Last Wed (11 Dec), City Developments CEO Sherman Kwek who is the son of property tycoon Kwek Leng Beng told Bloomberg in a report that the present property glut is an effect of government policy that imposes a levy on firms that do not complete construction and sell all units within five years of acquiring land.
Under a ruling, property developers have to build and sell all residential units built within five years to qualify for remission of the Additional buyer’s stamp duty (ABSD) on the land purchase price. If they fail, they will have to pay the 25 per cent ABSD, with interest. The remissible ABSD for residential developers was raised to 25 per cent, up from 15 per cent, for land purchased from July 6 last year.
The Urban Redevelopment Authority said there were around 32,000 unsold private residential units as of 30 Sep.
In the interview, Mr Kwek said extending the ABSD 5-year deadline would allow developers to stagger sales launches and ensure “better balance between demand and supply”. But property experts said that extending the deadline for developers may not address the flagging buyer demand in the market.
Mr Kwek wanted the government to lengthen the 5-year deadline to seven or 10 years so as to reduce pressure on developers and prevent the worsening of the supply glut.
Burdened with high land cost
In a letter to ST Forum today (17 Dec), Mr Kwek further clarified his position. He reiterated that extending the 5-year deadline would ease the current supply glut, but said that the greater concern is rising home prices.
“Singapore has witnessed record prices over the past two years for condominium projects. Given a choice, many developers would prefer to sell at a lower price, ensuring a comfortable sell-out rather than test new benchmark prices,” he said.
“What is the cause? Developers are burdened with high land cost and have little buffer. Why is land cost high? When the market started to recover in 2017 after a four-year slump, most developers were low on land and had to compete fiercely to replenish their land banks.”
He explained that a developer cannot stop bidding for land, “Land is our primary raw material. Just like the manufacturing industry, we cannot afford to run out of raw materials as it would have an impact on the company’s operations and ultimately jobs may be affected.”
He argued that extending the deadline by a further 2 years would provide more flexibility to developers so that they can have the option to launch immediately or delay the launch by several months to a year. “This will potentially avoid exacerbating a market that may already be overwhelmed with supply,” he said.
“More importantly, it will stagger launches so developers don’t all run out of land at the same time and have to bid furiously to replenish their land bank.”
Mr Kwek also made another suggestion asking the government to pro-rate the penalty in accordance to the number of remaining unsold units. He argued, “It doesn’t make sense to penalise a developer which has only five unsold units with the same hefty penalty of 31.25 per cent of total land price as one which has 500 unsold units by the five-year deadline.”
“Tweaking the ABSD timeline and pro-rating penalties can help contain rising housing prices by ensuring developers don’t run out of land at the same juncture, thus moderating land prices. This provides for a more stable and sustainable property market, which augurs well for the social fabric of Singapore,” he concluded.