“Up to around 500 private housing developments in Singapore could benefit from a six-month extension to the original timeline for the completion and sale of the projects’ housing units, a Ministry of Finance spokesman told The Straits Times on Thursday (May 7).”Quote from Ministry of Finance & The Straits Times
The significance of this new policy issued by the Ministry of Finance is multifaceted. Firstly, developers of existing and future projects have extra six months to complete their projects. One of the unexpected byproduct of the COVID-19 situation is the creation of the COVID-19 cluster in the foreign workers dormitories. Due to the cramped living quarters, virus spread is very rampant.
With the construction industry going into a standstill during the extended Circuit breaker period, and considering that there would definitely be safe-distancing measures in place when the Circuit breaker is relaxed, we would expect completion of projects to be delayed. Hence, this extra measure protects developers from any liability arising from the completion dates they have indicated in the Sale & Purchase agreement issued to buyers.
Under the temporary relief measures, eligible developers now have two and a half years to start construction of residential projects.
Prior to the implementation of the Circuit breaker on 7 April 2020, the construction industry was already facing a manpower crunch as early as February 2020 as construction companies stopped bringing in foreign workers from China and Bangladesh (the main source of construction workers in Singapore).
Having said that, I would not be too concerned about the completion dates of the private residential projects because most private residential projects in Singapore typically achieve TOP at least six months earlier. Some projects such as Sims Urban Oasis completed two years ahead of schedule.
The principle of capitalism runs true here; the earlier the developers hand over the units to buyers, the earlier they can bill them.
The more powerful part of the new policy would be the extra six months for developers to sell out their projects. In my earlier article on the QC exemption scheme, I explained that the developers actually are more concerned with the ABSD penalty for not selling out their project rather than the QC penalty. Without this new policy, developers will be slapped with a 25% ABSD of the land price if they do not sell out the project within five years.
Take the former Pacific Mansion (currently known as The Avenir by Guocoland & Hong Leong Group) for example. Pacific Mansion was Enbloc at a whooping price tag of $980 million. If the developer does not sell out the project within five years, they would have to pay out a ABSD of $245 million to the Government.
With the implementation of this new policy, developers would not be hard pressed to drop the prices of their unsold units, which could undermine the future resale prices of that particular project. For example, who would dare to purchase units from a developer who sells the level 10 unit at a lower price compared to the level 5?
“Blue-chip property counters UOL Group, City Developments and CapitaLand, as well as mid-caps Yanlord Land and Wing Tai, gained as investors took heart that these measures could help stabilise the property market.”Quote from The Straits Times
Overall, this policy is an excellent move by our Government to protect developers because a huge chunk of our Government’s profits comes from Government Land Sale and taxes from developers. Listed developers like CDL, UOL, Guocoland, Singland, Frasers Property and Far East with deeper pockets may not have any issues with paying the ABSD, but smaller time developers could go down under.
And more importantly, the ecosystem of the property market stays in its equilibrium state. This is so that developers would not cut corners with inferior materials in order to reduce the overall cost of the project, so as to sell out the project quickly. RET
Got a question? Contact Reuel Eugene Tay at +65 9833 6450 for a real estate discussion.
The Straits Times, 6 May 2020
Gov.sg, Covid-19 spread in foreign workers dormitories, 14 Apr 2020
The Straits Times, Pacific Mansion sold en bloc for $980m in second-highest deal, 20 Mar 2018