Slight luxury tax revision might be good: analysts

HOUSING BLUES::Market watchers were upbeat after the finance minister said the ministry would not extend the holding period of real-estate subject to luxury taxes

By Kevin Chen  /  Staff reporter

Sat, Nov 16, 2013 - Page 14

The government’s plan regarding a “minimal revision” to a luxury tax on real-estate could lift the property sector out of its recent blue mood, analysts said.

The volume of housing transactions is expected to continue to increase toward the end of the year, although property prices may still consolidate through the first half of next year, they said.

The remarks follow Minister of Finance Chang Sheng-ford’s (張盛和) announcement at the legislature’s Finance Committee on Wednesday that the ministry would leave the holding period of real-estate that is subject to luxury taxes unchanged at two years, rather than extending the period to three or more years, as some have speculated.

The ministry is scheduled to submit a revised draft on the tax to the Cabinet for review by the end of this month, Chang said.

The luxury tax took effect in June 2011 in a bid to curb skyrocketing property prices. The government imposes a 15 percent luxury tax on properties resold within one year of purchase and a 10 percent tax on those resold within two years of purchase.

“This news is positive for property market sentiment, as uncertainties have been eased and the holding period has not been lengthened,” UBS Securities analyst Ally Chen (陳玟瑾) said yesterday in a research note.

HSBC Securities Taiwan analyst Abel Lee (李忠翰) said in a separate note yesterday that the government maintains both 2-year holding period and tax rate unchanged owing to poor economic conditions.

Barclays Capital Securities analyst Sidney Yeh (葉昌明) said the ministry’s announcement was in line with its expectations and a big relief for the market.

The property sector had in the past few months been worried that the authorities would make “another harsh move,” Yeh said in a client note issued on Thursday.

“We expect transaction volume recovery to carry into November and December on the back of an improvement in property investors’ confidence,” he said.

The latest government data released earlier this month showed that the combined property transfers in the five special municipalities rose 4 percent month-on-month and 4.9 percent year-on-year to 19,614 last month.

A regional breakdown of the date showed that last month's transactions in Taipei decreased by 1.6 percent month-on-month to 3,092. But those in New Taipei City (新北市) increased by 2.4 percent month-on-month to 6,443; by 0.6 percent to 4,434 in Greater Taichung; by 26.6 percent to 2,012 in Greater Tainan and by 6.1 percent to 3,633 in Greater Kaohsiung.

The building material and construction sub-index — which reflects the general performance of property stocks — rose 2.69 percent in the past two sessions of the local bourse after the government's remarks about “minimal revision” on the luxury tax.

The sub-index has risen 13.36 percent since the beginning of the year, outperforming the TAIEX’s 6.2 percent gain over the same period, Taiwan Stock Exchange data showed.

Analysts said they expected share prices of major property players to move up from their current trough, after some witnessed prices corrections of up to 30 percent since their peaks in late July.

Among the property stocks, UBS said it favored Huaku Development Co (華固建設) due to the company’s strong sell-through for its pre-sale projects in New Taipei City (新北市) and Taoyuan County within two months of the project’s launch.

In the third quarter, Huaku posted a net loss of NT$84.76 million (US$2.86 million), or a net loss per share of NT$0.31, on sales of NT$108.28 million.

Last quarter’s loss was mainly due to the change in the international financial reporting standards (IFRS) accounting rule, which does not allow the company to book sales until the completion of the project.

Huaku is forecast to see net profit grow more than 50 percent year-on-year to between NT$2.91 billion and NT$3.05 billion this year, according to estimates made by HSBC Securities and Credit Suisse Securities.

Barclays said it also preferred Kindom Construction Corp (冠德建設), as it believes Kindom’s sales and earnings momentum will improve this quarter following the booking of two new residential projects.

Kindom, which also reported a net loss of NT$13.58 million or NT$0.03 per share last quarter on little accounting bookings of new projects, could see continued sales and earnings strength into next year on the completion of another five residential projects, Barclays said.

Shares of Huaku rose 1.5 percent to NT$87.8 yesterday, while those in Kindom advanced 4.4 percent to NT$38.

This story has been updated with additional information since it was first published.