using tax and property costs as a means of regulating housing demand, controlling affordability and generating revenue. It will be interesting to see how the current situation in each of the 15 cities will change in the coming years.