SINCE hitting its highest closing level so far this year at $10.00 on June 3, property giant City Developments has fallen about 18 per cent in the past five weeks.

Fellow rival CapitaLand is down 13 per cent, after hitting a high of $4.01 on June 1.

It is a sombre reflection of the drying up of buying interest in the stock market, after a truly spectacular run-up in the local stock market, after the benchmark Straits Times Index bottomed out on March 9.

But apart from the renewed worry over the global economic outlook, property developers have something nearer home to worry about – a proposed change to clear the air on how investors would be taxed on the gain they make on selling their properties.

In the past few weeks, anxious whispers have been going around the market about a consultation paper put up by the Finance Ministry to propose a change to the Income Tax Act.

Even though it had been put up for public feedback since June 22, the disquiet was whispered in such hush hush tones, that many veteran tax and property consultants were not aware of the forthcoming winds of changes blowing in their direction.

One tax expert said that he was only aware of it, after property developers asked him to quietly clarify with the Government what it all means.

And until he was shown the consultation paper, a property consultant swore that the Government would leave things as they are. The recovery in the property market is simply too fragile to be able to take any fresh variables in its stride.

Still, the proposed change is a novelty: Instead of trying to define which gains will be taxed, the Government has instead spelt out clearly what will not be taxed.

Essentially, it said that anyone who sells only one property in any four-year period will not have to pay taxes on any gains he makes. But if he sells another property within four years of the first sale, the profit from the second sale may be taxable.

But one tax consultant said that he simply could not understand the need for such a provision, since it only provides certainty on tax treatment for individuals who do not sell more than one property within a four year period.

"Would this mean that they have to pay taxes immediately on gains made from selling a second property during the same period? he asked.

When I posed the same question to the Finance Ministry yesterday, I was reassured by the reply.

Its answer: "The proposed policy concession seeks to provide certainty of non-taxation to property owners who are individuals in the following situation. Under this proposed concession, if an individual disposes a property on or after 1 Jan 2010, he will be certain that the gains will not be subject to income tax, if he has not disposed of any other properties 4 years prior to and including the date of the current disposal. If he has disposed of another property within the 4 year period, the concession will not apply. Whether or not the disposal gains is taxable income will then be determined by IRAS based on the facts and circumstances, no different from the present tax treatment."

From the reply, I believe that anyone who sells a second property within four years after offloading another one will not be taxed on his gains, if he can put a good case for making the sale.

This sure beats the uncertainties surrounding the current rules: You don’t know if you are liable for taxes on the gains you make for selling a property until the taxman comes calling.

But I got one swift reaction from an unhappy reader this morning.

The proposed change is so ridiculous, he wrote.

"It means that for long-term investors like me, if we do come across a peak in the property market, we can only dispose of one property and not all our properties, regardless of how long we have held on to our property investments. What will happen to the rest of my properties," he added.

It is a valid question. In other countries, a capital gain is levied on the profit only if an investor buys and sells a property within a short-span of time. And the tax on the gain dwindles with the length of time in which the property is held.

But having made that observation, I must say that the Government is leaving Iras to determine whether it should tax an investor if he makes a gain on his property sale. This is no change from the current status quo.

Certainly, there is a big worry that speculators may be making a comeback in the past few months, as the economy recovers.

And by ramping up sales and prices unnecessarily with their speculations, they may cause the property market to suffer another heart-attack, if the global economic outlook takes a turn for the worse.

So on the whole, I support the Government’s move to make the rules clearer on property tax gains.

I am sure that in a bull market, investors will carry on buying properties because they are sure of making a gain. They will not be hesitating simply because they are worried that they have to give up some of their gains as taxes.