Redas calls for review of property tax, transparency in valuation

Singapore

THE Real Estate Developers' Association of Singapore (Redas) is urging the government to review property tax for vacant private land, and exempt property tax for land under or slated for development or buildings undergoing renovations.

Among other key suggestions, it is asking the government to offer more transparency in valuation when it comes to computing development charges to top up lease tenures as well as lower certain regulatory fees to reduce business costs.

Redas president Augustine Tan briefly shared the Budget wish-list at the Redas Spring Festival lunch on Friday.

The wish-list was submitted by the association to the Ministry of Finance (MOF) in late December. What was absent from the wish-list was any request to review property cooling measures.

Redas, which did not submit a wish-list for Budget last year, is concerned how negative sentiments can weigh heavily on the property market should there be a confluence of recessionary factors and destabilising events, Mr Tan said.

"This will in turn adversely affect Singapore's economy," he added, citing the worrisome rise in unemployment to a six-year high of 2.1 per cent, pressures on prices and rents across property segments plagued by persistent oversupply situation, rising vacancy rates and weak demand.

Mr Tan believes it is "still too soon to conclude that a market recovery is in sight" despite the renewed interest seen in recent residential property launches.

"The 2017 outlook remains murky with uncertainties surrounding global geopolitics and macroeconomic developments. With the weakened labour market, slower growth in employment and earnings, declining population growth, coupled with the prospect of rising interest rates, the current slowdown is expected to continue into 2017."

With slow economic growth and property cooling measures still in place, dampened demand and rising operating costs remain key concerns for the sector, Mr Tan added.

Urging a review of the property tax on vacant land, Redas argued that an equitable system would be to have a tax that reflects the lease term.

The Property Tax Act states that the annual value of vacant land shall be assessed at 5 per cent of its capital value. This is based on the assumption that the land has a freehold title. But the annual value of a freehold site tends to be 10 per cent higher than that of a 99-year leasehold, Redas said in its paper to MOF.

"The disparity widens for say a 30-year leasehold industrial property or a petrol station or a piece of transitional office land on a 15-year lease, where they are assessed on the basis of a freehold title," it explained. "Operators of such properties will find the current assessment a cost burden to their businesses."

Redas also pointed out that this 5 per cent tax is also considered high given today's high land value vis-a-vis the relatively lower rate of 2-3 per cent annual yield that one would expect from land investments.

There is a lack of incentives for developers to hoard land, given the various statutory provisions in place to discourage such practice. "Qualifying certificates (QC) and the attendant bankers' guarantee requirements are measures to discourage developers from holding back development plans," Redas said.

On that note, a fair assessment will be 2.5 per cent or a progressive tax rate of 2.5 to 5 per cent based on considerations such as annual yield or holding period, Redas added.

The association is also of the view that it is equitable to grant property tax exemption for land under, or slated for, development. In such situation, no income is received yet by the developer. A tax exemption will help reduce development cost and business risks for developers significantly.

Redas also urged the government to grant subsidies for additions and alterations (A&A) in the form of an exemption or concessionary rate to buildings undergoing A&A. "A policy change would encourage owners to retrofit and upgrade their buildings as well as adopt innovative solutions. This is in line with the government's effort to rejuvenate the city and ensure a more sustainable built environment," it said.

Redas is also hoping that a tax concession be extended to vacant properties, amid current high vacancy rates and risk of prolonged vacant periods as property owners are having a harder time finding tenants.

Vacancy of private residential units at end-2016 was 8.4 per cent, close to the peak of 8.6 per cent in 2005, when there was an oversupply of private housing stock.

Giving his regular update on the hefty fees that developers incur for holding unsold residential units beyond stipulated periods, Mr Tan estimated that about 730 units remain unsold in developments affected by extension charges under the QC conditions. Another 3,500 units in nearly 40 developments are impacted by the ABSD remission claw-back in 2017 and 2018.

On the key areas drawn up by the Committee on the Future Economy, Mr Tan said that Redas looks forward to participating and weighing in on innovating, developing and adopting digital capabilities for the real estate industry, elevating skills and raising the bar of competency within the industry, and playing a part in developing Singapore into a connected and sustainable city.

"The recommendations on urban solutions provide a wide scope for Redas members to respond with our collective action plans. Specifically, we will garner feedback from our members on how we can partner the public sector in the master developer scheme to develop, place-make and manage future precincts," Mr Tan added.