The German government’s corporate tax reform bill won the backing of the Bundesrat upper house of parliament recently, clearing its final parliamentary hurdle.
The measure aims to attract business to Germany and support growth in Europe’s largest economy. It must be signed off by President Horst Koehler before it takes effect next year.
The reform will cut incorporated companies’ tax burden to just below 30%, from the current rate of 39%, starting in 2008. The latest cut takes the total corporation tax cuts over the last ten years to 27% (from 57% in 1998 to 30% in 2008). Other countries that have drastically cut corporation tax rates, like Ireland and Cyprus, have seen considerable growth in their residential property markets as a result.
The new measure envisages €30bn worth of tax cuts, €25bn of which will be financed by widening the tax base and increasing incentives for firms to file their taxes in Germany rather than other countries.
The reform will widen the tax base by reducing firms’ ability to deduct interest payments from profits - a proposal resisted by business leaders and some conservatives.
Skopje’s first tram to be completed next year
The first tram line in the Macedonian capital of Skopje will be completed in 2008. The administration of Skopje has requested that the feasibility study be pushed forward in order to seize an opportunity to apply for funding from the EU.
Macedonia’s capital wants to apply for support from EU pre-accession funds, in addition to gaining local financing from Skopje’s 2008 city budget.
The municipal company in charge of the project is based in Sofia, and works with a Macedonian design office. The newly planned tram route is awaiting approval but is expected to be completed by autumn 2008.
Czechs cut corporate tax rate
The Czech Parliament has voted to cut the country’s corporate tax rate to 19% over the next three years. The centre-right coalition government of Mirek Topolanek won support for the reduction from 24% to 21% next year (2008), then by a further one percentage point in 2009 and 2010.
The reform bill is based on reforms which Slovakia introduced in the late 1990s. The reform package achieved a slim two-vote majority but was, nevertheless a key victory for Topolanek. Vlastimil Tlusty, the former finance minister, had threatened to vote against the bill.
Reaction from business has been mixed. Ales Michl, an analyst at Raiffeissenbank, said: “These watery reforms lack vision and ambition and do nothing to solve the deficit. The government should be seriously cutting public expenditure particularly in state orders, the health sector and social benefits.”
Pavel Sobisek, an economist at HVB, said that without the reforms euro adoption would be impossible in 2012.
The bill must now be approved by the Senate, where the ruling parties have a majority, and then by President Vaclav Klaus.
If agreed, the country will have almost cut corporation tax in half in just over ten years, from 35% in 1999 to 19% in 2010.
Overheating sees house price downturn across most of Europe
House prices in the overheated markets in Europe have begun a downturn. Jean-Michel Six, chief Europe economist for Standard & Poor’s, said extreme levels of household debt across large parts of Europe have left the region vulnerable to tightening credit conditions, with debt levels above 100% of GDP in Ireland, Britain, Spain, the Netherlands, and Denmark.
“Spain is heading south. Local real estate companies have reported price falls on a quarter-to-quarter basis in Madrid and several other provinces”, he said.
French property prices fell 1.5% in July - though they were still up 5% over the year. “House price inflation (in France) could turn negative in the second half of this year”, he said, adding that proposals by French President Nicolas Sarkozy to allow new buyers to offset part of their interest costs against tax would help support the market.
“The spate of interest rate rises by central banks is exacting its toll on disposable incomes already weighed by rising household indebtedness”, he added.
Irish property has fallen for the past four months in a row as higher Eurozone interest rates start to bite harder. In Ireland, house prices dropped 2.6% in the first six months of the year to June, with falls of 3.3% in Dublin. The slowdown is rapidly spilling across into building. House registrations are down 34% over the first half of the year and roughly 15% of housing stock lies empty, according to the Irish census.
Also, the speculative bubble in the Baltic States has burst. House prices in the greater Riga region of Latvia fell 3.5% in June, following a 1% fall in May. Flats in the old city became more expensive than Berlin by early this year in a speculative frenzy, much of it with Euro, Swiss franc, and Yen mortgages that could prove disastrous if Latvia’s currency is suddenly devalued - as may well happen, given the country’s current account deficit has exploded from 4% to 26% of GDP in less than five years.
Similar booms in Romania, Bulgaria, Croatia, and even Russia are all looking stretched to extremes. Danske Bank, the largest bank in Denmark, has warned that much of Eastern Europe has been inflated by a ‘monster bubble’ that recalls conditions in East Asia shortly before the crisis broke in 1997.
Worldwide News
Australian tax office crackdown on property investors
The purchase of all investment properties and shares over the past year in Australia is to be scrutinised as part of a major tax office crackdown involving data-matching more than 220m electronic transactions across the economy.
