New rules on qualifying cert offer reprieve to Singapore developers

Some Singapore-listed housing developers can now apply to be exempted from the Qualifying Certificate (QC) rules imposed on foreign housing developers, provided they have a “substantial connection to Singapore”.

This will spare them from having to pay hefty extension charges if they cannot meet stipulated deadlines to complete developing their projects and selling all the units.

Developers that stand to benefit from the change welcomed the change announced by the Ministry of Law (MinLaw) and Singapore Land Authority (SLA) on Thursday evening, but lamented that the need of the hour, amid the current virus outbreak, is a relaxation of an even more stringent project completion and sales deadline under the additional buyer’s stamp duty (ABSD) regime, for which there is no change.

Under the Residential Property Act (RPA) – which aims to safeguard residential land for Singaporeans and prevent foreign housing developers from hoarding and speculating insuch land – any housing developer not considered a Singapore company has to apply for a QC when it acquires residential land for development, other than from the Government.

The QC regime requires a housing development to be completed within five years, and all units to be sold within two years of completion.

Currently, a developer that comes under the QC regime and who wants more time to meet either deadline has to seek SLA’s approval and pay extension charges – 8 per cent of the land purchase price for the first year of extension, 16 per cent for second year and 24 per cent per annum from the third year.

The charges for extension of the two-year sale deadline will be prorated to the unsold units; however, if the developer requires more time to complete the project, there is no pro-rating of the extension charges.

A housing developer which is a Singapore company is not subject to the QC regime.

As defined by the RPA, a Singapore company is one that is incorporated in Singapore, and all its directors and shareholders are Singapore citizens or Singapore companies. However, going by this definition, publicly-listed housing developers that are essentially Singaporean are not considered a Singapore company as long as they have a single foreign shareholder.

“The Ministry of Law will allow publicly listed housing developers with a substantial connection to Singapore to be treated as a Singapore company within the meaning of the RPA when they acquire residential land for development. This will better align the QC regime and the objectives of the RPA,” said MinLaw and SLA in their statement.

SGX-listed housing developers can now apply for exemption from the QC regime on the basis that they have a substantial connection to Singapore. The application will be assessed by reference to a set of criteria, including having a signficantly Singaporean substantial shareholding interest in the company. This means either one of the following two conditions must be met:

– Substantial shareholders who are Singapore citizens, Singapore companies or Singapore Government entities holding at least 50 per cent interest in the voting rights and issued shares in the company; or
– The largest single substantial shareholder is a Singapore citizen, Singapore company or a Singapore Government entity and holding at least 25 per cent interest in the total voting rights and issued shares in the company.

Here, substantial shareholders are defined as those with at least 5 per cent stake.

In addition, the housing developer has to be incorporated in Singapore, with the SGX being its primary listing and Singapore its principal place of business. In addition, the company’s chairperson and majority of its board must be Singapore citizens. It also has to have a track record here.

The changes have taken immediate effect and will be reflected in legislation later this year.

Any listed housing developer that meets the assessment criteria may make applications for exemption from the QC regime for both their existing and new projects.

Huttons Asia director of research, Lee Sze Teck, said: “This is a timely review as this will help developers with their cashflow because they will not be required to place a security deposit (10 per cent of the land purchase price) with the Controller of Residential Property if they are exempted.”

Veteran property consultant Karamjit Singh, CEO of Showsuite Consultancy, said: “Prior to this move, a substantially Singaporean-owned listed company was placed in the same category as a completely foreign-owned company. This move now creates a distinction in favour of the former (such as CDL, CapitaLand, UOL) thereby aligning them with private developer companies like Far East Organization and SC Global.”

However, all developers are still subject to the ABSD, which requires them to develop any residential site and sell all units in the new project within five years to qualify for upfront remission of ABSD on the land purchase price. If a developer fails to do so, it will have to pay the 25 per cent ABSD, with interest. The remissible ABSD for residential developers used to be 15 per cent but was raised to 25 per cent for land purchased from July 6, 2018.

“The government is making no changes to the existing property market cooling measures, which were put in place to keep private residential property price increases in line with economic fundamentals,” MinLaw and SLA’s release said.

Said Mr Singh: “With the introduction of the more punitive ABSD regime in 2011 onto developers – irrespective of their shareholding – there has been scope for some of the overlap to be removed via this relaxation. But it also fundamentally signals that the ABSD regime is absolutely here to stay as a control mechanism against hoarding of residential units.”

Analysts described the move as a welcome one, but said the bigger worry for developers might be avoiding ABSD. “I don’t think this will have a significant impact on listed developers,” said RHB Securities analyst Vijay Natarajan, describing it as a technical refinement of the policy by the government. “ABSD still applies to all and supercedes QC at the five-year mark. ABSD is much more punitive than QC, and unlike QC, is not pro-rated.”

CGS-CIMB analyst Lock Mun Yee said the adjustment is a slight positive and will be good for developers with completed, unsold inventory that is subject to QC. However, “developers would still be motivated to complete and sell their units within the ABSD timeframe”, she added.

Derek Tan, analyst at DBS Group Research, reckons the rules could lessen the impact on a select group of listed developers who had scooped up sites in the en bloc cycle of 2017-2018. He pointed to developers such as CapitaLand, UOL Group, City Developments, Oxley Holdings and Bukit Sembawang, among others.

“We anticipate a near-term rally in stock prices of such counters but it is unlikely to sustain, if the sentiment in the property market does not improve,” Mr Tan added.

A spokesperson for City Developments Ltd (CDL), while welcoming the MinLaw-SLA announcement, added: “However, the onerous ABSD penalty and the associated tight timeline of five years remain a hefty consideration for developers.”

The Real Estate Developer’s Association of Singapore said: “In light of the current subdued market sentiment and the challenging economic outlook, we hope that the government will continue to review market conditions and make further policy tweaks towards a stable and sustainable property market.”

Since the Extension Charges framework was introduced in January 2011, housing developers have paid about S$200 million in extension charges in total.

According to MinLaw, as at Jan 6, there are 122 current QC holders (entities/companies) who are developing 136 projects that come under the QC rules. Of the 122 QC holders, 37 are wholly-owned by companies listed on the SGX.

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

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