Thursday, March 3, 2016
Market watchers expecting slashed prices will be waiting for Godot
Many calls have been made for the relaxation of property cooling measures since early last year. Many market players also speculated about the reduction of the Additional Buyer Stamp Duty (ABSD) for residential properties last year, and since 2015 has passed, they have renewed their predictions that ABSD may be reduced in 2016.
Perceptive market watchers and property agents have gone one step further. They are predicting which projects — which may soon face hefty penalties when the deadlines on the Qualifying Certificate (QC) and ABSD pass — will slash prices significantly to spur sales and avoid the charges.
Any developer with foreign shareholders or directors must apply for a QC when they buy and develop private residential properties. Under the QC, they have to obtain the Temporary Occupation Permit (TOP) within five years and sell all units within two years of TOP.
If they fail to do so, they face an extension charge of 8 per cent, 16 per cent or 24 per cent, payable on the land cost in the first, second or third and subsequent years respectively, pro-rated based on the percentage of unsold apartments.
Developers who purchased land between Dec 8, 2011, and Jan 11, 2013, are subject to the ABSD of 10 per cent. Land purchased on or after Jan 12, 2013, are subject to 15 per cent ABSD.
However, a remission of five years is allowed for the sale of all the apartments. If there is even one unit left unsold at the end of the five-year deadline, the ABSD plus a 5 per cent per annum interest charge on the land cost has to be paid to the authorities.
More than 40 projects across the island will be exposed to QC and/or ABSD charges this year and next year if they do not sell out by their respective deadlines.
Examples mentioned by analysts and the media include The Trilinq in Clementi, The Crest near Redhill MRT, d’Leedon in Farrer Road, The Creek @ Bukit in Toh Tuck Road, and The Glades at Tanah Merah.
Prospective investors are circling around projects with large numbers of unsold units, waiting to pounce on the developers who are pressured to reduce selling prices to avoid the penalties.
But will developers really slash prices? Let us consider a simple example of ABSD charges for The Trilinq. (See box above right)
Assuming that sales efforts are stepped up and an average of 30 apartments are sold each month for the next 11 months, such that by January 2017, there are 200 units left. The market price of the remaining 200 units, at an average price of S$1.3 million each, could total S$260 million.
The developer has two choices. It could choose to pay the S$52.1 million in ABSD with interest and continue to market the 200 unsold units, as well as face potential QC charges in future.
Alternatively, the developer could choose to set up an investment holding company and buy over all the remaining 200 units, with no discount, at S$260 million, and foot the Normal Stamp Duty of S$6.612 million and a 15 per cent ABSD of S$39 million, i.e. a total stamp duty expense of S$45.612 million. This alternative is not only lower in cost, but it relieves the developer of QC charges as the project is considered “sold out”.
Moreover, IF the market watchers got their wishes fulfilled and the authorities did reduce ABSD by the end of this year, the total stamp duty bill would be even lower than S$45.6 million.
The advantages do not end there. This alternative will allow the developer to avoid slashing prices in order to achieve a complete sell out, such that valuations of the project and other private residences in its vicinity will not be impacted.
The last thing developers would want is to spark off a price war among themselves and other urgent sellers in the resale market.
The market is rife with speculation about a possible lifting of property cooling measures. Investors, financial analysts and property agents are also guessing which developers will blink in the face of ABSD and QC charges.
It does not help that neither the authorities nor industry associations publish any official data on the unsold units held by the developers.
To complicate matters, shortly after the projects receive their TOP and the Certificate of Statutory Completion (CSC), they fall out of the purview of the Controller of Housing, further limiting the public data on the number of unsold units held by developers.
Let me reveal the plot: Godot does not turn up. If ABSD were relaxed, most developers and resale property owners will raise prices a little, off-setting part of the savings that buyers might gain.
And looking at the list of 40 projects facing QC and ABSD charges in 2016 and 2017, I doubt that any developer will discount prices by more than 10 per cent in order to achieve a faster pace of sales. Not unless extenuating conditions force them to.