QC Exemption: Will Properties Be Cheaper in the Future?

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With all the gloomy news surrounding the coronavirus and subdued economy, finally, something positive. On 6 Feb 2020, the Ministry of Law (MinLaw) and Singapore Land Authority (SLA) announced that publicly-listed developers that have 'substantial link to Singapore' may apply to be exempted from the Qualifying Certificate (QC) regime.

Many local developers have welcomed this move, as it helps to ease some of the additional charges that developers have to pay.

Before we take a look at what to expect with this piece of news, let's address the elephant in the room: 

What is the Qualifying Certificate (QC) Scheme?

Under the Real Estate Property Act, any housing developer that is not considered a Singapore company has to apply for a QC when it purchases land for development. 

The QC scheme is basically an extra levy imposed on foreign property developers to prevent them from hoarding land and then speculating on prices.

Under this scheme, foreign developers have five years to complete their development, and have to sell all the development's units within two years of the Temporary Occupation Permit (TOP) or Certificate of Statutory Completion (CSC), whichever is earlier. 

Any extensions to the deadline would incur a penalty based on a percentage on the land purchase price. This amout is pro-rated according to the proportion of unsold units. Here's how much they need to pay, according to SLA:

  • First year extension: 8% of the purchase price of the land
  • Second year extension: 16% of the purchase price of the land
  • Third year and subsequent years: 24% for the purchase price of the land 

As you can see, the penalty can be crushing for developers, so it's not surprising to see some developers rushing to clear their inventory at discounted prices as the QC timeline edges closer.

And, if you factor in the 25% Additional's Buyer Stamp Duty (ABSD) penalty that developers get slapped on if they fail to build and sell all their units within five years, it's easy to see why just by mentioning 'QC' and 'ABSD' is enough to make developers shiver.

 

What's considered a foreign company?

Under the Real Estate Property Act, a Singapore company is defined as one that is incorporated in Singapore, and all its shareholders and directors are Singapore citizens or Singapore companies.

This means that publicly-listed companies, even if they are Singaporean or Singapore-based, will not be considered as a Singapore company if they have any foreign shareholders (even if it includes just one). Remember that foreigners can buy shares for publicly-listed companies.

Now that we got that out of the way, here's what will it means with the QC exemption:

#1. No change to ABSD rule

While the two-year QC exemption has provided some developers with relief, the government has not loosened its grip on the ABSD rule.

"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," according to a statement by the Ministry of Law.

"In particular, all housing developers continue to be subject to the prevailing Additional Buyer’s Stamp Duty (ABSD) regime. The regime requires, among other conditions, developers to sell all units in a residential project within a specified timeline, failing which they will be subject to the ABSD". 

For the uninitiated, developers will need to develop and sell all units of the development within five years, or face a 25% tax on the purchase price of the site with interest.

 

#2. It could encourage developers to go public

One way developers would go about the QC rule, was to delist their company (the other way was to sell their unsold units to private equity funds). Developers like SC Global, Popular Holdings, and Top Global have delisted in the past in order to avoid hefty QC penalties for unsold homes.

With the QC exemption however, this could mean that developers might be looking to go public again.

"The change could also mean more developers may seek public listing on the Singapore Exchange or encourage developers that have previously delisted due to QC rules to seek a re-listing," says Tan Tee Khoon, Country Manager at PropertyGuru. 

 

#3. Land bid prices may improve

Tan also says that developers who apply for a QC exemption will now only factor in ABSD penalties when bidding for land prices, which could also mean that developers will charge buyers lesser. 

"The extra two years under the QC regime for public-listed developers to sell all their units would have been rendered unnecessary with the introduction of ABSD which is more onerous. It is also possible that moving forward, land bid prices for larger sites may improve as developers only need to make provision for ABSD penalties," says Tan.  

 

To get more guides like this, check out PropertyGuru.

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