The change is not exactly earth-shattering, but it should provide some welcomed relief to developers.
We spoke to several industry players following the policy change announced on 6 February – which provides for QC exemption of publicity listed housing developers with a substantial connection to Singapore – to get a sense of how impactful this shift is.
But first, a quick look at QC rules
Prior to the policy tweak, under the Real Estate Property Act, any housing developer that is not considered a Singapore company (including foreign developers and publicly listed firms with at least one foreign shareholder) has to apply for a QC when it acquires land for development.
The aim of the QC regime is essentially to discourage developers from land hoarding and speculation.
Under the QC scheme, developers have to complete their projects within five years of purchasing the site, and to sell all the units within two years of obtaining the Temporary Occupation Permit (TOP) – failing which, they would face hefty extension charges. These charges to be incurred will be at 8% of the land price pro-rated based on the number of unsold units in the project in the first year, at 16% in the second year; and 24% in the third year and beyond.
Double whammy
On top of the QC scheme, all developers are also subject to additional buyer’s stamp duty (ABSD) which requires them to finish building and selling all units in a project within five years of acquiring the site. This levy is seen to be more punitive than QC as developers will have to pay the 30% ABSD (5% that is non-remittable) if they fail to sell all units within the stipulated timeframe. The ABSD was raised from 15% since July 2018.
For some time, developers have bemoaned this case of ‘double whammy’ where they are caught by the ABSD and QC rules, ending up paying millions for the failure to clear their housing inventory. According to media reports, developers have paid about $200 million in QC extension charges, since the introduction of the QC extension charges regime in 2011.
To a great extent, the long-awaited relaxation in the QC rules demonstrates a willingness on the part of the government to finetune policies in accordance with market changes. In our view, the hike in ABSD since July 2018 as well as the 5-year timeline, are sufficient in preventing land hoarding and speculation.
In addition, the change in QC regime will also level the playing field for publicly listed developers that have a strong presence in Singapore with developers that are privately held.
Real and perceived benefits
Many of the developers we spoke with see this policy change as a positive development. We believe the most immediate impact from QC exemption would be an improvement in cashflow. In applying for QC, a developer typically has to set aside a deposit of 10% of the land cost – a sum which will only be released back to the developer after the project is fully sold. This means a substantial sum of money is locked away; money which could be otherwise channeled to other business opportunities.
On the other hand, the impact on site acquisition seems limited. In bidding for sites, it appears that developers factor a provision for ABSD, and not necessarily so for QC extension charges. The reason being that QC – being derived based on the number of unsold units – is more difficult to ascertain at land-bidding stage. In addition, as some developers put it, “if you’re not confident of selling before the ABSD deadline, then don’t buy the site”.
The regime change also offers more certainty and clarity to developers, without having to worry about the rolling QC extension charges every year that the units in a project remain unsold; the ABSD is a one-time payment. In addition, we understand that being exempted from QC may possibly allow eligible developers to lease unsold units.
Taken together, these benefits – both real and perceived – could give developers more confidence when acquiring sites, particularly medium and large plots that offer more than 500 residential units. This may help to rekindle interest in selected collective sale sites, though it must be said that a successful collective sale also depends on many other factors.
"... the change in the qualifying certificate regime will also level the playing field for publicly listed developers that have a strong presence in Singapore with developers that are privately held."
Beyond real estate, the QC exemption for eligible developers could have a positive spin-off effect in that it may help to deepen the capital markets: 1) by attracting new listings of developers on SGX; or 2) encouraging re-listings of developers who have de-listed over the years due to the QC rules.
Meanwhile, the various eligibility criteria set out (including primary listing on the Singapore Exchange, Singapore being the principal place of business, the chairperson and majority of the company’s board are Singapore citizens, etc.) will help to anchor Singapore as a competitive global business hub and promote the hiring of Singaporeans into leadership and directorship roles.
Promote healthy real estate market
Broadly, this policy shift is a step in the right direction, although it is unclear exactly how many developers would qualify for the exemption at this point. They have to apply to the government for the exemption and will be assessed based on the criteria that have been laid out in the announcement on Feb 6.
What is certain is that the government has a finger firmly on the pulse of the Singapore property sector and is willing to work with the industry to promote a healthy real estate market.
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