Finance Ministry says it is not tightening tax policy on properties

Source : Channel NewsAsia – 9 Jul 2009

The Singapore government says a proposed change to the tax policy on property transactions is not aimed at curbing speculation. It will instead give property owners some certainty.

That is because property owners who do not sell properties frequently will have the assurance that they will not be taxed on the profits made from such sales.

All properties, from public flats to industrial buildings, will be affected by the proposed tax change.

Under the proposal, the law will be changed to make it clear that profits made from selling properties will not be taxed if the property owner has not sold any property within a four-year period.

There have been concerns that this means anyone who sells more than one property within a four-year period will have to pay taxes on their profits.

In its statement on Thursday, the Finance Ministry said the proposed change is not an anti-speculation measure.

As it is, whether individuals who sell properties more frequently are subject to income tax depends on the circumstances of each case, such as how long the owner has been holding on to the property.

But with the change, property owners will know that if they have not sold any property during the preceding four years, profits made from the sale of a property will not be taxed.

It is understood that every year, about 100 individuals are taxed on their income from frequent property transactions.

Analyst Nicholas Mak said: “In May 1996, when anti-speculation measures were announced, it was a whole series of measures. It took the market by surprise. Today, it is nothing in comparison with what happened in 1996. This is more of a consultative paper for an amendment to a law, and the government is seeking feedback.”

Still, analysts said the move will have an impact on the property market.

Donald Han, managing director of Cushman & Wakefield, said: “In view of this forthcoming implementation for 1 January next year, it might curtail some reactive buying, might take some hot air away from current market activity. It might make buyers think twice in terms of buying more than what they require.

“It does take speculative activity out of market. At the end of the day, it’s good, because we’re looking at nursing the current recovery of the marketplace and we don’t want prices to run out of the current economic recovery in that sense. So it should be in sync with market conditions.”

Mr Mak said: “The dust will settle and I think people will probably go back to the way how things were. Properties will still be launched and investors will still come into the market.

“But some may see today’s announcement has a bit of a warning shot. The government could, in effect, come in to assess any individual who has sold more than one property in the four-year period. Speculators thinking of flipping a number of properties in a 4-year period have to do it with a certain amount of caution.”

For investors, the proposed four-year period could pose a disadvantage, especially since property boom-bust cycles are now shorter than before – at about two to three years instead of six to seven.

Mr Han said: “What used to be a 6- to 7-year (property boom-bust) period now probably would last 2, 3.5 years, in that sense. If you hold for a period, it might last you over a whole property cycle and it might eventually wipe off any gains.

“But the bottom line is that in any investment, the government is saying that if you buy properties and make money, then pay your taxes within the 4-year period. I think that’s fair.”

The government said it is proposing the tax change as part of its regular review of the Income Tax Act, and that Singapore’s tax rules are aimed at taxing people who make an income out of their property transactions.

Singapore does not have a capital gains tax, unlike many countries.