Listed Singapore developers can get exemption from QC scheme

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With the rule change, locally controlled developers can now be treated as Singapore companies under the Residential Property Act when they acquire residential land for development. THE STRAITS TIMES (SINGAPORE)/ASIA NEWS NETWORK

Some listed developers in Singapore may now get some reprieve from onerous conditions currently imposed on foreign developers when they buy residential land for development following a rule change last week.

Listed property developers with a “substantial connection to Singapore” can now apply to be exempted from the qualifying certificate (QC) scheme.

This will offer a boost to some eligible listed developers as they will be exempt from stringent timelines and penalties under the QC scheme, analysts say.

The move, announced by the Ministry of Law and the Singapore Land Authority, is welcomed by real estate players facing challenging market conditions and an increasingly uncertain business environment compounded by the coronavirus outbreak.

Under the Residential Property Act (RPA), only developers with directors and shareholders who are Singaporeans or Singapore companies – and are incorporated there – are considered Singapore companies.

If they have just one foreign shareholder, they will not be considered Singapore companies. These developers will therefore be subject to QC requirements, which include having to complete their projects within five years of acquiring the site, and to sell all the units within two years of completion. This is to prevent land hoarding and speculation.

If they fail to meet this deadline, the penalties are punitive. They incur extension charges at eight per cent of the land purchase price pro-rated on the number of unsold units in the first year. This goes up to 16 per cent in the second year, and 24 per cent per year in the third and subsequent years.

Since the introduction of the QC extension charges regime in 2011, developers have paid about S$200 million (US$144 million) in QC or extension charges.

With the rule change, locally controlled developers can now be treated as Singapore companies under the RPA when they acquire residential land for development. This would be based on criteria such as having a track record in Singapore and a significantly Singaporean substantial shareholding interest.

“The changes are part of our regular policy review to better align the QC regime to the objectives of the RPA,” said a ministry spokesman.

However, all housing developers will continue to be subject to the additional buyer’s stamp duty (ABSD) regime. This requires firms to develop the land acquired and sell all units within the new project in five years from the date of purchase, among other conditions, in order to qualify for an upfront remission of ABSD based on the purchase price of the site.

Should a developer fail to do so, it will have to pay the 25 per cent ABSD with interest – or 30 per cent including an additional ABSD of five per cent that is non-remittable. This has been raised from 15 per cent since July 2018.

Nevertheless, allowing exemptions from the QC regime will be a relief for developers that are concerned about clearing land inventory and potentially having to pay extension charges, said Tricia Song, head of research for Singapore at Colliers International.

City Developments (CDL) welcomed the change, pointing out that the QC regime puts listed developers like itself in a “disadvantaged position, as they are subjected to double penalties of QC and ABSD”.

“The group will study details of the changes and make the necessary applications for eligible development projects,” a spokesman said, adding that CDL’s joint-venture residential project, the 592-unit Amber Park in the East Coast launched in May last year, may benefit from this change.

Song believes that land bid prices for larger sites may improve as developers may not need to make provision for both ABSD and QC penalties.

The change could also help to attract listings of developers on the Singapore Exchange or encourage developers that have previously delisted due to QC rules to seek a new listing, she said.

UOL Group Ltd group CEO Liam Wee Sin also welcomed the change, saying it was “timely, due to the outbreak of the coronavirus, [and when] Singapore developers and the real estate industry are facing unprecedented and rapidly evolving challenges”.

Meanwhile, the authorities reiterated that the government will not be making changes to existing property market cooling measures, which were put in place to keep private residential price increases in line with economic fundamentals.