The Government’s clarification on tax on property trading, while clearing the “air” for many according to views picked up by the press this morning, will likely hurt property stocks, which have enjoyed strong gains in recent months on the back of robust new home sales, which can be partly attributed speculative buying.

Of bigger short-term concern however is the likely impact of changes taking effect in January 2010 if implemented: will this lead to “dumping” in the coming months by buyers who are likely to be deemed “traders”.

The new Section 10G states that an individual who disposes of only 1 real property on any date on or after 1/1/2010, and has not disposed of any other real property within 4 years prior to the disposal of the first property, shall not be taxed for any gain arising from such a disposal. There is however no provision for tax loss.

The new rule will also cover (a) options for new property launches; and (b) part disposal of any real property, eg strata units.

The sector has already started to correct before the above development, with the worst hit being Keppel Land, even though it tends to be seen more as an office play than residential, even though it has a one third stake in the massive Reflections @ Keppel Bay. Not surprisingly UIC has been the least affected (down 1%), partly because its 49% rebound was among the weakest. As is Lee Kim Tah, which is 3% off high, which in turn was the weakest 31% above the March low.