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What happens when future land sales and property prices become over-heated? Deputy Head of Real Estate & Infrastructure Industry Group Sandra Han responded in The Business Times

RHTLaw Taylor Wessing Deputy Head of Real Estate Sandra Han shared her views in The Business Times article titled “Budget not expected to target property upswing”.

The article was first published in The Business Times on 8 February 2018.

Budget not expected to target property upswing

WITH the real estate upturn, calls for the government to lift property cooling measures have tailed-off noticeably.

Instead developers and property investors are now keeping their fingers crossed against any new Budget “sticks” that might affect the sector’s nascent rebound.

Apart from the possibility of revenue-raising tax tweaks that may affect property, the market in general does not expect any Budget measure targeted at the real estate sector, especially since such measures have traditionally been introduced outside of the annual Budget. In addition, market watchers also noted that there are already many anti-speculative measures still in place.

Tax-wise, some say the government may once again tweak property tax rates to make them even more progressive. One way is to raise taxes on properties of higher values or non-owner occupied properties.

Lim Gek Khim, tax services partner at Ernst & Young Solutions LLP, said: “Higher taxes are inevitable in view of the country’s growing spending needs, and tweaking property related taxes might be on the cards.”

Another area is to extend the additional conveyance duties – introduced in March last year on share transfers in entities primarily holding residential properties – to share transfers in entities holding non-residential properties, she said.

Teo Wee Hwee, PwC real estate and hospitality tax leader, noted that any increase in property tax, which is a wealth tax levied on property ownership and not a cooling measure in itself, could still dampen market sentiment to some extent.

The impending rise in goods and services tax (GST), which is not aimed at the real estate sector but to broaden the government’s tax revenue base, may also result in construction costs rising and hurting the margins of developers if they are not able to pass on the higher costs to home buyers, Mr Teo posited.

KPMG head of real estate Tay Hong Beng noted that since total property taxes constituted only about 9 per cent of all tax revenues collected, it is unlikely that any upward adjustments to property tax rates will have a tangible impact on total tax revenues.

“If there were any adjustments, it may help to demonstrate that the increased burden of taxes are meant to be progressive toward the wealthier,” he said.

Given that the last revision to property tax rates took effect on Jan 1, 2015 – some do not expect another revision so soon.

Under the previous revision, property tax rates were raised for high-end residential properties, with the largest increases applied to investment properties that are not occupied by their owners. Since Jan 1, 2014, property owners can no longer claim “vacancy refunds” on property taxes for unoccupied properties (both residential and non-residential).

As a sign of better times facing the real estate sector, the Real Estate Developers’ Association of Singapore (Redas) has chosen not to issue a policy paper or offer comments for the upcoming Budget this time.

A year ago, it submitted a wish list to the government and shared its concerns over the murky market outlook at the Redas Spring Festival lunch.

Now, the worry among some developers is whether the government will take action later in the year if future land sales and property prices become over-heated.

“We are quite certain the authorities will continue to keep a close watch on the property market, and will not hesitate to introduce new or enhanced measures,” said Sandra Han, real estate partner at RHTLaw Taylor Wessing LLP.

“There is no lack of known options available for consideration and implementation,” she added. “A runaway property market will affect sustainability in the long run and be counter-productive to the main budget objective to achieve a sustainable fiscal system.”

Norman Ho, corporate real estate partner at Rajah & Tann Singapore, felt that further tightening of rules to rein in the property market may not be necessary for now. As long as speculative activities are curbed, renewed interest in home-buying and en bloc sales “should not be artificially prevented”.

There are other measures in place to prevent over-exuberance, he said. These include the pre-application feasibility study (PAFS) on traffic impact for certain en bloc sites, on top of an existing requirement from the Land Transport Authority for transport impact assessment for sizeable sites. Recently, banks were also told to be prudent on extending loans for land acquisitions.

Dentons Rodyk & Davidson senior partner Lee Liat Yeang felt that the government will likely adopt a wait-and-see approach to see whether the increase in land transactions and prices will translate to a spike in residential prices.

“A continued increase in interest rates may prove to be of significant dampening effect, aside from any governmental measures,” Mr Lee said. “At today’s prices, Singapore market still looks reasonable and there is no signs of over-heating or over exuberance in purchases by home buyers.”

Mr Tay reckoned that if there is any sign of an unsustainable price increase, the government may adopt a more targeted approach to managing demand from certain groups of investors or buyers. For instance, a surge in sales to foreigners may prompt a hike in stamp duties on their purchases under the additional buyer’s stamp duty.

To temper the collective sales fervour, he proposed setting a higher threshold approval rate from owners of developments between 10 and 20 years old.

Currently, developments that are 10 or more years old require a majority approval threshold of 80 per cent to compel the sale of the entire development, compared to 90 per cent for developments of less than 10 years old. But the reality is developments put up for collective sale are seldom less than 10 years old.

Mr Tay suggested a fine-tuning on this – by setting a higher threshold of 85 per cent for developments of 10-20 years old. This could act as a dampener for en bloc sites coming to the market and prevent premature tearing down of residential infrastructure.

Such calibration will signal the government’s intent in reining in runaway prices by refining an existing mechanism, without being seen as over-reacting, he said.

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