(Above: The recently launched Sengkang Grand Residence by CDL)
One of Singapore’s largest developers, City Developments Ltd (CDL), has put the finger on the Additional Buyer’s Stamp Duty (ABSD) levy imposed by the government as the indirect cause of the large property supply overhang in Singapore.
According to the rules, developers must develop the residential site they acquired and sell all units within the new project within five years from the date of acquisition/purchase to qualify for upfront remission of ABSD based on the purchase price of the land. Should a developer fail to do so, it will have to pay the 25% ABSD with interest, which was raised from 15% from 6 July 2018 onwards.
CDL CEO Sherman Kwek has called on the government to extend the timeline to seven or 10 years as he believes it helps to extinguish some of the pressure on developers.
“I hope authorities can consider lengthening the ABSD timeline to maybe seven or even 10 years so that it reduces the immense pressure on developers and prevents the current supply glut from worsening,” Kwek said in a Bloomberg interview. He believes that a lengthened timeline can still ensure that developers do not hoard land indefinitely.
“With a longer permissible development and sales period, developers can then stagger their sales launches and ensure a more balanced demand and supply equation,” he explained
We’ve had some “close shaves”: CDL CEO
According to URA, Singapore has nearly 32,000 apartment units that are either under-construction or unsold – which market watchers said could take four years to clear. In November, the Monetary Authority of Singapore (MAS) warned that the supply glut could also push down property prices.
Kwek noted that last year’s cooling measures brought the ABSD penalty at a “petrifying rate” of 31.25%, comprising a 25% penalty that is compounded at an annual interest rate of 5% for five years.
When asked if CDL has ever incurred ABSD, he revealed that they have been fortunate that none of their projects have ever been caught by the ABSD, albeit they had some “close shaves”.
Levied on the total land price and not prorated to the number of remaining units, the penalty is “far too hefty and unless the land price is relatively small, I do not believe most developers can stomach such a penalty”, he added.
Singapore property prices to remain resilient in 2020: PropertyGuru
Despite the large supply overhang, property prices will likely remain stable in 2020 as the supply is gradually absorbed by the market over the next five years, according to PropertyGuru’s Property Market Outlook for 2020.
Meanwhile, urban renewal and infrastructure benefits across Singapore will continue to bring upside for property. Specifically, the upcoming Thomson-East Coast MRT line (TEL) and Singapore-Johor Bahru Rapid Transit System (RTS) could enhance property value even more.
What will 2020 hold for Singapore? Read our Property Market Outlook 2020 report here.
Victor Kang, Digital Content Specialist at PropertyGuru, edited this story. To contact him about this or other stories, email email@example.com