US senators say have deal on housing rescue bill

US senators say have deal on housing rescue bill 


WASHINGTON – LEADERS of the United States Senate Banking Committee said they had reached a deal on legislation to create a multibillion dollar mortgage rescue fund and a new regulator for housing finance companies Fannie Mae and Freddie Mac.

The plan would enable the Federal Housing Administration to guarantee billions of dollars in refinanced mortgages for homeowners whose properties have fallen in value since they took out their loan.


‘The bill addresses the root of our current economic problems – the foreclosure crisis – by creating a voluntary initiative at no estimated cost to taxpayers which will help Americans keep their homes,’ Democratic Senator Christopher Dodd, the committee’s chairman, said in a statement on Monday.


The US House of Representatives approved a similar bill earlier this month that the nonpartisan Congressional Budget Office said would leave taxpayers on the hook for US$1.7 billion (S$2.3 billion) worth of failed loans.


The bill that is expected to clear the Senate Banking Committee on Tuesday is a significantly more modest initiative that would only cost US$500 million Under the Senate legislation, Fannie Mae and Freddie Mac would cover the expense of the programme, unlike the House bill.


‘This is a victory for the taxpayers. As far as the housing component is concerned, we’re not funding this … with taxpayers’ money,’ Alabama Senator Richard Shelby, the panel’s top Republican, said on CNBC.


Importantly, Mr Dodd, of Connecticut, said the new regulator envisioned for Fannie Mae and Freddie Mac would not have the authority to indefinitely control the mortgage finance companies’ investments or their capital.


‘It does not give this regulator the power to engage in systemic risk issues. … Secondly, you cannot force (Fannie Mae and Freddie Mac) to raise capital for any reason whatsoever,’ Mr Dodd told reporters about the bill. — REUTERS


Source: Straits Times

US entered recession in Q1: Merrill

US entered recession in Q1: Merrill 


NEW YORK – THE United States economy is currently in a recession that began last quarter, Merrill Lynch said.

The call comes despite the fact that gross domestic product grew 0.6 per cent in the January-March period, a meagre but still-positive rate.


GDP readings are subject to sharp revisions and, due to their quarterly nature, tend to lag other indicators like spending and confidence, according to Mr David Rosenberg, the bank’s chief economist for North America.


‘Last week’s data flow confirmed that a recession began in the first quarter of this year,’ Mr Rosenberg said in a research note on Monday.


‘How can there be a recession with real GDP growth still positive? Well, this happened in the first quarter of 1980, the third quarter of 1990 and initially, the first quarter of 2001. And, all were the onset of official recessions,’ Mr Rosenberg said. — REUTERS


Source: Straits Times

BOJ keeps rates steady in uncertain times

BOJ keeps rates steady in uncertain times


TOKYO – The Bank of Japan (BOJ) left interest rates unchanged at 0.5 per cent on Tuesday, as expected, opting to take more time to determine when the fog will clear from the economy – both in Japan and around the world.


Uncertainty over the global economy and soaring energy and raw material costs are adding to concerns that growth is weakening in the world’s No 2 economy, but the BOJ’s room to move is constrained as Japan’s interest rates are already very low.


The central bank’s policy board, currently seven members, voted unanimously to keep its key policy rate at 0.5 per cent.


With no surprise in the rate decision, traders are waiting for BOJ Governor Masaaki Shirakawa’s post-meeting news conference, set to start at 3.30pm (0630 GMT), to hear what he has to say about rising prices of food and commodities and their impact on the economy.


At its last policy meeting about three weeks ago, the BOJ dropped a two-year bias towards raising rates and took a neutral stance on monetary policy, saying it was inappropriate to predetermine its future policy direction given high uncertainty.


Many market players expect the central bank to sit tight for some months before eventually raising rates – possibly around the end of this year or early next year – given a perception that the worst of the credit market turmoil is over and that the Federal Reserve could raise US rates later this year.


