Should Singapore Continue Using Property Annual Value (AV) As An Indicator of Wealth?

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Whenever the government doles out financial assistance, such as they did most recently through the COVID-19 Temporary Relief Fund and the Self-Employed Person Income Relief Scheme (SIRS), property Annual Value (AV) is almost always a component in their means-testing procedure to determine who is truly in need of help.

The rationale is that if your AV is high enough, it means you must be wealthy enough to not need government assistance.

But is living in an expensive home an accurate indicator of wealth or is this an outdated yardstick that should be done away with?

 

First of all, what is property annual value (AV)?

Property annual value is, by IRAS’s definition, the “estimated gross annual rent of the property if it were to be rented out, excluding furniture, furnishings and maintenance fees.”

In other words, it is the amount of rent you would collect in a year if you were to rent out your entire home unfurnished.

Of course, when it comes to your actual residence, unless you are renting it yourself, you do not actually know how much rent it would command. The government thus determines the AV based on market indicators.

Find out more about property annual value here.

 

How the government uses AV to measure wealth

Property AV is widely used by the government as a parameter in means testing.

For instance, for both the COVID-19 Temporary Relief Fund and the Self-Employed Person Income Relief Scheme, applicants had to live in a property with an annual value of not more than $21,000 in order to qualify.

So long as you live in a particular property, its AV can affect your chances of qualifying for financial aid. You do not need to own the property.

 

Is it fair to use AV to see who qualifies for financial aid?

A significant number of Singaporeans have been unable to access the relief they need due to the AV ceiling, despite some having had their incomes decimated by the pandemic.

Recently, three MPs urged the government to review the means testing criteria for financial assistance schemes, arguing that the value of one’s home does not affect one’s need for financial aid.

While AV can be an accurate indicator of wealth for some people if they own the home they live in, for a great many, it cuts them off from much-needed financial assistance for the following reasons:

1. Unfair to peg financial aid to a home one does not own

There is a significant number of Singaporeans on low or middle incomes who happen to live in bigger or private homes, and who need financial aid during the COVID-19 crisis but who have been excluded from the government’s schemes.

These homes are more often than not owned by friends or relatives.

Very tellingly, a recent news report found that the number of households asking for food aid jumped this year, and this number has included people living in private property.

2. Vulnerable groups of people may have a tendency to have to move in with parents or relatives

There is a group of working adults that find themselves living with their parents or relatives precisely because they are in a financially precarious situation. Yet, the irony is that their residences now preclude them from receiving financial aid.

This group might include divorcees or single parents moving in with their parents, and couples who are still unable to afford their own homes.

3. Some are just waiting to move into a home of their own

At any given time, there is a sizeable group of married or engaged Singaporeans waiting to move into their BTO flats. Usually, these people continue to live with their parents until their new homes have been built.

If their parents live in private property that exceeds the AV threshold, these people will not qualify for financial aid until they move into their new homes.

 

Using AV to measure wealth gives rise to many inconsistencies

As such, using AV to measure wealth across the board could lead to inconsistencies and unfairness.

Let’s take the example of a family with two grown-up children living in a condo with an annual value of over $21,000. One of the children gets married and moves out into an HDB flat. The other continues to live with the parents out of financial necessity as he or she is not able to afford an HDB flat.

In this scenario, the second child who still lives with his or her parents will be shut out of government assistance schemes, even if his or her income is lower than that of the sibling who has moved out.

In such a situation, it would perhaps be more equitable to use home ownership rather than residence as a benchmark.

Homes cannot be quickly converted into cash value

Owning an expensive home does not always remove the need for short-term financial aid in case of emergency, as one’s home does not make one immune to job loss or expenses such as medical bills.

A homeowner cannot be expected to instantly convert his or her home to cash value by downgrading to a cheaper property. What is more, selling one’s home during a financial crisis is usually a poor decision.

In the case of someone who lives in a private home but does not own it, the property does not boost his or her income in any way. In fact, it can actually put him or her at a greater disadvantage as he or she might not qualify for other government freebies like GST vouchers.

Ignores the number the people living in the property

Using property AV as an indicator of wealth ignores the number of people who might be living in a given property.

A single person living alone in a 5-room HDB flat would still qualify for financial aid based on the property AV of his or her home, while a multi-generational family of 8 living in a 4-bedroom condo unit might not.

 

Should we continue using property to decide if people need financial aid?

Property ownership can in some cases be an accurate indicator of a person’s financial situation, but the margin for error is high and many people fall through the cracks, as we can see in the scenarios mentioned earlier.

In particular, pegging eligibility for financial aid to one’s residence rather than owned properties can end up penalising those who are living with family members precisely because they have financial difficulties.

In previous years, the Singapore economy was humming along so smoothly that we perhaps did not have to question our current methods of means testing. But the COVID-19 pandemic has been financially ruinous for many, and without fair means testing, many Singaporeans will be ignored in their time of need.

 

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