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Developers sanguine about selling out before ABSD deadlines
DESPITE much industry lobbying for an extension of deadlines for developers to meet the conditions for additional buyer's stamp duty (ABSD) remission on residential sites, it appears that many developers are sanguine about the looming deadlines.
While tight-lipped about their marketing strategies, developers whom BT spoke to are confident that their projects will sell out before the respective ABSD deadlines - without having to resort to massive price cuts.
Singapore Land (SingLand) general manager Michael Ng told The Business Times that the group does not intend to have any units left by the deadlines to meet ABSD remission conditions. "We don't have the intention to lower prices also," he said.
The group's upscale boutique projects Mon Jervois and Pollen & Bleu in district 10, as well as Alex Residences in Redhill will be liable for the ABSD of 10 per cent with interest if there are any unsold units by February, June and December 2017 respectively.
As of February this year, there were 61 unsold units at Mon Jervois, 94 units at Pollen & Bleu and 173 units at Alex Residences.
"For boutique projects, our priority is to hit temporary occupation permit (TOP) quickly as many interested parties for luxury homes want to see the completed units. For Alex Residences, we will clear all units before TOP," Mr Ng added.
A City Developments Ltd (CDL) spokesman told BT that CDL is confident of clearing all units at Jewel@Buangkok and two joint-venture projects - Bartley Ridge and The Venue Residences - before their respective ABSD deadlines next year given that the projects are located in good neighbourhoods and the remaining units are of low quantums.
"There are no significant ABSD issues for the three projects which have been selling steadily," the CDL spokesman said. As of February, there were three, 31 and 160 unsold units at Bartley Ridge, Jewel@Buang-kok and The Venue Residences respectively.
Since late 2011, developers are required to develop any residential site they buy, and sell all units in the new project within five years to qualify for ABSD remission, and failure to do so will attract an ABSD of 10 per cent on land cost with interest (5 per cent simple interest per annum). A higher 15 per cent ABSD applies to sites bought from Jan 12, 2013 onwards.
Among projects with ABSD becoming payable by 2017 if they do not sell out, most at risk - going by the number of unsold units as of February - are The Trilinq developed by Malaysian developer IOI Properties (524 unsold units), The Crest (365 unsold units) by a Wing Tai-led consortium, and The Glades (331 unsold units), jointly developed by Keppel Land and China Vanke.
The highest potential ABSD liabilities for any single developer next year - estimated at around S$70 million - could potentially fall on SingLand or CDL, assuming that there are still unsold units by the respective deadlines and based on their stakes in those projects.
Consultants note that developers' stoic attitude explains in part why they have not rushed into bulk deals even though institutional investors have been scouring for opportunities.
Savills Singapore research head Alan Cheong said that while developers are keen on stack sales, some are "still asking for prices that any institutional buyer who wishes to commit will have to put up a very strong case to answer a barrage of queries from their investment committees as to whether they can still reap the required return at the end of the fund's holding period".
The fact that developers are not too pliable on the pricing front suggests that they have other options of minimising their pain or loss, he pointed out. For example, developers could instead set up a subsidiary or fund to buy the unsold units if the loss in a stack sale to an institutional fund is more than developers' cost of paying an ABSD of 15 per cent on the purchase of unsold units. This assumes, of course, that the developer must have a strong balance sheet.
Century 21 Singapore CEO Ku Swee Yong sees developers adopting a wait-and-see approach. They cannot be open about big price cuts as that will affect their lenders and shareholders, he explained.
If they slash prices for a few units, the valuation of the remaining units in the project will be lowered. "This is why the best strategy is to just stay mum and if they have an offer from the buyer, they may accept it quietly even if it were considered a low offer. This is better than giving steep discounts on their price lists."
Even in the worst-case scenario where they have to pay the land acquisition ABSD, most developers are able to stomach that well, he noted.
The irony, however, is that "the cooling measures will be relaxed only when there is blood on the streets", Mr Ku added.
Industry players have lobbied from time to time for property cooling measures to be tweaked after transaction volumes fell off a cliff since 2013, with the ABSD singled out lately as the policy that can be tweaked without rocking the market.
Some argue that the ABSD and extension charges under the qualifying certificate (QC) rules present a double whammy for developers.
Under the Residential Property Act, a developer issued with a QC when it buys private land for development needs to finish building a residential project within five years of buying the site and sell all units within two years of completion. Otherwise, it has to pay an extension charge pro-rated based on the proportion of unsold units.
Some developers have been paying QC charges on unsold units since 2011 with some S$24.9 million collectively paid last year. Another S$100 million of extension charges could arise from projects completed in 2014 that are hitting the first year of extension this year. They include Le Nouvel Ardmore, a Wing Tai project that still has 90 per cent of units unsold, China Sonangol's TwentyOne Angullia Park with 83 per cent of units unsold, and Hotel Properties' Tomlinson Heights that remains half unsold.
Cushman & Wakefield's Christine Li said: "For big developments with hundreds of unsold units, it is inevitable that developers will need to work on pricing in order to move units in the fastest way."
Jennifer Chang, chief operating officer of Top Global which has about 48 unsold units at The Quinn (where ABSD with interest is payable from April 2017), said that the group is adopting price and commission strategies to enhance sales but has no intention to dump its stock. The two merged sites were acquired for S$84.8 million in 2012 through private en bloc deals.
A CapitaLand spokeswoman said that "it will not be meaningful to discuss about the amount of potential ABSD now" for its projects given the likelihood of selling all units by their respective deadlines.
Its Bishan project with Mitsubishi Estate Asia, Sky Vue, risks having an ABSD remission clawback if there is any unsold unit by December 2017.
"Buyers will assess a variety of factors, such as location, design attributes, amenities and nearby facilities when deciding on property purchases. We will monitor market conditions and tailor our sales and marketing strategies accordingly," the spokeswoman added.