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Thread: Tax proposal puzzles property players

  1. #1
    mr funny is offline Any complaints please PM me
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    Default Tax proposal puzzles property players

    July 9, 2009


    Tax proposal puzzles property players

    They question timing of change and ask if they must alert Iras when selling second property

    By Goh Eng Yeow, Senior Correspondent

    A GOVERNMENT proposal to make the rules clearer on taxing gains on property sales has left developers and investors scratching their heads.

    Since the public consultation paper on the subject was put up by the Finance Ministry last month, there have been quiet discussions in some circles on the impact the step might have on the property market.

    So quiet that most people were apparently unaware of it.

    Thus when the proposal finally made it into the news yesterday, investors took it badly. Shares of property giant City Developments fell 6.6 per cent while those of CapitaLand dropped 4.8 per cent.

    A Citi report yesterday said the change is likely to curb any excessive speculation in the market. 'We think there will be downward pressure on the prices and volumes, especially new launches,' it said.

    At first sight, the proposed change seems innocuous. It makes clear that a home owner who sells his property for a profit will not be taxed on his gains as long as he had not sold any other real estate in the past four years.

    But if an owner had sold other properties within that period, the taxman will decide if he should be taxed on the gains from this sale. Its decision will be based on the circumstances that precipitated the sale.

    Most home owners will not be affected by the proposed tax change as their home is the only house they own, said real estate agency PropNex chief executive Mohamed Ismail.

    In fact, they may be better off as the change provides certainty that they will not be taxed should they sell their house for another home every four years or so.

    But an estimated 10 per cent to 15 per cent of home owners own more than one property and these are the people who are worried about how the change might affect them.

    An investor does not pay tax on gains unless - and this is where the uncertainty lies - the taxman decides that the owner is a trader, namely someone who buys and sells a number of properties over a short period.

    But tax and property experts are concerned over the timing of the proposal.

    Real estate is only just beginning to recover from the doldrums it fell into last year, so some feel the Government should have left things as they were.

    'In the current economic environment, we do not understand the need for such a provision, as it only provides a certainty of tax treatment for individuals who do not sell more than one property,' said Mr Owi Kek Hean, KPMG's head of tax services.

    Others have welcomed the proposal as a strong signal sent by the Government to dampen any speculative froth in the recovering property market.

    Only last December, there was considerable concern over the number of home buyers who might default under the deferred payment scheme. But this was quickly forgotten once the market picked up and developers replaced deferred payment with an interest absorption programme to lure buyers back.

    With the proposed change, an investor cannot be sure that he can avoid a hefty tax bill on his gains if he sells several properties within a four-year period.

    This will surely dampen speculation and help to prevent the market from suffering another heart attack if the global economic outlook nosedives again.

    Still, others note that the need to own a house for at least four years to make sure that one does not get taxed on any gains from its sale is far too long for property-loving Singaporeans.

    We like to move house a lot, whether to downgrade to a smaller flat in bad times or to be nearer to a desired school. Surely, a shorter timeframe of two years would be adequate.

    One reader also noted that the proposed tax change is unfair to investors who hold on to multiple properties for a long period and then decide to sell them all within the same four-year period.

    'If I come across a peak in the property market, does this mean I will be taxed if I sold more than one property, no matter how long I have held them?' he asked.

    But the biggest question bugging home owners is that they do not know if they should contact the Inland Revenue Authority of Singapore (Iras) to discuss any assessment that may be made on a property sale profit.

    Should they alert Iras as soon as they sell a second property within a four-year period and declare any gains while making a case to get a waiver on paying any levy?

    Or should they stick to the current practice and assume they are not liable for tax on any gains until they get a call from the taxman?

    Whatever their misgivings, home owners should trust Iras to exercise its judgment judiciously on whether to tax the gains.

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  2. #2
    mr funny is offline Any complaints please PM me
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    July 9, 2009


    Property stocks bear brunt of market sell-off

    Investors worried about impact of tax change on speculative activity

    By Goh Eng Yeow, Senior Correspondent

    PROPERTY counters took a hit yesterday as news broke about a government propo-sal to make the rules clearer on taxing gains on property sales.

    The proposal is aimed to make it clear to home owners that they would not be taxed on any profit made from selling only one property in any four-year period.

    But one dealer said his clients were more concerned about the impact on investors who might have to sell a second property during the same period.

    'The market is simply in no mood to listen to reason, given the deluge of bad news lately,' he said.

    As a result of the growing risk aversion, property counters bore the brunt of the sell-off. Real estate giant City Developments lost $509 million in market value as it closed 56 cents, or 6.6 per cent, lower at $7.88. A hefty 13.6 million shares changed hands. At one point, its share price fell to $7.71.

    CapitaLand ended 17 cents, or 4.8 per cent, down at $3.38 on a heavy volume of 69.7 million shares. As a result, its market value fell by $721 million.

    Other losers included Keppel Land, which dropped four cents to $2.08, Wing Tai Holdings, which lost 10 cents to $1.24, and Fraser & Neave which was down eight cents at $3.45.

    One analyst said investors were worried about the impact that the proposed tax change might have on speculative activity in the property market.

    'Traders provide the liquidity to make the property market lively. Once you drive away the speculators, prices will hardly move and transaction volumes may fall sharply,' he said.

    But others believed that investors had overreacted.

    Under the current rules, the taxman can tax gains from a property sale if it deems the seller to be a property trader.

    With the proposed change, the tax authority will retain the same discretionary power, except that sellers will not have to pay tax on gains from selling only one property in four years.

    'In a bull market, investors will carry on buying properties because they are sure of making a gain. They will not be hesitating simply because they are worried that they have to give up part of their gains as taxes,' one trader said.

    Apart from the more cautious stance on property counters, investors were also treading carefully where stocks linked to the energy sector were concerned.

    With oil prices tumbling below US$63 a barrel - the fifth day of decline - rig-builders Keppel Corp lost three cents to $6.60, after sliding 23 cents at one point, and Sembcorp Marine fell eight cents to $2.52.

    However, it was not all gloom and doom in the stock market. Investors snapped up defensive plays that pay high dividends.

    This enabled the benchmark Straits Times Index to halve its loss to only 12.49 points at the end of the trading day. The market barometer closed at 2,259.77.

    Gainers among blue chips included telcos SingTel, which rose seven cents to $3.06, and StarHub, which was up three cents at $2.17.

    High dividend-paying transport coun-ters were up as well. SMRT rose seven cents to $1.78 while ComfortDelGro gained two cents to $1.32.

    [email protected]

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