CURRENTLY: Owner-occupied residential properties are taxed at a concessionary 4 per cent rate.

In addition, owner-occupied residential properties with an annual value (AV) of below $10,000 can enjoy the ongoing 1994 property tax rebates ranging from $25 to $150, depending on the AV of their properties.

The AV is the estimated annual rent of your property if it were to be rented out, excluding the rent for furniture, fittings and any service charge.

All other properties are taxed at 10 per cent.

BUDGET 2010:

For property tax payable from January next year, the 1994 property tax rebates will be replaced by a progressive property tax schedule for owner-occupied residential properties:

SINGAPORE is shifting to a progressive property tax system that will mean lower- and middle-income property owners living in their homes will pay less tax.

All Housing Board (HDB) flat owners and a large majority of private property owners will enjoy tax savings of $240 a year as a result of the new system.

Finance Minister Tharman Shanmugaratnam said yesterday in his Budget statement that the Government intends to keep the property tax ‘as a means of redistribution in our society, together with our income tax regime’.

Although the current system already taxes the wealthy more than others, there is ’scope for us to introduce further progressivity in property taxes’, he said.

The new property tax regime is a three-tiered one at 0 per cent, 4 per cent and 6 per cent, and replaces the current flat 4 per cent concessionary rate for owner-occupied residential homes.

The first $6,000 of a home’s annual value (AV) will be exempted from property tax – saving owners $240.

The next $59,000 will be taxed at 4 per cent and any AV above $65,000 will be taxed at 6 per cent.

The AV is the estimated annual rent of an owner-occupied property if it were rented out, excluding rent for furniture, fittings and any service charge.

The new system will apply for property tax payable from January next year.

Currently, owner-occupied homes with AVs below $10,000 also enjoy the ongoing 1994 property tax rebates ranging from $25 to $150, depending on the AV of their properties.

This will cease and be replaced by the new system. All other non owner-occupied properties are taxed at 10 per cent and are unaffected by the new tax regime.

Mr Tharman explained yesterday that when the Government abolished estate duty entirely in 2008, property tax was the remaining form of tax on assets.

He said the Government intended to retain property tax as it did not affect the middle and upper-middle groups more than the wealthier ones.

This was the reason that estate duty, which had been impacting middle and upper-middle income earners to a disproportionate extent, had been scrapped.

Mr Tharman added that a moderately progressive property tax system, together with an income tax system that collects more tax from the wealthy and a flat goods and services tax rate that everyone pays, will, together form a fair system of taxes in Singapore.

‘Everyone pays something, but the rich pay more. Taken together, the overall burden of taxes will and must remain low by international standards,’ he said.

He also noted, however, that as HDB homes gradually appreciate in value over the long term, flat owners will see an increasing property tax bill over time.

KPMG executive director (tax services) Leonard Ong said yesterday that the new system is a ‘fairer way of collecting property taxes, as only a small, wealthier majority end up paying more’.

Indeed, owners of high-end properties will see a small increase in tax payable.

They comprise the top 3 per cent of private owner-occupied residential properties, or the top 0.4 per cent of all owner-occupied homes in Singapore, said Mr Tharman.

Homes with AVs of about $80,000 will face only a small increase in tax, of slightly less than $100 per year.

A property with an AV of $150,000, which typically is a large property in the central districts and is within the top 0.5 per cent level of private owner-occupied homes, will face an increase in property tax of about $1,500 per year.

However, the new tax rates, even for the high-end, will remain lower than in most international cities, he added.

‘That is as it should be, so that we remain a vibrant and attractive place for businesses and individuals alike.’

Real estate consultancy Colliers International managing director of China, Singapore and Taiwan, Mr Dennis Yeo, said the switch to a more moderate progressive tax schedule is a more long-term approach than the periodic tax rebates extended by the Government previously.

‘It is expected to have little bearing on the property market in terms of market sentiment and activities,’ he said.

This new progressive system of property taxes will cost the Government about $230 million a year initially, said Mr Tharman.

Source : Straits Times – 23 Feb 2010

The number of American borrowers falling behind on their mortgage payments dropped sharply at the end of last year, a sign the foreclosure crisis is beginning to ebb.

The Mortgage Bankers Association said on Friday that the percentage of borrowers who missed just one payment on their home loans fell to 3.6 per cent in the October to December quarter, down from 3.8 per cent in the third quarter. The decline was even more remarkable because delinquencies usually rise at that time of year due to higher heating bills and holiday spending.

