New Reporter
02-07-24, 16:58
Relax ABSD rules for developers to hold rental units; don’t mix serviced apartments with condo projects
It reduces risks of developers while meeting needs of homebuyers and renters
Leslie Yee
Jul 1, 2024
LAST month, a tender for a residential development site in the Upper Thomson area drew no bids – the first time in more than 20 years that a state land tender has closed with zero bids.
The 99-year leasehold Upper Thomson Road (Parcel A) site was to have yielded around 540 homes, 100 long-stay serviced apartments and a childcare centre.
Earlier this year, the first government land sale (GLS) site to pilot long-stay serviced apartments – in Zion Road – attracted a sole bid from a City Developments Limited-Mitsui Fudosan tie-up. This site will also yield conventional condominium homes.
The new category of long-stay serviced apartments have a minimum-stay requirement of at least three months versus existing serviced apartments with a seven-day minimum stay and cannot be strata subdivided for sale.
As the tender results show, developers appear to be generally lukewarm to housing sites with long-stay serviced apartment components. Already, in the current market where home sales have slowed, prices are flattening and many developers have scant residential development landbank, appetite for housing sites is weak.
Possibly, developers are being irrational as many groups should be happy earning recurring income from owning long-stay serviced apartments.
Still, net yields from long-stay serviced apartments could be in the low single digits – broadly in line with those of private homes. These levels may be below borrowing costs and hence unappealing.
Also, developers might fear that homebuyers will avoid projects that include long-stay serviced apartments, because such apartments may compete in the rental market with conventional homes in the said development.
The introduction of long-stay serviced apartments could be hurting takings from sales of GLS sites and future housing supply.
With no takers for the Upper Thomson Road (Parcel A) site, homebuyers in the popular suburban condominium segment cannot look forward to having several hundred more new suburban homes, located near an MRT station, coming on stream in a few years’ time.
Perhaps the Urban Redevelopment Authority (URA) should urgently relaunch the Upper Thomson Road (Parcel A) site for sale as a housing site without long-stay serviced apartments, so as to help ensure robust supply of new private homes.
The adjacent Upper Thomson Road (Parcel B) plot, which is zoned purely for housing, was awarded earlier this year to a joint venture between GuocoLand and Hong Leong Holdings.
Looking ahead, it may be best not to sell GLS housing sites with long-stay serviced apartment components.
Time will tell if developers have an appetite for long-stay serviced apartment projects. One pure-play long-stay serviced apartment site is up for tender – a Media Circle plot in Buona Vista which comes with a 60-year lease and is designated for long-stay serviced apartments, with commercial use at the first storey. The URA’s tender for this plot closes on Sep 19.
https://i.imgur.com/2JWiq2g.png
Rental housing needs
Introducing long-stay serviced apartments certainly helps expand choice in the residential leasing market. Furthermore, ensuring adequate rental housing supply matters as the growth in locals buying multiple homes here so they can earn passive rental income is hampered by the levying of swingeing taxes on purchases of second and additional homes.
While the homeownership rate among Singapore residents is high, some of the population opts to rent. This includes some younger locals who may choose to rent as a start, as well as Singaporeans who are awaiting the completion of their new or renovated homes, and foreigners who come to study or work here.
As it stands, Singapore is a pricey destination and faces fierce competition in attracting global talent. Might having insufficient rental housing choices stymie efforts to draw global talent?
To help ensure adequate choice of rental homes, perhaps the Additional Buyer’s Stamp Duty (ABSD) rules on developers selling their housing inventory can be relaxed so as to facilitate developers holding some stock in newly completed developments for lease.
ABSD rules on housing developers
Currently, the purchase of sites for building of five or more homes by developers or their trustees are subject to 40 per cent ABSD, of which 35 per cent may be remitted upfront subject to various conditions.
Among conditions to avoid ABSD remission clawback are the need for a developer to start the housing development within two years from the date of site purchase, and to complete the housing development as well as sell all homes in the development within five years from the land acquisition date.
For developers who enjoy upfront 35 per cent ABSD remission and achieve sales rates of below 90 per cent by the ABSD remission timeline, the applicable ABSD remission clawback is 35 per cent. The ABSD remission clawback is 34 per cent for sales rate of 99 per cent and 25 per cent for sales rate of 90 per cent.
The government should consider not subjecting developers to a clawback of ABSD remission if the sales rate of homes on a project hits at least 90 per cent within five years of the purchase of a site, and 100 per cent within 10 years.
With the above tweaks, developers can keep a small portion of homes in a development to lease out for a few years, thus helping meet home rental needs. At the same time, homebuyers need not fear that developers will cannibalise demand for rental housing over the long term.
If around 10,000 to 12,000 private homes are completed annually and developers keep 3 to 5 per cent to lease out for a few years, developers can offer several hundred new rental homes per year.
Facing high construction and finance costs, as well as uncertain housing demand, developers are cautious in taking on housing sites.
Yet, the long-term stability of the housing market hinges in part on developers continuing to take on new private housing projects, so as to meet rising housing demand. Indeed, the government should be mindful that developers show a healthy appetite for GLS housing sites.