‘We are now at the stage where we need to pay utmost attention to the downside risks to the economy,’ Mr Shirakawa said last week.


But he also revived the BOJ’s mantra of adjusting Japan’s low rates towards more normal levels, a phrase dropped in the BOJ’s twice-yearly outlook report on April 30.


‘We need to bear in mind that real short-term interest rates are around zero, a very low level. So if we are certain that the Japanese economy will follow a growth path under stable prices, we will be adjusting interest rates,’ he said.


Swap contracts on the overnight call rate show investors a roughly 60 per cent chance of the BOJ lifting rates by the end of this year up from a 35 per cent chance early last week.


Growth in Japan has so far held up better than economists had expected. Gross domestic product grew 0.8 per cent in the first quarter, thanks to strong exports that have so far weathered a US downturn.


But the data also showed firms cut investment as they braced for slowing global growth and high energy costs to take its toll on Japan, underscoring the view that the domestic economy would slow in the current quarter.


BOJ sources had said before the data was released that GDP figures would not change their view on the economy much.


Weak machinery orders figures released last week pointed to a slowdown in capital spending ahead, making it harder for the BOJ to justify any rate hike in the near future.


In further evidence that the corporate sector, which has led Japan’s growth, is suffering, the nation’s manufacturers turned pessimistic for the first time in five years in May, according to a Reuters survey released on Monday.


Still, most economists say a rate cut is unlikely as Japan’s real interest rates are very low, with the BOJ’s overnight call rate target of 0.5 per cent well below annual consumer inflation of 1.2 per cent.


The nine-member BOJ policy board currently has two vacancies, including one for a deputy governor, but there has been almost no public talk among lawmakers about who should fill the positions.


But with the current parliamentary session ending in less than a month, discussions may resurface in the coming weeks. – REUTERS


Source: Business Times

BOJ revises up view on housing investment

BOJ revises up view on housing investment


TOKYO – The Bank of Japan (BOJ) upgraded its view on housing investment in its monthly report released on Tuesday, saying it has been recovering moderately.


The BOJ had said in last month’s report that there were signs of recovery in housing investment although it remained at low levels.


The central bank kept its assessment unchanged that the nation’s economy is slowing mainly due to the effects of high energy and raw material costs.


Japan‘s gross domestic product grew 0.8 per cent in January-March from the previous quarter, beating market expectations for a 0.6 per cent increase thanks to strong exports that weathered a US downturn.


Housing investment also rebounded in the first quarter.


Firms shrank from investment in the quarter as they braced for slowing global growth and high energy costs to hit the world’s No 2 economy, the data released last Friday showed. – REUTERS


Source: Business Times

Offering defaulters a way out

Offering defaulters a way out


Distressed mortgage buyers play a role in easing the US out of its worst housing slump since the 1930s, writes BOB IVRY


THE way out of the worst US housing slump since the 1930s goes through Angel Gutierrez.


Mr Gutierrez buys bad mortgages a dozen at a time for a fraction of their face value from lenders overwhelmed by the highest number of defaults in 23 years.


When he goes door to door to negotiate lower payments for homeowners or pay them to move so he can sell their houses, he’s speeding up the recovery. He’s establishing a price for the homes and flushing out the least reliable borrowers.


‘You buy the mortgage for pennies on the dollar, carry the big stick, tell the homeowner how it’s going to be, then double your money very easily,’ Mr Gutierrez said.


On a sunny day last month, Mr Gutierrez knocked on doors in Imperial Beach, an arid, hilly town of about 26,000 just south of San Diego. There were three Imperial Beach houses on the spreadsheet provided by the mortgage servicer that was selling them; none of the borrowers had made a payment in months.


In Imperial Beach, 15 homeowners lost their properties to foreclosure in the first three months of 2008, compared with four in the same period last year, according to DataQuick.


Mr Gutierrez said that because of the legal fees, he avoids foreclosing except when he has to ‘clean’ the title of liens or other legal judgments.


