Business Times: Fri, Dec 09
(SINGAPORE) The latest measures unveiled by the government are expected to have major implications for developers buying residential land, especially involving collective sale sites. They will have to develop any residential sites they buy from Dec 8 and sell all the units in the new project within five years - if they want to avoid paying the new 10 per cent additional buyer's stamp duty (ABSD).
'This can be very onerous especially when the property market is slow,' said Credo Real Estate executive director Ong Teck Hui.
Drew & Napier head of tax practice Ong Sim Ho said: 'For developers, it has become more difficult and costly to land bank.' He suggested one intention of the new rule could be to give more certainty to supply numbers on the completion of private homes.
Information in the Inland Revenue Authority of Singapore e-tax guide on the ABSD indicates that the new 10 per cent ABSD is payable by corporate entities buying vacant land and development sites for residential use - although they can apply for upfront remission if the buyer (developer) undertakes to develop and dispose of all units in the new development (which must have more than four residential units) within five years of the date of contract or agreement to buy the site, among other conditions.
If this condition is not met, the ABSD (with interest) becomes payable immediately upon the expiry of five years. The residential sites include Government Land Sales (GLS) plots and private-sector sites including en bloc sales.
Market watchers say that with the five-year limit to complete the project and sell all units, developers will have to weigh their land purchase decisions more carefully.
'They must be confident of developing the project and disposing of all residential units in it within five years - taking into account the possibility of any turn in market conditions and in the case of en bloc sales, the risk of a possible delay in court approval,' says Lee Liat Yeang, partner in real estate practice group at law firm Rodyk & Davidson.
For en bloc sales, the date of contract or agreement refers to the date when the site is awarded by the Sales Committee. From this point, it can take six to 12 months or even longer for legal completion of the site's purchase (including court approval of the en bloc sale).
This additional time eats into the five-year limit the developer has to complete building the new residential project on the site and selling all the units, said Mr Lee.
But for sites bought through the GLS programme, the impact will be less as there is certainty that the legal completion of the land purchase will take place by the 90th day of the site's award (the latter is deemed date of contract), added Mr Lee.
Credo's managing director Karamjit Singh said the new rules will hit big collective sales very badly. 'For the small and medium-sized en bloc sale sites, most developers would already aim to buy the site, develop it and sell new units within five years, even before the new rules kicked in - whereas for the bigger sites it can be very difficult to be certain that you can clear all your units within five years.'
This will further reduce the attraction of bigger en bloc sale sites, which have already put developers off due to their steep pricing, say analysts.
There has not been any collective sale deal this year exceeding $200 million.
KPMG partner, tax services, Leonard Ong, said: 'The ABSD will certainly increase the costs of acquisition by developers who are unable to meet the conditions for remission.
'These costs are then likely to be passed on to end-buyers when the developed residential properties are sold. This would be regardless of who the properties are eventually sold to, including first-time home buyers. This cannot be the intention of the government.'
Under the new rules that took effect yesterday, foreigners and non-individuals (that is, corporates) buying any private residential property in Singapore will pay the 10 per cent ABSD. However, foreigners of certain nationalities - the United States, Switzerland, Liechtenstein, Norway and Ireland - who fall within the scope of respective free trade agreements will be accorded the same treatment as Singapore citizens.
Singaporeans pay a 3 per cent ABSD for their third or subsequent residential property purchase. Permanent residents pay the same ABSD rate when they buy their second or subsequent home in Singapore.
Even before the ABSD kicked in yesterday, any developer buying a GLS residential site has been given a five-year limit by the state to complete the project, although the GLS conditions do not stipulate any timeframe on the sale of units.
However, when it comes to buying a private sector residential site (for example, through an en bloc sale), foreign developers have to obtain a Qualifying Certificate, conditions for which include a five-year limit to obtain Temporary Occupation Permit (TOP) for the project and another two years from TOP date to finish selling all the units in the project.
Any developer with even a single non-Singaporean shareholder or director is deemed 'foreign'. Hence all the big listed developers, including City Developments and CapitaLand, are counted as foreign developers.
Hitherto, Singapore developers (such as Far East Organization and Hoi Hup) have been spared any time limit for completing or selling a residential project on a private site, although they face the five-year limit to complete GLS projects.
'So now the Singapore developers too will face a time limit to complete and sell units in all residential projects on sites bought from Dec 8, - if they wish to avoid ABSD,' said Mr Lee.
Source: Business Times © Singapore Press Holdings Ltd
Martin Koh/ Sherry Tang