The new trend in late payments is significant because it means the number of people going into foreclosure will continue to decline this year. And that is important for all homeowners in areas where cheaply priced foreclosures are bringing down neighbouring values.

In high-foreclosure cities like Las Vegas, Phoenix and Miami, for example, homes have lost roughly half their values from their peaks.

But Friday’s report showed Nevada, Arizona and Florida had some of the biggest declines in new delinquencies.

Jay Brinkmann, the trade group’s chief economist, said the report likely marks ‘the beginning of the end’ of the wave of mortgage delinquencies and foreclosures that started more than three years ago.

Still, more than 15 per cent of US homeowners with a mortgage have missed at least one payment or are in foreclosure, a record for the 10th-straight quarter.

‘The bad news is that we still have a big problem,’ Mr Brinkmann said. ‘The good news is it looks like it may not get much bigger.’ There will be, however, more short-term pain. The number of borrowers who were at least three months behind continues to soar.

Nationally, more than 5 per cent of borrowers fell into that category in the fourth quarter, up from 4.4 per cent in the third quarter.

Many of those borrowers are still being evaluated for help under the Obama administration’s US$75 billion mortgage relief effort.

Source : Business Times – 23 Feb 2010

Mah Sing Group Bhd, a Malaysian developer, may gear up to build a RM1 billion (S$414.26 million) war chest for acquiring land to capitalise on an expected rebound in the Malaysian property market, group managing director Leong Hoy Kum said in a statement yesterday. ‘We believe that developers like us with sufficient cash and a healthy balance sheet will continue to grow stronger,’ Mr Leong said, in a statement accompanying the company’s fourth-quarter results.

Net income climbed 46 per cent to RM25.1 million, or 3.88 sen per share, in the three months ended Dec 31, as revenue jumped 64 per cent to RM249 million, the statement said. The company is proposing a final dividend of 6.5 sen per ordinary share.

Mah Sing had RM400 million in cash and zero net gearing at the end of December. ‘Should we gear up to 0.5 times, we can build a war chest of approximately RM1 billion to purchase good prime land that suits our business model,’ Mr Leong said in the statement.

The developer spent RM323 million buying 184 acres of land last year to take advantage of reasonable asset prices when the South-east Asian nation slipped into its first recession in decade.

Source : Business Times – 23 Feb 2010

ARA Asset Management posted improved fourth quarter earnings and proposed a cash dividend and a one-for-five bonus issue.

The real estate fund manager, tied to Hong Kong tycoon Li Ka-shing’s Cheung Kong group, is also looking at raising around US$1 billion for other funds and ventures in the next two years.

For the quarter ended Dec 31, ARA’s net profit rose 47 per cent from the previous year to $14.1 million. This was driven by a 48 per cent increase in revenue to $26.9 million.

The top line grew as ARA collected more management fees, acquisition and performance fees and other forms of income. For instance, the newly set up ARA Harmony Fund, which owns Suntec Singapore International Convention & Exhibition Centre, brought in management fees for the group.

ARA has proposed a final cash dividend of 2.5 cents per share and a bonus issue of up to 116.4 million new ordinary shares on the basis of one new share for every five existing shares held. Both proposals will be put to shareholders’ vote at an annual general meeting on April 26.

Taking into account an interim dividend of 2.3 cents per share, the total cash dividend for FY2009 comes up to 4.8 cents per share. The firm is confident that it can continue paying this amount to shareholders in FY2010.

‘We believe that with the continued expansion of the group, we will be able to maintain the current cash dividend per share, notwithstanding the increased number of shares post the bonus issue,’ said ARA group CEO John Lim in a press release.

Separately, Mr Lim told BT that ARA is looking to set up funds in a few areas. First, there could be a private fund focused on the aged and healthcare sector, investing in retirement homes or hospitals mainly in Japan and Australia.

ARA is also working on setting up a private fund or real estate investment trust in the hospitality sector.

In addition, it plans to raise more capital for the next franchise of the ARA Asia Dragon Fund.

For the three initiatives, ‘in the next two years, we believe we can raise another US$1 billion or so’, Mr Lim said.

There are other previously-announced plans in the pipeline. ARA recently partnered logistics firm CWT to set up Cache Logistics Trust in Singapore, and Mr Lim hopes the real estate investment trust can be listed ‘around the first quarter’.