At a one-storey, L-shaped stucco house with rose bushes and an American flag hanging from the garage, 62-year-old Armida Leos answered the door. Her 73-year-old husband, Gilberto, a former US Border Patrol officer, had to quit retirement and get a job as a security guard when their monthly mortgage payments jumped to US$3,200 from US$2,400, she said.


Mr Gutierrez’s spreadsheet said that the Leos family owed US$455,000 on their mortgage. They had just received notice from San Diego County that their property tax was being reduced because the house had been assessed for US$193,000.


Back in his pickup truck, Mr Gutierrez said that he was prepared to offer Mrs Leos and her husband US$5,000 to move out.


Mr Gutierrez and his wife Brenda, based in San Diego, are a two-person shop in an industry that is attracting deep-pocketed investors such as New York-based BlackRock Inc, which manages US$1.36 trillion in assets and plans to raise US$2 billion to invest in discount mortgages. Other Wall Street giants like New York-based Goldman Sachs Group Inc and Morgan Stanley are also getting into the business by bidding on thousands of mortgages at a time.


‘At this stage of the game, they’re playing a very small role but I expect that that role will accelerate as more people are willing to accept reality,’ said Sam Zell, the billionaire real estate investor who’s called ‘the grave dancer’ for buying distressed assets. ‘The single-family market has to be cleared. No market works unless it clears. If banks can’t clear, they can’t make new loans. Anything you do to keep people who can’t afford it in their houses is another way of delaying the market clearing.’


In San Diego’s Encanto neighbourhood, median home prices slid 38 per cent in March from a year earlier, according to La Jolla, California-based DataQuick Information Systems Inc. Mr Gutierrez pulled up in front of an L-shaped, one-storey stucco house. The grass was tall enough to hide a broken child’s swing in the front yard.


Mr Gutierrez, who was eyeballing the property to see if he wanted to bid on the mortgage, checked the gas meter mounted on the garage. It was spinning, a sign that the home was probably occupied.


The homeowner was US$365,000 under water after buying the house with no money down in June 2005, according to a spreadsheet listing about 30 loans for sale by a national mortgage servicer that Mr Gutierrez referred to in his truck. If Mr Gutierrez bought the note for 20 cents on the dollar, or US$73,000, he could probably get the owner to leave by giving her US$5,000 for moving expenses, then sell the home for about US$150,000, well below even the neighbourhood’s declining market value, he said. That would leave him a profit of about US$70,000. ‘I like the fast nickel,’ he said. ‘You buy them cheap, you sell them fast, and you get paid.’


When there was no answer at the front door, Mr Gutierrez slipped a bright orange sheet of paper into the jamb. It gave the homeowner Mr Gutierrez’s phone number to call if he was interested in selling.


‘That’s so I can feel them out, see what they’re thinking,’ Mr Gutierrez said. He has no shortage of defaulting borrowers nearby. One in every 74 homes, or 15,315, in the San Diego area was in the foreclosure process in the first three months of 2008, compared with one in every 194 homes nationally, according to RealtyTrac Inc, an Irvine, California-based real estate data provider.


Mr Gutierrez said that smaller operators like him are getting ‘knocked out of the game’ because of the volume of mortgages that banks want to dump.


‘The banks want to get rid of the loans, and they want to get rid of them to one company, not 20 or 30 companies,’ Mr Gutierrez said. ‘It makes sense. I would do the same thing.’


BlackRock, the biggest publicly traded US asset manager, announced in March that it was backing a new company called Private National Mortgage Acceptance Co LLC, also known as PennyMac, that will buy mortgages at a discount and renegotiate borrowing terms with homeowners. The Calabasas, California-based company will then service the loans, meaning that it will collect monthly payments.


Mr Gutierrez said that he’ll probably offer the homeowner with the kid’s swing in the front yard enough cash to pay for a mover and a couple of months in a rented apartment because, he said, many of them want to get out but don’t have the money.


