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Developers' calls to extend project deadline meet with a "no"

MOF does not see need to relax 5-year deadline for developers to complete and sell off a project
Thursday, October 8, 2015 - 05:50
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Owners of Shunfu Ville, the tender for which closes on Oct 27, recently submitted a petition to MOF and IRAS requesting that the site's successful bidder be granted seven years, instead of five, to finish building the project on site and selling all the units.

Singapore

THE government has rebuffed calls by some developers to extend the five-year deadline for them to complete a residential project and sell all its units - part of a slew of property cooling measures introduced in recent years.

Meeting the conditions gave developers an upfront remission of the 15 per cent additional buyer's stamp duty (ABSD) on the purchase price of the residential site, but many are struggling to do so because of the sluggish real estate market.

"Currently, we do not see a need to relax this condition as the deadlines remain relevant and reasonable," a Ministry of Finance spokeswoman told BT.

The five-year deadline is meant to encourage developers to complete the development and sale of the residential units so as to increase the supply of housing units and help moderate residential property prices, she noted.

"We assess that five years is a reasonable duration of time for licensed developers to sell the residential units as developers can start selling the units off-plan, before development is completed. In fact, they have already been doing this all along."

"The government will continue to monitor the market and review our policies periodically," the MOF spokeswoman added.

She acknowledged that MOF and the Inland Revenue Authority of Singapore had received appeals from developers for an extension to comply with the ABSD remission conditions, but declined to reveal how many such requests had been received or to give any other details, citing "confidentiality of taxpayers' information".

Going by market talk, the period of extension requested by developers is one to two years.

A market watcher suggested that the authorities may find it too early to start entertaining requests for the deadline extension given that there is still more than a year to go before the earliest deadline would be due.

When the ABSD was first introduced effective Dec 8, 2011, the rate for purchases of residential property (including land) by companies was set at 10 per cent of the purchase price. From Jan 12, 2013, this rate was hiked to 15 per cent.

The five-year deadline for completing the project on the residential site and selling all its units kicks off from the date of contract or agreement to buy the site - which for collective sales, is the date of the collective sale order granted under the Land Titles (Strata) Act.

Property agents have been complaining that residential collective sales have been hit by the five-year deadline. For prime district sites, having to sell all the units within this timeframe poses a challenge, given the generally subdued buying sentiment for luxury properties, which had relied significantly on foreign buyers, who now have to pay 15 per cent on their residential property purchases. Singaporean investors too have to pay an ABSD, albeit at lower rates.

Feedback from developers is that they have also found large en bloc sale sites such as former Housing & Urban Development Company (HUDC) estates risky.

Each estate can potentially yield a thousand or more new units, which is at least double the size of a typical private housing site offered at state land sales.

If developers cannot finish selling all the units in time, they will have to pay the ABSD with interest calculated at 5 per cent per annum starting from 14 days after the date of contract or agreement.

Norman Ho, partner at Rodyk & Davidson, said that he advises clients against writing in to IRAS for an extension of the deadline.

"It is unlikely IRAS will give you an extension or waiver, because if they did, then all the other developers will also start asking for it. And when you got the upfront remission, you had given an undertaking to comply with the deadline."

He also noted that the five-year period to finish selling all units in the new project may not be enough amid current market conditions.

"After a collective sale order has been granted, it takes another three months for the sale to be completed, after which sellers are usually allowed to stay on in their units for a further six months. So you have nine months eating into the five-year period. Things are even worse for big estates like ex-HUDC estates as there are more owners involved."

Knight Frank chairman Tan Tiong Cheng highlighted that "urban renewal by the private sector is also being inhibited by the difficulty in doing collective sales, in light of this deadline".

"It may be hard for existing owners in older residential developments that are in deteriorating condition to sell their units individually as prices may be depressed. Refurbishing the building may require more funds from the owners but more fundamentally it could be only a temporary solution - if obsolescence has set in. The most natural exit would be an en bloc sale."

Not only have some developers been seeking extensions from the authorities, but at least in one case, owners of an estate where an en bloc sale has been launched, are taking the initiative to boost their chance of a sale.

Some owners of Shunfu Ville in Marymount Road recently signed and submitted a petition to MOF and IRAS requesting that the site's successful bidder be granted seven years, instead of five, to finish building the project on site and selling all the units.

When contacted, JLL, the sole maketing agent for the collective sale, confirmed that the petition collected more than 200 signatures from owners.

Among other things, the owners highlighted maintenance issues such as leakage and roofing in the development, which is more than 20 years old.

The owners are also seeking a fair chance for a successful collective sale; beyond that, they argued that allowing developers more time to complete and sell off a residential project would help other former HUDC estates as well.

In the first instance, the authorities encouraged privatisation of HUDC estates. In the past, this was greeted warmly by owners as they could attempt an en bloc sale post-privatisation.

JLL, said, however, that the introduction of ABSD had produced an unintended deterrent to en bloc sales, which is the main option for rejuvenating old estates.

Shunfu Ville's tender will close on Oct 27. Located a stone's throw from Marymount MRT Station on the Circle Line, the estate is on a site of about 409,000 square feet and zoned for residential with a gross plot ratio of 2.8 under Master Plan 2014. The site could potentially yield about 1,100-plus units with an average size of 1,000 sq ft.

Currently on site are 358 units in three 16-storey apartment blocks and three low-rise blocks of six-storey maisonettes. Built in the late 1980s by the former HUDC, Shunfu Ville was privatised in 2013.