In recent years, discounts on private residential units due to the ABSD (Additional Buyer’s Stamp Duty) have been widely publicized. As such, most people know about the ABSD and how it can affect them. However, less are aware of the Qualifying Certificate scheme, and how it can also bring about discounts.
ABSD and How It Led to Discounts
The ABSD is a government cooling measure to lower property prices. First implemented in 2011, it imposes an additional tax on developers and individual buyers of residential property in Singapore. Developers must build and sell all units of the development within 5 years, or face a 25% tax on the purchase price of the site.
Understandably, developers were eager to keep within the five year period, especially considering their purchase prices amounted to millions. In many cases, condominiums had just a few units left unsold before the deadline. These units were sold at significant discounts so the developers could avoid having to pay ABSD.
In one such case, a condominium in Tanah Merah, eCO, was selling its townhouses at $829 per square foot (psf) four months before its ABSD was due. A year ago, the same townhouses were selling at an average of $1,302 psf. Such discounts gained significant attention and publicity, making the existence and implications of ABSD well-known.
The QC and How It Can Also Bring About Discounts
Like the ABSD, the QC scheme sets a timeline for the developers it affects. Unlike the ABSD, it only affects foreign property developers. A company is considered a foreign developer if any of its directors and shareholders are foreign. This therefore includes listed companies, since foreigners can buy shares in them.
The QC scheme requires foreign developers to complete their development in five years, and sell all the development’s units within two years of its completion. Any extension of this deadline would incur a penalty that is a percentage of the land purchase price, with each subsequent year having a higher penalty.
As with the ABSD, it is likely that developers would be desperate to sell their units as the QC deadline approaches. Future discounts on developments nearing their QC deadline is definitely a possible reaction, especially in the luxury property market.
The luxury property market is likely to be more heavily affected by the QC scheme for two key reasons:
- Firstly, foreign buyers may be reluctant to buy units in the luxury property market due to the hefty ABSD imposed on them. This would lead to a greater number of unsold units.
- At the same time, land purchase prices for such developments are considerably high, around one hundred million or more. Foreign developers would stand to lose a huge amount of money should they incur the penalty extension charges due to the QC scheme.
These factors would most likely pressure foreign developers to sell their units, even at a discounted price.
Discounts Are Not Guaranteed
Do note that discounted prices on units are not a guarantee. Some developers already facing this problem have chosen to use other methods to avoid the restrictions of the QC scheme. Examples include rendering the QC scheme inapplicable to them by delisting their company, as well as making bulk sales to private equity funds.
Nevertheless, those looking to buy property in the high-end luxury market would do well to keep an eye on developments that are nearing their QC deadline.
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