The Australian Tax Office (ATO) has revealed it will cross-reference every investment property transaction with revenue and land titles records in each state. The share market dealings of investors will also be examined, with the tax office having access to data from the Australian Stock Exchange and the nation’s three largest share registries.
The ATO has already written to residential landlords to warn them to declare the right amount of income from their investments. The tax office fears that the national property boom, especially the recent spike of investors selling investment properties, could lead to an underpayment of capital gains tax.
Jennie Granger, the tax office’s second commissioner, said investment property buyers this year would be warned of their tax obligations not only while they owned a property but also when it was sold.
This year, up to 6000 ‘at risk’ cases have been identified by the tax office and will be audited to ensure the correct tax is paid.
REITs turning to Japanese market
Japan is quickly becoming the most sought after place to invest for large property funds and REITs thanks to resurgence in its economy which has led to a rise in rents and capital growth.
Rents in Japan are reported to have grown by up to 17% over the past year in the retail, office and industrial property sectors.
Rubicon Japan Trust reported a rise in earnings then bought another four retail sites. Babcock & Brown Japan Property Trust and Challenger Kenedix Japan Trust have also reported positive results.
Goodman International has also flagged an interest in Japan. The group’s chief executive, Greg Goodman, says he is scouring the country for deals to expand his growing presence in Asia.
Kenedix Inc, an associate of the Australian-based Challenger Kenedix trust, and Pacific Management Corp, Japan’s second- and third-largest real estate asset managers, may buy out smaller rivals as they find it harder to find bargains in the resurgent Tokyo property market.
A 9.4% increase in commercial land prices in Tokyo last year and the entry of overseas investors, such as Morley Fund Management Ltd, have made it difficult for asset managers to buy properties. Kenedix and Pacific Management supervise a total of $14.8bn in assets between them.
Monthly rents for top office buildings in Tokyo have soared to the highest level for 13 years this summer, driven by high demand and dwindling supply, Jones Lang LaSalle Inc said in a recent report.
The strong growth in commercial land and property prices is expected by many to be followed by equally strong growth in residential property.
Singapore’s property market still cheaper despite rising rents
Despite rising property rents and labour costs, Singapore remains cheaper than other regional centres , the country’s trade minister said this week. Lim Kiang was responding in parliament to questions about the impact of rising prices in the city-state, which is experiencing a property boom.
“We should distinguish facts from impressions given by media reports of sky-high rentals in selected locations”, the minister said, noting that both office and residential rents are highly location-dependent.
He said that while the median prime office rent in the second quarter was US$6.25 sq ft per month, the median rent on about 80% of the country’s office space was less than half that rate.
“Singapore remains cheaper compared to other global cities in the region”, he said. Kiang cited an industry study which said Singapore monthly rentals last year for three-bedroom apartments in prime districts were less than half those in Hong Kong and Tokyo.
Another industry study in May this year found Singapore’s office rent was 30% lower than in Hong Kong and 50-60% lower than in Tokyo, he added.
Last month, the Urban Redevelopment Authority (URA), which is responsible for land use planning in the island nation, released data, which showed Singapore residential, commercial, and industrial property prices rose sharply in the second quarter.
Prices of residential property, including houses, apartments and condominiums, were up 8.3% compared with a 4.8% rise in the three months to March, URA said. Office prices rose 8.9% compared with 4.3% in the first quarter, while retail prices spiked to 4.6% from 1.7%.
Singapore earlier this month raised its economic growth targets for this year from 5-7% to 7-8%. Kiang said inflation was between 0.5% 1% in the first half this year but is expected to rise in the second half, partly as a reflection of global trends.
“We have been enjoying practically 16 quarters of growth and in fact I’m surprised our inflation numbers are as low as they are”, he added.
South African tourism to grow by 50% over next three years
The tourism industry in South Africa is expected to grow by 50% over the next three years in the build-up to hosting the 2010 FIFA World Cup. By then, tourism will make up about 12% of the country’s Gross Domestic Product (GDP), said the chief executive officer of South African Tourism, Mr Mosola.
Mosola said: “The industry currently contributes about 8.2% of the national GDP, which is a 79bn Rand contribution.”
Responding to the media reports of fears that South Africa would not be able to handle the influx of people in 2010, he said that on a monthly basis the country already deals with 650,000 travellers.
“We are expecting some 450,000 international travellers in the space of six weeks”, he said, adding that South Africa was more than capable of handling the influx of football fans.
In 2006, 8.3m people passed through South Africa he added.
“If tourism is managed correctly in this country, we expect the industry to contribute about 12% to national GDP by 2010”, said Mosola.
