Construction Stocks Plunge After Tax Hike

Sources : TODAY, Thursday July 19th 2007

20% rise in development charges takes wind out of property sector’s sails.

SINGAPORE stocks fell the most in three months after the Government increased the fee builders pay to redevelop sites.

The Government increased the Development Charge (DC) from 50 per cent to 70 per cent effective yesterday.

DC is the tax that developers have to pay to build a bigger new development on an existing site. Developers are buying and tearing down ageing properties to build bigger developments as home prices in the city-state rise. Higher fees for redevelopment will erode their earnings on these projects.

CapitaLand, the city-state’s biggest developer, and DBS Group Holdings, the largest lender, paced the decline.

CapitaLand stocks fell 2.6 per cent to $7.50. DBS, the nation's largest lender, declined 20 cents, or 0.9 per cent, to $23.40.

Yongnam Holdings, the best-performing construction stock this year, tumbled the most in more than four months. Yongnam, which provides structural steel for highrise buildings, dropped 8.7 per cent to 47 cents.

“Raising the charge is one of the most obvious ways to take earnings away from developers,” said Mr James Chua, who helps oversee $330 million at Phillip Capital Management in Singapore.

“If you remove the upside to property prices, home lending and construction activity will likely slow. That’s bad for banks and building stocks,” Mr Chua added.

Chip Eng Seng, a construction company, tumbled 11 per cent to 89.5 cents.

CSC Holdings, which provides excavation and piling services, dropped 9.2 per cent to 39.5 cents.

A measure of construction stocks dropped 8.7 per cent, the biggest slide among nine industry groups included in the Singapore All Equities Index.

The Straits Times Index declined 67.08, or 1.8 per cent, to 3583.07 at the close, its steepest one-day drop since April 19.

Of 49 stocks included in the benchmark, 43 fell and three rose. July futures dropped 2.3 per cent to 439.9.

Neptune Orient Lines and Singapore Airlines led transportation shares lower on concern that crude oil prices near an 11-month high will erode earnings.

City Developments dropped 2.5 per cent to $15.90, while prices for Keppel Land dropped by 1.7 per cent to $8.55.