http://www.businesstimes.com.sg/arch...rices-20130427

Published April 27, 2013

Land value determined by current market prices

Court of Appeal rules that value of vacant land not affected by pre-sales

By Michelle Quah


IN A landmark decision yesterday, Singapore's Court of Appeal has ruled that the annual value of vacant land here ought to be assessed according to full development potential, at current market prices, and not be limited by the pre-sales of any units which the developer of the land may have made.

This ruling overturns a High Court decision in February, which cut the annual land value assessed in 2007 and 2008 for The Sail@Marina Bay site from $51.4 million to $27 million - a move which would have saved the developer Glengary more than $2 million in taxes.

In delivering the court's judgment, Judge of Appeal Justice Chao Hick Tin said that "with respect, in our opinion, the Judge (Justice Lai Siu Chiu) had erred" in her High Court judgment with respect to how she interpreted the Property Tax Act and in how she regarded the pre-sales of units, ie condominium units sold by the developer before construction work begins.

Glengary had begun pre-sales of the residential units of The Sail in October 2004, before construction began in November 2004. It sold the bulk of its residential units - 1,106 units or some 97 per cent - in 2004 and 2005; the remaining five residential units were sold in 2006 and 2007. The 22 retail units were sold in 2009.

In 2007, the Chief Assessor - or Comptroller of Property Tax - issued a notice increasing the annual value of the land from $26 million to $59.1 million. The valuation notice for 2008 also valued the land at $59.1 million. Glengary objected to both these notices.

The Valuation Review Board, which hears such appeals, dismissed Glengary's appeal; Glengary then brought the matter up to the High Court. The developer argued that the Chief Assessor was wrong in valuing the land as if it was vacant, as the units that it pre-sold acted as "encumbrances" - or restrictions and obligations on how the land can be used - which reduce the land value.

It argued that these burdens on the land should cut back the land value to $27 million based on a professional valuation. The Chief Assessor said that taking into account that pre-sales would go against the concept of "vacant land" as defined by the Property Tax Act, as it would amount to including the value of a building "via a backdoor route". Justice Lai agreed that the pre-sales affected the value of the land and were not mere private arrangements between the buyers and the developer, and should be taken into account in determining the annual value of the land. The Chief Assessor appealed this decision.

The Court of Appeal ruled that "the fiction of 'vacant land' created (by the Property Tax Act) is to enable a piece of land to be assessed based on its potential use and occupation irrespective of what is already on the land or is in the process of being erected . . . it follows that the value of any buildings on the land cannot form part of the assessment as they constitute actual and not potential use and occupation".

Thus, it went on to say, the pre-sales made by Glengary do not have any relevance to the value of the land. "Otherwise, if two sites of similar size and development potential were developed differently, one maximising its gross plot ratio while the other developed only to half its full development potential, the value of the plots of land would differ just because of how the developer had chosen to develop the site . . . This would be an absurd result."

The court also said that neither the pre-sales nor the caveats lodged are encumbrances on the land, as a caveat is simply a notice and not a claim on the property. It also refuted Glengary's claim that the value of the land should follow the value of the pre-sale prices; it agreed with the Chief Assessor that the pre-sale price of each unit was an individual bargain between Glengary and the buyer, and that this bargain was notably made in 2005, and not at the time when the value of the land was assessed. "The developer cannot be permitted to 'freeze' the value of the land at a price which follows market conditions prior to the date of valuation," it added.

The Court of Appeal, therefore, upheld the value of the land in 2007 and 2008 at $51.4 million - a sum previously agreed on by both parties, in the event that the courts were to decide that the definition of vacant land excludes pre-sales - and ordered Glengary to pay the costs of the appeal.

The Chief Assessor was represented by Quek Hui Ling, principal legal officer of the Inland Revenue Authority of Singapore, and Glengary was represented by Tan Kay Kheng of WongPartnership.