For the full year, ARA’s net profit hit $48.3 million – a record since it was set up in 2002. This reflects a 32 per cent increase from the preceding year. Revenue rose 23 per cent to $86.3 million. As at Dec 31, ARA’s assets under management stood at $13.5 billion – up from $12.1 billion a year ago.

ARA shares rose three cents yesterday to close at $1.07.

Source : Business Times – 23 Feb 2010

THE government has decided to do away with a tax allowance scheme for businesses introduced in the 1940s to encourage Singapore’s industrialisation. The axed scheme will be replaced by one designed to enhance land productivity – but only companies from nine chosen sectors will benefit from the new scheme.

Singapore should promote the intensification of industrial land use and move towards more land-efficient and higher value- added activities, Finance Minister Tharman Shanmugaratnam said yesterday.

‘The Industrial Building Allowance (IBA) has met its objective but is no longer adequate or relevant to meet our current priorities,’ he said. ‘It does not distinguish between efficient and inefficient uses of industrial land.’

In its report earlier this year, the Economic Strategies Committee said Singapore has to support the intensification of industrial land use as there are now greater demands on the country’s limited land resources.

The IBA gave tax allowances to companies for capital expenditure on the construction or purchase of an industrial building or structure.

Its replacement, the Land Intensification Allowance (LIA), similarly allows companies to claim for capital expenditure incurred to construct a qualifying building or structure.

But only companies from nine sectors – pharmaceuticals, petrochemicals, petroleum, chemicals, semiconductor-wafer fabrication, aerospace, marine and offshore engineering, solar cell manufacturing and other ’speciality’ industries – will qualify for the LIA.

These sectors have been singled out as part of the government’s long-term plans to move Singapore’s manufacturing sector up the value-added chain.

The building or structure will also have to meet the gross plot ratio (GPR) benchmark relevant to the industry sector of the building user. To encourage intensification, the benchmarks for each industry sector will be set around the 75th percentile of actual GPRs for the sector.

Qualifying firms will be granted a first-time allowance of 25 per cent, then 5 per cent each year for qualifying expenditure on the construction of buildings.

Analysts are surprised by the switch, as fewer companies will now qualify.

‘The old IBA did not restrict the benefits to only a few sectors,’ said David Lee, executive director of tax services for KPMG. ‘At the end of the day, if those (nine industry) sectors are the ones they are encouraging, they can always give them incentives instead.’

He pointed out that the new scheme means that companies in some of Singapore’s biggest industries – such as electronics manufacturing and equipment manufacturing – will be missed out.

Ernst & Young tax director Helen Bok said: ‘Many companies will be disappointed that the IBA will be phased out because this is a significant deduction for those carrying on qualifying activities. This will increase their cost of doing business in Singapore.’

But pegging the tax allowances to building plot ratios will encourage building owners to maximise land use, which is a good move for land-scarce Singapore, said Colliers managing director Dennis Yeo.

Source : Business Times – 23 Feb 2010

IN a move that took some people by surprise, the government last Friday unveiled two measures designed to cool speculation in the property market. But the imposition of a seller’s stamp duty on sale of properties sold within a year after purchase and the lowering of the loan-to-value ratio should not really have come as a surprise to anyone, given that home sales had more than tripled in January to 1,476 units, from 481 units in December.

Similar measures were taken in September last year in response to a 16 per cent surge in home sales during the July-September quarter. The immediate impact of that move to kill off innovative interest absorption home loan schemes was a halving of the home price rise to 7.4 per cent, quarter on quarter, during the October-December 2009 period. Under the latest measures, anyone selling property within 12 months of purchase will pay a 3 per cent stamp duty. And home buyers can now borrow only up to 80 per cent of a property’s purchase price, versus up to 90 per cent previously. If the somewhat muted reaction of property stocks yesterday is any indication, the market appears to be taking Friday’s measures in its stride. In contrast, property stocks plummeted by more than 15 per cent in September.

The general consensus is that the latest measures will not have an impact on genuine property buyers or long-term investors, most of whom take loans of less than 80 per cent of value and hold on to their properties for several years at least. The measures also appear to have been calibrated so as not to impact home prices in a big way – a critical consideration given that residential property accounts for the bulk of Singaporeans’ wealth.

But the extent to which these measures will reduce speculative activity in the mid to high-end segment of the property market – where much of the speculation is said to be focused – is open to debate. Here is why: Singapore’s reputation as a vibrant first world city in a buoyant and developing region has attracted a significant tide of funds into its premium properties. This inflow of offshore funds – whether for investment or speculation, from buyers from Greater China, South-east Asia and South Asia – continues unabated, and is unlikely to be affected by a 3 per cent stamp duty or a cap on borrowing.