Giving developers five years to sell 90 per cent of homes in a development and 10 years to sell all homes to avoid ABSD remission clawback should reduce risks to developers, while meeting the needs of homebuyers as well as renters.
https://www.businesstimes.com.sg/opinion-features/relax-absd-rules-developers-hold-rental-units-dont-mix-serviced-apartments-condo-projects
It reduces risks of developers while meeting needs of homebuyers and renters
Leslie Yee
Jul 1, 2024
LAST month, a tender for a residential development site in the Upper Thomson area drew no bids – the first time in more than 20 years that a state land tender has closed with zero bids.
The 99-year leasehold Upper Thomson Road (Parcel A) site was to have yielded around 540 homes, 100 long-stay serviced apartments and a childcare centre.
Earlier this year, the first government land sale (GLS) site to pilot long-stay serviced apartments – in Zion Road – attracted a sole bid from a City Developments Limited-Mitsui Fudosan tie-up. This site will also yield conventional condominium homes.
The new category of long-stay serviced apartments have a minimum-stay requirement of at least three months versus existing serviced apartments with a seven-day minimum stay and cannot be strata subdivided for sale.
As the tender results show, developers appear to be generally lukewarm to housing sites with long-stay serviced apartment components. Already, in the current market where home sales have slowed, prices are flattening and many developers have scant residential development landbank, appetite for housing sites is weak.
Possibly, developers are being irrational as many groups should be happy earning recurring income from owning long-stay serviced apartments.
Still, net yields from long-stay serviced apartments could be in the low single digits – broadly in line with those of private homes. These levels may be below borrowing costs and hence unappealing.
Also, developers might fear that homebuyers will avoid projects that include long-stay serviced apartments, because such apartments may compete in the rental market with conventional homes in the said development.
The introduction of long-stay serviced apartments could be hurting takings from sales of GLS sites and future housing supply.
With no takers for the Upper Thomson Road (Parcel A) site, homebuyers in the popular suburban condominium segment cannot look forward to having several hundred more new suburban homes, located near an MRT station, coming on stream in a few years’ time.
Perhaps the Urban Redevelopment Authority (URA) should urgently relaunch the Upper Thomson Road (Parcel A) site for sale as a housing site without long-stay serviced apartments, so as to help ensure robust supply of new private homes.
The adjacent Upper Thomson Road (Parcel B) plot, which is zoned purely for housing, was awarded earlier this year to a joint venture between GuocoLand and Hong Leong Holdings.
Looking ahead, it may be best not to sell GLS housing sites with long-stay serviced apartment components.
Time will tell if developers have an appetite for long-stay serviced apartment projects. One pure-play long-stay serviced apartment site is up for tender – a Media Circle plot in Buona Vista which comes with a 60-year lease and is designated for long-stay serviced apartments, with commercial use at the first storey. The URA’s tender for this plot closes on Sep 19.
https://i.imgur.com/2JWiq2g.png
Rental housing needs
Introducing long-stay serviced apartments certainly helps expand choice in the residential leasing market. Furthermore, ensuring adequate rental housing supply matters as the growth in locals buying multiple homes here so they can earn passive rental income is hampered by the levying of swingeing taxes on purchases of second and additional homes.
While the homeownership rate among Singapore residents is high, some of the population opts to rent. This includes some younger locals who may choose to rent as a start, as well as Singaporeans who are awaiting the completion of their new or renovated homes, and foreigners who come to study or work here.
As it stands, Singapore is a pricey destination and faces fierce competition in attracting global talent. Might having insufficient rental housing choices stymie efforts to draw global talent?
To help ensure adequate choice of rental homes, perhaps the Additional Buyer’s Stamp Duty (ABSD) rules on developers selling their housing inventory can be relaxed so as to facilitate developers holding some stock in newly completed developments for lease.
ABSD rules on housing developers
Currently, the purchase of sites for building of five or more homes by developers or their trustees are subject to 40 per cent ABSD, of which 35 per cent may be remitted upfront subject to various conditions.
Among conditions to avoid ABSD remission clawback are the need for a developer to start the housing development within two years from the date of site purchase, and to complete the housing development as well as sell all homes in the development within five years from the land acquisition date.
For developers who enjoy upfront 35 per cent ABSD remission and achieve sales rates of below 90 per cent by the ABSD remission timeline, the applicable ABSD remission clawback is 35 per cent. The ABSD remission clawback is 34 per cent for sales rate of 99 per cent and 25 per cent for sales rate of 90 per cent.
The government should consider not subjecting developers to a clawback of ABSD remission if the sales rate of homes on a project hits at least 90 per cent within five years of the purchase of a site, and 100 per cent within 10 years.
With the above tweaks, developers can keep a small portion of homes in a development to lease out for a few years, thus helping meet home rental needs. At the same time, homebuyers need not fear that developers will cannibalise demand for rental housing over the long term.
If around 10,000 to 12,000 private homes are completed annually and developers keep 3 to 5 per cent to lease out for a few years, developers can offer several hundred new rental homes per year.
Facing high construction and finance costs, as well as uncertain housing demand, developers are cautious in taking on housing sites.
Yet, the long-term stability of the housing market hinges in part on developers continuing to take on new private housing projects, so as to meet rising housing demand. Indeed, the government should be mindful that developers show a healthy appetite for GLS housing sites.
Giving developers five years to sell 90 per cent of homes in a development and 10 years to sell all homes to avoid ABSD remission clawback should reduce risks to developers, while meeting the needs of homebuyers as well as renters.
https://www.businesstimes.com.sg/opinion-features/relax-absd-rules-developers-hold-rental-units-dont-mix-serviced-apartments-condo-projects