Sat, Jan 19, 2002 page17

• Real estate tax break to kick in

  NEW LAW Observers say the tax break could spark the stagnant property market, with the biggest winners most likely to be corporate property owners

  • By Richard Dobson / STAFF REPORTER
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  The halving of the land value incremental tax for the next two years will provide the necessary spark to reignite the stagnant property market, with most of the benefits expected to be reaped by big corporate property owners, according to industry analysts.

  "The benefits are for the long-term property owners ... the big land owners. If a company is cash rich they will be thinking about how to benefit from that two-year holiday," said Calvin Wang (王治平), managing director of Jones Lang Lasalle in Taipei.

  Wang predicts that the number of transactions will definitely increase following the decision by the legislature on Thursday to slash the tax by 50 percent until January 2004.

  But Wang warns that while the increase will appear large, that will primarily be due to the fact that the market has remained stagnant for so long and will therefore be misleading, as cash-rich companies take advantage of the tax break to move property ownership among affiliated firms.

  "It's a short-term fix to revamp the nation's sagging property market," said Shea Jia-dong (許嘉棟), chairman of the China External Trade Development Council (CETRA, 外貿協會) and former Minister of Finance, "but what may happen is that the market may stall, again after two years when implementation of the temporary tax deduction ends."

  Derek Huang (黃政忠), head of global research for CB Richard Ellis in Taipei, said that while the real number of transactions is bound to increase, the actual value of the transactions will drop.

  "Under the previous tax system, landowners would pay a lot of tax, so now they will be more willing to sell off the land," Huang said.

  "But on the other hand if there is more land released into the market we can assume that the average price will go down," he said.

  Huang said that big corporate groups such as insurance firms and big construction companies, which have held a lot of property for long periods, will benefit the most from the new tax break.

  According to a report by Evertrust Real Estate (永慶房屋), transactions of properties held for 15 years or more in the Greater Taipei area -- which account for 30 percent of all transactions there -- will see a major increase due to low interest rates and the reduced taxation model.

  According to Wang, transactions in marginal commercial locations will jump significantly as lower prices turn the market into a buyer's domain, perhaps even testing the growth target of 500 percent in three months projected by local media.

  Transactions involving prime commercial locations -- such as in the Hsinyi financial district in Taipei or along high-profile corners on Chunghsiao E. Road -- will remain a seller's market despite the savings as they will still be highly sought, Wang said.

  Perhaps most importantly will be the psychological impact any pick-up in business will have on the real estate sector, Wang said.

  "After the market becomes active, this becomes a psychological issue," he said.

  Shea added that investors may advance their business deals in the two-year period to take advantage of tax break.

  "But, after that the market may not be as good as some thought," he said.
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