Move could dampen market sentiment: Experts

Source : Straits Times – 9 Jul 2009

PROPERTY experts fear the proposed change to tax laws affecting real estate gains could crimp speculation and hurt sentiment in the fragile market.

The issue was a talking point among investors worried about being taxed, while real estate stocks went south yesterday.

‘I have received about 50 calls on this topic today. They are all worried about being taxed,’ said HSR Property Group executive director Eric Cheng.

If the proposal becomes law in January, it will mean that anyone who sells a property in any four-year period will not be taxed on his profit. But a second sale within four years of the first sale may be taxable.

There will surely be some knee-jerk reaction, though the change may have the eventual effect of dampening flipping interest, industry sources said.

One who declined to be named said if enacted right, the clearer rules will be a benefit, but if they are applied in a heavy-handed way, there will be ‘horrible consequences’ for the market.

‘Speculators may start to think twice about going into the market,’ said Credo Real Estate executive director Tan Hong Boon. ‘But genuine investors holding for long-term rental income should not worry at all.’

But one investor said: ‘Without the element of speculation, the market would not be buoyant.’

Some speculators are already aware that they will be taxed on their profits if the Inland Revenue Authority of Singapore (Iras) deems them traders. But this has been a subjective exercise.

The amendment also does not make clear what constitutes a trader.

‘Some people think it’s a big deal but the proposed change is not even new. Only the four-year period is new. Previously, you may even be taxed if you trade only one property in your life,’ said another investor. ‘If you resign yourself to the fact that you will be taxed, you might as well continue selling, if not more aggressively, to cover the tax component.’

To curb speculation, the Government modified tax rules in 1996 so that income tax was payable on profits made from the sale of a residential property within three years of purchase. This was lifted in late 2001.

Property expert Nicholas Mak thinks the change could dampen foreign demand. Some investors hoping to time the market may be taxed on their profits given that the two bull runs in the past 10 years have lasted less than four years, he said.