‘I’m considered a bottom feeder,’ Mr Gutierrez said. ‘That’s the way bankers see me. They only want the best loans, the loans that are paying. That’s nice, but there’s no money in it.’ – Bloomberg


Source: Business Times

World property markets frozen: Mack

World property markets frozen: Mack


Bid-ask price gaps are too wide, many are sitting on the sidelines


(NEW YORK) Global real estate markets are frozen because buyers and sellers remain far apart on price and aren’t ready to concede values won’t return to levels achieved in 2007, Apollo Real Estate Advisors LP senior partner William Mack said.


‘The markets are kind of stuck,’ said Mr Mack, who has helped raise almost US$6 billion for new real estate investments. ‘The bid-ask spread is too wide. A lot of money and a lot of people are sitting on the sidelines trying to establish where the next move is.’


Mortgage-related losses have forced financial institutions to write down more than US$300 billion in assets and constrained lending for property acquisitions. In New York City, Manhattan office building sales fell in the first quarter to the lowest since 2005, according to data from Real Capital Analytics.


Recent signs of recovery in shares of real estate investment trusts are ‘a bounce off the bottom’, said Mr Mack, 68, in an interview last week. The Bloomberg Reit Index has risen 9.8 per cent this year, after falling 22 per cent in 2007, the steepest dive in the 14-year history of the measure.


‘The sales market is very, very slow,’ said Mr Mack. ‘The leasing market has slowed down because there have been a lot of layoffs, and people are not as confident they need extra space and that’s throughout the world.’


Confidence won’t return to the market until ‘everybody believes that the blood-letting and the writing down of assets is over, or near-over’, said Mr Mack. ‘We need a realisation that terms and conditions that existed a year ago are not going to come back in the near future.’


Property values have fallen and lenders are willing to lend only about 65 per cent of value, compared with 90 per cent in the past. ‘Unless you have a good deal of equity, you’re going to be out of the game,’ Mr Mack said. ‘That is the penalty for rolling the dice.’ Apollo is waiting for the right moment to start making acquisitions and Mr Mack said he thinks the East and West coast property markets will offer some of the best opportunities.


The gap between sellers and buyers remains ‘very large’, said Mr Mack, who founded Apollo’s real estate unit in 1993 as property markets were recovering from a recession.


The group’s investments have included New York’s Time Warner Center, the St Katherine Dock office/retail development in London, and the Pascal Tower in Paris.


Apollo Real Estate was founded in 1993 by Mr Mack and Apollo Management LP, a private equity firm. — Bloomberg


Source: Business Times

Fancy Aguilera’s home? Price: US$8m

Fancy Aguilera’s home? Price: US$8m

ANN BRENOFF provides the lowdown on hot celebrity properties on sale in the Los Angeles area


THERE’S nothing like new motherhood to get you thinking about the nest, which may explain why singer-songwriter Christina Aguilera, whose son was born in January, has listed her Hollywood Hills home for US$7,995,000.


Or maybe it’s just time to change houses, the way she changes her siren looks.


The architectural Midcentury sure sounds like an adult’s toy box: it has a gym, a pool and a 12-person spa with a fireplace. There’s also a professional screening room that seats 18. At 1,200 square feet, the master bedroom is bigger than many Manhattan apartments. The house is set high enough in the hills to enjoy jetliner views. There are five bedrooms and seven bathrooms in 6,500 sq ft, and it all sits at the end of a cul-de-sac.


Is it baby-friendly? Uh, not really.


But not to fear that the Latin goddess of song will be homeless.


Last summer, the multi-Grammy-winning Aguilera and her husband, music marketer Jordan Bratman, bought Ozzy and Sharon Osbourne’s former house in Beverly Hills for US$11.5 million. It has six bedrooms and 10 bathrooms in 11,500 sq ft.