In an environment of abundant liquidity and improving consumer confidence underpinned by a global economic recovery, it is natural for property prices – especially the premium segment – to trend upwards in a land-scarce and developed island-state such as Singapore.

Still, the latest measures, coming just five months after the previous set of calibrated moves, are a necessary reinforcement of a message from the government that it will not sit idly by if speculation in one segment of the property market endangers the broader economy. Presumably, more will be done, should the need arise.

Source : Business Times – 23 Feb 2010

THANKS to a sharp drop in fair-value losses, Hotel Properties Ltd reported a 7.2 per cent rise in full-year net profit despite a 27.6 per cent dive in revenue.

For the year ended Dec 31, 2009, net profit attributable to shareholders climbed to $35.2 million from $32.9 million. Revenue dropped to $443.2 million from $612 million, resulting in gross profit diving to $131.8 million from $184.6 million.

The earnings attributable to shareholders were also helped by a $5.15 million fall to $1.98 million in profit attributable to minority interests.

‘2009 was a challenging year as the global economic crisis and the H1N1 outbreak directly affected the hospitality sector,’ the group said yesterday. ‘Both hotel occupancy and room rates suffered due to low tourist arrivals and a more cost-conscious business community.’

Revenue from its hotel segment declined 16.3 per cent from $427.7 million in 2008 to $358 million in 2009, while its properties segment recorded a 53.7 per cent fall in revenue from $184.6 million to $85.5 million.

The group attributed part of its lower revenue to the completion of The Met condominium development in Q2 2009. The collection from purchasers, however, resulted in higher cash generated from operations of $153.9 million for 2009 against $26.5 million the previous year.

Hotel Properties noted that the group’s last quarter of the year had begun to show ’signs of recovery’ where its hotel business had been concerned. Boosting its bottomline were the comparatively lower fair value losses last year.

For 2009, the group recorded a fair value adjustment loss on investment properties of $2.7 million compared with $37.6 million in 2008.

The group’s earnings per share for 2009 stood at 6.99 cents compared with 6.52 cents for 2008. It has recommended a final one-tier tax-exempt cash dividend of two cents per share, up from a final one cent the preceding year.

The group is planning to launch the condominium development at the former Beverly Mai site at Tomlinson Road this year. ‘An associate of the group will also have the proposed condominium development at the former Farrer Court site launch-ready during the year,’ it said.

Source : Business Times – 23 Feb 2010

PRIME office rents continued to soften going into 2010 and could slip another 2-3 per cent this quarter, says Cushman & Wakefield.

In a mid-first quarter report, the property consultancy noted that monthly rents at Raffles Place Grade A buildings had fallen to $7.62 per sq ft (psf), down 1.6 per cent from $7.74 psf in Q4 2009.

In the Shenton area, monthly rents of prime office space also dropped to $5.82 psf – 1.5 per cent lower than the $5.91 psf in Q4.

‘Extrapolating from the mid-quarter read, we therefore expect prime rents to decline by a modest 2-3 per cent for the first quarter of 2010,’ Cushman & Wakefield says.

While rents dipped, the vacancy rate across prime office space improved slightly to 6.9 per cent from 7.4 per cent in Q4.

Cushman & Wakefield research director Ang Choon Beng expects new commercial developments to have a better year ahead, compared with existing ones. ‘A bifurcation of the prime office market is taking place,’ he says.

New offices coming up this year include those at the first phase of Marina Bay Financial Centre and 50 Collyer Quay.

The new buildings have so far been able to attract tenants and achieve relatively high pre-commitment levels, Mr Ang says. This leads the consultancy to believe that rents of these developments could bottom out soon, probably by the second half of the year.

For instance, the recently-completed Straits Trading Building managed to attain a 90 per cent occupancy rate and an average rent of $9 psf.

On the other hand, rents of existing office developments may continue slipping until the end of the year, Mr Ang reckons.

‘The relocations of office tenants from existing to new buildings will exert pressure on rents in existing buildings,’ he says. ‘We believe prime rents would remain soft over the first half of 2010.’

According to reports from various consultancies, Grade A office rents in Singapore dropped most significantly in Asia-Pacific in 2009 by more than 40 per cent year-on-year. This has raised the country’s cost competitiveness compared with other cities such as Hong Kong and Tokyo.

Source : Business Times – 23 Feb 2010