Extension charges on unsold homes no longer an issue

SLA chairman says this shows how hot property market is; in previous year, developers paid S$50m in penalties

Tue, May 01, 2018

Siow Li Sen

DEVELOPERS are paying "almost nothing" in extension charges this year, said Sim S Lim, Singapore Land Authority chairman on Monday.

It's an indication of the hot property market which includes purchases of replacement homes from en bloc sellers, said Mr Lim who was speaking to The Business Times on the sidelines of DBS Group Holdings' Q1 2018 results briefing. Mr Lim is also DBS Bank Singapore country manager.

The previous year's extension charges or qualifying certificate (QC) penalties paid by developers was some S$50 million, said Mr Lim.

QC rules require all foreign developers, defined as having at least one foreign shareholder and/or director, to finish building their projects within five years of acquiring the site; they also have to sell all the units within two years of obtaining the temporary occupation permit.

If they fail to meet the deadline, the penalties are punitive. They incur extension charges at 8 per cent of the land purchase price pro-rated based on the number of unsold units in the first year; this goes up to 16 per cent in the second year and 24 per cent a year in the third and subsequent years.

The purpose of the QC is to ensure that foreign companies proceed to complete the development and sell off the completed units, so as not to speculate in and hoard residential land.

Developers also face the penalty of paying additional buyer's stamp duty (ABSD) on land cost if they are left with even a single unsold unit in a residential project after five years from land purchase date.

As at end-2017, they had coughed up S$200 million in ABSD and S$180 million in qualifying certificate (QC) extension charges since the regimes were introduced, according to figures provided by the Ministry of National Development in February.

Pressures on developers' unsold inventory have eased as private home sales staged a strong recovery, which has also lifted prices.

Some analysts are predicting double-digit growth for private home prices this year, after prices clocked a 3.9 per cent jump in Q1, beating the flash estimate of 3.1 per cent. This was the steepest quarter-on-quarter gain since Q2 2010, when the index gained 5.3 per cent.

Based on Cushman & Wakefield research done over a year ago, the total amount payable by developers for units unsold could potentially hit S$664 million for 2017, said Christine Li, senior director at Cushman & Wakefield Singapore research.

"Since then with the primary market drastically improving, out of the projects with outstanding unsold units, 67 per cent of them have cleared all the units before the deadline," she said.

"Extension charges are not going to pose significant downside risk to the balance sheet of the developers.

"Given that half of all new home launches in 2018 registered more than one-third of sales within the first month of launches, developers are very confident of meeting the sales deadline," she said.

Property consultants have said a lot of new purchases are by displaced home owners who sold their homes in collective sales.

Total number and value of collective sales year-to-date in 2018 from 23 projects, worth S$8.1 billion is almost similar to full-year 2017, said Ms Li.

The total number and value of collective sales in 2017 was 28 projects worth S$8.2 billion.