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What you’ll pay on property taxes around the globe

26 Nov 2015

According to a report by Knight Frank and EY International, investors are offered the lowest property costs in Shanghai.

According to a report by Knight Frank and EY International, investors are offered the lowest property costs in Shanghai.

This is according to Liam Bailey, global head of research at Knight Frank, who says the Global Tax Report 2015 analyses the buying, holding and selling costs for foreign buyers of prime residential property over the five year period from 2010 to 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 buying a property at both US$1 million and US$10 million.

Bailey says they are often asked how property costs and taxes compare around the world, and whilst Shanghai and Monaco offer favourable property and taxation costs at 2.9% and 3.5% respectively, other cities have produced interesting results.

For example, Hong Kong and Singapore offer low property costs at 3.7% and 4.3% respectively for a $1 million property, but the stamp duties for foreign buyers mean taxes are relatively high at 22.4% and 19.0% respectively.

Bailey says the overall property costs remain largely the same for a $1 million and $10 million property in some cities, for example Sao Paulo, Mumbai and Geneva, whilst others see a significant reduction in percentage terms at the $10 million level, like New York and Paris.

Considering tax costs, however, Dubai and Paris follow Monaco in offering low tax levels for non-residents purchasing property at the $1 million 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 $10 million property, however, Paris sees its percentage figure jump to 12.8%.

Carolyn Steppler, Private Client Tax Services Partner at EY, UK & Ireland, says when buying 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,” she says.

“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.

Steppler says 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 $1 million and $10 million level. Looking at the tax costs, including stamp duty land tax, investors buying in their own name expect to pay 9.7% for a $1 million investment and 20.7% for $10 million.

When analysing those cities where property costs are highest, Knight Frank and EY have determined Paris at 15.3%, Berlin at 13.3% and Geneva at 12.6%, to impact foreign investors with the highest property costs at the $1 million mark.

Geneva replaces Paris when considering property costs at the $10 million level, charging investors 13.2% of the five year sales price, followed by Berlin at 11.3% and Monaco at 10.8%.

Steppler says considering the tax costs across the 15 cities, it is a different story. Taxation is highest in Sao Paulo both at the $1 million and $10 million level, costing investors 31.5% over the five year period.

It is followed by Hong Kong where investors are charged 22.4% of the $1 million property cost over a five-year period, but Sydney replaces Hong Kong at the $10 million 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, says Bailey. 
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