Aguilera, 27, known for her powerful voice and platinum-blond sexpot image, made her TV debut on Star Search before she was 10, followed by The New Mickey Mouse Club at age 12. She has since sold more than 30 million albums worldwide.


Jake’s parents’ home


Does the fact that Brokeback Mountain star Jake Gyllenhaal, 27, may be a boomerang kid who sometimes stays with his parents make you love him any less? Me neither.


Between trips to New York and Cabo with Reese Witherspoon, the Oscar-nominated actor just may be stumbling around in his jammies at the Hollywood Hills home owned by his parents, Stephen Gyllenhaal and Naomi Foner.


Our ‘I saw evidence of Jake’ spotter toured the five-bedroom, three-bathroom, 3,000 sq ft home that is listed for sale. The asking price has dropped from US$4.2 million to US$3,795,000 – sounds like they’re getting serious after three months on the market.


The listing agent says Jake doesn’t live there – part time or otherwise – and points instead to the ‘modern light-filled design with an expansive fully equipped cook’s kitchen’ as a selling point. (Note to agent: Saying ‘come take a look and you might see Jake’ is a bigger lure.)


Anyway, the outdoor area was designed by landscape-designer- to-the-stars Jay Griffith. The property is almost an acre; the house sits way down a long driveway and juts out on a promontory from which there are magnificent city views.


Van Halen properties


Don’t you just love ageing rockers? Especially when they are good to their mothers? Just last month, Tiger Woods introduced Van Halen as ‘one of the greatest bands in history’. (Okay, the band was performing at a fundraiser for the Tiger Woods Foundation, but still.) The band, around since 1972 in various incarnations, also has some real estate news to report.


First, there’s Mom’s house.


Rocker Eddie Van Halen and his brother, drummer Alex, sold a house for US$1.5 million that they had bought for their mother in the Summit area of Beverly Hills, according to public records. They paid US$688,000 for it in 1987; their mother, Eugenia, died in 2005 at age 89. It had been listed at US$2.2 million.


Then, in other Van Halen real estate news, Kelly Van Halen, Alex’s second ex-wife, is selling her home in LA’s Encino neighbourhood for US$4,495,000.


The French Country estate has 6,900 sq ft, which includes five bedrooms, seven bathrooms and a wisteria-covered gated entrance.


The two-storey entry has a sweeping staircase and screams ‘old-world charm’. The chef’s kitchen has Carrera marble countertops and a centre island, Viking professional stainless-steel appliances and a separate breakfast room.


There’s a library, four fireplaces, and a stone-edge Pebble Tec swimming pool.


Hockey star’s town house


Googling Ken Belanger is like scanning the programme for Friday Night Fights: ‘Ken Belanger Hits Ulf Samuelsson’, ‘Ken Belanger KOs Brad Brown’. The former National Hockey League player’s legendary fights are all over YouTube.


Belanger is selling his Manhattan Beach town house for US$1,125,000.


The listing agent, Ed Kaminsky of SportStar Relocation in Manhattan Beach, assures us that there are no holes punched in the walls of the 1,876 sq ft, two-level home. The same cannot be said for some of Belanger’s hockey opponents.


The three-bedroom, three- bathroom home is in a gated community south of LA and has wide-open greenbelt views. The unit has two master suites, an updated kitchen and a large patio area. Belanger, 34, began his NHL career with the Toronto Maple Leafs in 1994. He also played for the New York Islanders and the Boston Bruins, and joined the Los Angeles Kings in 2001. He retired in 2006.


Calling buyers


Aaron Kamin – guitarist, songwriter and a founding member of the MTV award-winning band, the Calling – has listed his Studio City home for sale for US$1,199,000.


The two-storey house in the San Fernando Valley has three bedrooms and three bathrooms in 2,250 sq ft. There are hardwood floors, a covered patio and views of the mountains.


