[Reporter]

Excerpts from Citi's report on the government's proposed tax changes on property capital gains tax (report is attached below):

Proposed Changes — The Ministry of Finance (MOF) is proposing several changes on the Income Tax Act, of which two affects the property sector.

Change No. 1: Property Gains Tax — If a person sells a second property within four years of the first sale, the profit from the 2nd sale will be subjected to capital gains tax (CGT), effective 1-Jan-10, i.e. 2nd sale occurs after 1-Jan-10 and the first sale was less than 4 years ago. There will be no CGT for the sale of the first property. Currently, an individual does not pay tax on gains unless the tax authority decides that he is a trader, something which is subjective. This proposed change adds certainty on the tax treatment.

What was done before — In May 1996, as part of the anti-speculation measure, individuals were taxed on gains made from selling properties within three years of purchase. There was also a sellers' stamp duty. Capital gains tax was lifted in Oct 2001, post 911.

Impact — If implemented, it is likely to curb any excessive speculation in the market. Speculators may try to get out of the market early before implementation next year. However, this should not have any impact on genuine home buyers but would certainly make investors/speculators think twice. We think there will be downward pressure on the prices and volumes, especially new launches. New sales of smaller sized units (which have been popular so far) are likely to slow.