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Developers looking at S$100m of extension charges
THE pressure is mounting for property developers to dispose of leftover units in projects that fall under the qualifying certificate (QC) rules and the additional buyer's stamp duty (ABSD).
Pressing this point on Thursday was Real Estate Developers' Association of Singapore (Redas) president Augustine Tan. Speaking at the Redas Spring Festival lunch, he noted that, based on estimates collated by Redas, some 700 unsold units across 13 developments are affected by the QC rules this year, with the estimated extension charges on them approaching S$100 million.
The QC rules require most developers here to pay extension fees for condo units which are not sold within two years of the completion of the project; the fees are pro-rated according to the proportion of units unsold.
Since December 2011, developers have also been required to develop a given residential site they acquire and sell all the units within five years - failing which, ABSD with interest becomes payable.
Mr Tan said: "The kick-in in end 2016 of the ABSD remission claw-back for developments with unsold units will put further pressures on prices. Currently, about 6,000 units remain unsold in 33 developments, excluding ECs (executive condominiums), which will be hit by the ABSD remission claw-back in 2017 and 2018."
So far, developers have paid QC extension charges for unsold units in a number of projects, including The Interlace, iLiv@Grange, Bishopsgate Residences, Paterson Suites and Residences at Emerald Hill.
Projects at risk of having the ABSD remission being clawed back if they are not completely sold by 2017 include Ascent@456, Floraville, Robin Suites, The Trilinq, Bartley Ridge, Hillview Peak and Mon Jervois.
Developers have long lobbied for the tweaking of the ABSD, which is more punishing because it is a flat rate based on land cost, and not pro-rated according to the proportion of unsold units in a project.
As at the end of last year, there were a record 26,500 vacant private residential units, noted Mr Tan.
The real estate market across all segments is reeling from the compounding effects of an oversupply situation, rising vacancy rates, weak demand and increasing interest rates.
"Furthermore, should the ongoing volatility of the stock markets persist - which is a real risk - this could severely impact the property market," he warned; economic challenges have also lately emerged, affecting the jobs of bankers, lawyers, architects, engineers, property agents and contractors.
"There is therefore an urgent need for action to bring stability and ensure a soft landing to prevent further damage to the fragile economy."
He argued that safeguards such as the total debt servicing ratio (TDSR) are already in place to limit the size of loan individuals can get, and that the current economic situation will also keep property prices in check, so it is timely to consider calibrating the measures designed to cool the property market.
The private residential price index published by the Urban Redevelopment Authority slipped 3.7 per cent over the last year and has registered nine straight quarters of decline. A recent JLL report noted that prices of high-end residential homes have fallen 20 per cent since 2011, with the imposition of the ABSD on property purchases; mass-market prices have slipped 12 per cent from 2013, since the TDSR was introduced in mid-2013.
One argument against tweaking the property cooling measures has been that developers still have some margin buffer to trim prices so as to move unsold stock.
But Savills Singapore research head Alan Cheong argued that lowering prices by 10 to 15 per cent does not guarantee that all leftover units will be sold, given the current weak demand; rather, it causes a devaluation of the overall housing stock.
"We can't wait for the worst situation to come about - like a crash in the stock market or a spike in unemployment," he said. "If the Straits Times Index falls another 200 points from the current level, fear will pervade the economy and start to infect the property market. More margins calls will then take place and banks will tighten their credit as they react in accordance to the proverbial saying, 'When it rains, they take away the umbrella'."
Knight Frank's research head Alice Tan said overall market conditions may deteriorate faster with plummeting oil prices and weakening economic growth globally:
"The signs of an economic recession are imminent and implementing economic stimulus measures by the government becomes ever more necessary to support the economy, as well as adjusting cooling measures to breathe life into our property market, which has extensive influences on related industries and business sectors."