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Will developers dangle discounts as ABSD deadline looms?
By Feily Sofian, Esther Hoon / The Edge Property | March 11, 2016 11:26 AM MYT
Tags: ABSDdiscountdeveloperThe Trilinqtrilinq
The residential market was recently rife with talk about looming deadlines for the Additional Buyer’s Stamp Duty remission. Developers do not have to pay ABSD on the purchase of land if they complete and sell all their units within five years from the acquisition date. Those who fail to do so, even if they are left with just one unsold unit, will incur a 10% ABSD if they purchased the land between Dec 8, 2011 and Jan 11, 2013, and 15% if they purchased the land on or after Jan 12, 2013. A 5% interest rate per annum will also be levied.

The rule has prompted some prospective buyers to believe there will soon be bargain deals for projects that are nearing this five-year deadline, especially those with a large inventory of unsold units.

It may sound counter-intuitive but projects with a small number of unsold units have the biggest incentive to offer attractive discounts. The discount will help speed up sales. At the same time, there is sufficient time for the developer to sell off all its units.

On the other hand, projects with a large inventory of unsold units — say over 300 — might not complete selling their units even if they were to slash prices. In 2015, many existing launches moved less than 10 units per month on average. Any discount offered is simply to drive sales momentum, rather than avoid the ABSD charges and the discount rates are likely to be low to moderate.

Take The Trilinq at Jalan Lempeng. The project has been frequently cited in recent months as it is potentially the first to incur the 10% ABSD, given its 528 unsold units as at January. Recently, the market speculated that the developer has slashed prices to move sales and avoid the ABSD charges. Based on caveats lodged, the developer had indeed offered 5% to 10% discounts at the project, but was it to avoid the ABSD?

The Trilinq has around 10 months before the ABSD charges, estimated at $51 million, are due early next year. This means the developer must sell an average of 50 units a month to avoid the charges — a tall order given the soft market sentiment today. Hence, we think the discount cited is simply to drive sales momentum, rather than to avoid the ABSD charges. The discount may also be a one-off incentive as the developer is not desperately avoiding the charges.

There is a possibility that the developer slashed prices to clock in as many sales as possible so it would be left with a small number of remaining units that they could buy back through an investment company. The developer would then be able to avoid the ABSD on the land purchase as the project would be considered fully sold. Is this a feasible option?

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