The Calling, which started out as an LA garage band, won the MTV Europe Music Award for best new band. The group is taking a hiatus. — LAT-WP


Source: Business Times

Squatting on rise as US foreclosures surge

Squatting on rise as US foreclosures surge


Some pose as tenants who seek cash from banks as a condition to leave


(BROCKTON, Massachusetts) They enter through a broken first-floor window each night to sleep on a mouldy bed in the abandoned four-family house at 827 Main Street, part of a new generation of squatters emboldened by America’s housing foreclosure crisis.


‘For squatters, foreclosed homes like this are like a camp-ground with free camping,’ says real estate broker Marc Charney, a foreclosure specialist, as he enters the home here and shines a torch at a mattress where homeless people have been sleeping each night.


Squatting is on the rise across the US as foreclosures surge, eviction notices mount and homes go unsold for months, complicating the worst US housing slump in a quarter century and forcing real estate brokers to enlist the help of law enforcement and courts to sell empty houses.


In some regions, squatting is taking on new twists to include real estate scams in which thieves ‘rent out’ abandoned homes they don’t own. Others involve ‘professional squatters’ who move from one abandoned home to another, posing as tenants who seek cash from banks as a condition to leave the premises – a process known by real estate brokers as ‘cash for key’. ‘There are people who move in and know exactly who to contact and say ‘If you want this house, why don’t you come out here and offer me cash’,’ said detective Erin Camphouse of the Los Angeles Police Department’s Real Estate Fraud Unit.


‘It’s just cheaper for the banks to do that rather than going into the courts,’ she said. ‘The squatters are getting sophisticated and turning it on these banks who own the properties.’ She cited another case in which a Los Angeles man recently ‘leased’ three abandoned homes to unsuspecting renters through Craig’s List, the online classified advertising company. The renters paid first and last month deposits, moved their belongings in and lived in the homes for several months.


‘In one case, there were loose ends of rehab on the house that needed to be done and the crook wasn’t coming through or wasn’t completing it. So they offered to do it instead of paying rent. They put down tiles and carpet and all that kind of stuff. And it wasn’t until the sheriff put the lockout notice on the door that they realised something was wrong.’


New Jersey real estate broker Bill Flagg is in a different type of legal tussle with occupants of a foreclosed home who refuse to leave in Plainfield, a city of 47,829 people.


‘We know the people are squatters. But we have had the cops there. We had the electricity shut off and the cops wouldn’t put the people out. We have to go to court to get them out. They claim to be tenants,’ he said.


Such cases of squatters posing as tenants are on the rise, said Bill Collins, president of the New Jersey chapter of the National Association of Real Estate Brokers.


‘These people claim that they have a lease but they can’t find it. And the property owner has been removed from the property or been foreclosed on, so they have no interest in confirming if this person is a valid tenant,’ he said.


‘So now you have squatters who are assuming that they are tenants and have rights to some degree to stay in the property until we can go through the court system to get them out.


‘And they have caught wind that what most of these banks are doing is giving cash for keys, so cash for eviction – anywhere from US$1,000 to US$1,500. So here you have a squatter who goes into a property, takes up residence, tells you that he is a tenant, goes to court and says that he is a tenant. Who can prove otherwise?’


California real estate broker Steve Smallson said that he finds about three squatting cases a month, compared to none last year, in his region of Woodland Hills, a middle-class district of Los Angeles. That includes a case in April involving a foreclosed home worth US$1 million where police were called after neighbours reported squatters filming pornography in the house.


The problem is compounded in some states by the weakening economy and its effects on America’s homeless, who number about 744,000 each night according to the National Alliance to End Homelessness, an advocacy organisation in Washington.


‘The rise of squatting is a natural consequence of these properties sitting there empty caused by the whole foreclosure crisis,’ said Steve Berg, a vice- president at the alliance. – Reuters


Source: Business Times

California’s luxury home prices down: poll

California‘s luxury home prices down: poll


Fall for 2nd straight quarter due to banks demanding higher credit scores


(SAN FRANCISO) California’s luxury home prices fell for the second consecutive quarter as banks required higher credit scores and downpayments, reducing the number of potential buyers in the state’s wealthiest communities.


The average price of a luxury home in the San Francisco Bay Area declined 0.8 per cent from the previous three months to US$3 million, according to a survey by First Republic Bank, a unit of Merrill Lynch & Co. Los Angeles prices dropped 2.2 per cent to US$2.35 million, and San Diego prices fell 2.2 per cent to US$2.06 million.


‘Values of luxury homes in California have declined slightly in price after many years of strong appreciation,’ Katherine August- deWilde, president of San Francisco-based First Republic Bank, said in a statement.


Mortgages are more difficult to obtain after the world’s biggest banks reported more than US$300 billion in sub-prime-related writedowns and credit losses since the beginning of 2007. The value of jumbo loans, those over US$417,000, probably fell below 10 per cent of the entire mortgage market in the first quarter, Guy Cecala, publisher of Inside Mortgage Finance, said in an interview. That’s the lowest since the Bethesda, Maryland-based newsletter began keeping statistics in 1985.


In Los Angeles, prices fell 3.7 per cent from a year earlier, to the lowest level since the first quarter of 2006. In San Diego, they dropped 4.9 per cent to the lowest level since the second quarter of 2005.


Prices rose in San Francisco, climbing 2.9 per cent in the first quarter from the same period a year earlier, First Republic said.


Reduced availability of jumbo loans cut the median price of San Francisco homes and condominiums by as much as 10 per cent in March, DataQuick Information Systems Inc said last month.


‘It’s really a liquidity problem,’ Mr Cecala said. ‘There’s no market for securitised jumbo loans. Investors are still not convinced that the mortgage market has cleaned up its act.’


First Republic tracks luxury prices with Fiserv CSW Inc, a provider of automated property valuation services for financial institutions.


‘The strongest markets are the best neighbourhoods in San Francisco, desirable close-in suburbs and upscale coastal communities,’ Ms August-deWilde said. ‘The higher end of the luxury market is the most active.’ – Bloomberg


Source: Business Times

Renovation costs to get tax relief

Renovation costs to get tax relief


BUSINESSES can now claim new deductions on capital spending, thanks to a new tax incentive introduced by the Inland Revenue Authority of Singapore (IRAS) after it was approached by the Pro-Enterprise Panel (PEP).


Just about all businesses spend on fixtures and fittings, either to refurbish the premises for a fresher look or when starting operations.


But before Feb 16 this year there was no tax relief on these expenses. Fixtures and fittings did not qualify for an allowance because they related to the setting in which the business was conducted, and not the provision of plant or machinery.


Now a new incentive, which will be available for five years, grants a tax allowance on qualifying expenditure on renovation and refurbishment for the purposes of trade, business or profession, except expenses relating to structural works and expansion of space.


The expense has to be written off over three years on a straight-line basis, subject to a cap of $150,000 every three years.


With the change, businesses – particularly those in the service sector – will save tax and improve their bottom line. The revision came after two companies approached PEP because they could not claim tax deductions on immovable items or renovation expenses.


PEP approached Iras with the objective of supporting a reduction in business costs.


According to PEP, businesses – especially small and medium enterprises – felt tax relief should be offered, since the government’s intent is to help business cut costs.


One of the companies that appealed to PEP told it: ‘Most commercial (retail) lease terms are for a period of three years only, after which, if we vacate the premises, we will have to restore the premises to its original condition.


‘In other words, the benefit of the enhancement of the property does not get translated to the retailer and worse still, tenants will incur renovation costs twice, and not be able to claim capital allowances.’


The Pro-Enterprise Panel (PEP) was established in 2000 to actively solicit feedback from businesses on how government rules and regulations can be improved to create a more pro-enterprise environment in Singapore. The PEP is chaired by the Head of Civil Service, Peter Ho, and comprises mainly business leaders from the private sector.


Source: Business Times