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reporter2
09-05-17, 22:55
HOCK LOCK SIEW

Room to refine qualifying certificate rules

May 2, 2017

LYNETTE KHOO


THE pick-up in volumes in the residential market should take some heat off developers with unsold inventory. But for those with pressing deadlines to sell out inventory, the propensity for creative restructuring to escape the penalties remains.

The latest example is Top Global Limited, which recently sold the remaining 17 units in 139-unit The Quinn to certain wholly owned subsidiaries to avoid extension charges that would kick in by June 2018 under the qualifying certificate (QC) conditions.

It is now taking the privatisation route to avoid QC penalties on unsold units in two other projects, E Maison and R Maison, where extension charges will apply after March 2018. An offer document and circular have since been dispatched to shareholders, with the offer closing on May 16.

Bulk sales to related entities and delisting have become more common as developers' ways of fulfilling - some would call it bypassing - QC conditions, though these are not without costs.

This begs the question of whether the government should deem it fit to plug these so-called loopholes. To answer that, one should go back to the original intention of the QC.

Under the Residential Property Act (RPA), the QC is aimed at preventing hoarding and speculation in residential land by foreign developers.

A "foreign developer" needs to get a QC before acquiring land for residential development; it is bound under the QC to complete the development within five years and dispose of the completed units within two years.

Paying the penalty

Otherwise, their banker's guarantee will be forfeited and they have to pay the state for any time extension. The extension charge depends on the proportion of unsold units. Since foreign developers are defined as those with even a single non-Singaporean shareholder and/or director, the definition effectively covers all listed companies.

To avoid QC extension charges, developers such as Popular Holdings and SC Global have delisted to get their QCs cancelled and be issued clearance certificates in place of them. For those bulk sales to developer's parent company or subsidiary to be considered a "sale" that fulfils the QC condition is more intriguing.

The QC, alas, is aimed at preventing hoarding of residential land by foreign developers; its intention is not preventing hoarding of residential units by foreigners or high net worth individuals as some have hoped.

Under the RPA, as long as the developer is not selling the entire non-landed project to a single buyer, the property is "non-restricted" and hence there is no restriction on the type of buyer. The principle here is that such a sale will not result in the underlying land title being held by one single owner.

In the case of Top Global, it is hence relieved of its obligations under the QC by selling 17 of the total 139 units at The Quinn to its wholly owned subsidiaries.

This is not unprecedented. Hiap Hoe had in September 2014, through a subsidiary, scooped up the remaining unsold units at Skyline 360° and Signature at Lewis. In December that year, Hiap Hoe sold the entire project - Treasure on Balmoral in District 10 - to its controlling shareholder, which is a Singaporean firm, through a sale of shares in the property holding entity.

Time for fine-tuning

Of course, all these transactions do come at a cost to developers. When the developer's subsidiary or parent buys the unsold units directly, the relevant stamp duties apply. Since March 11, additional conveyance duties (ACD) on share transfers in residential-property-holding companies is introduced to mirror the stamp duties in direct residential transactions. Even in a delisting, the major shareholder has to fork out the cash to buy out minority shareholders.

But it may be worth considering whether these transactions allow developers to hoard units in bad times, only to release them for sale again in a buoyant market when prices shoot up - which is not something that the QC seeks to address.

That said, there is room for the QC - within its current mandate - to be fine-tuned since its last amendment in 2011. The QC does not apply to residential sites sold by the government. Arguably, there should not be differential treatment of residential sites sold by the government and other residential sites acquired through private treaties or collective sales.

In comparison, the additional buyer's stamp duty (ABSD) on development sites since Dec 8, 2011 is more punitive in quantum and its impact more far-reaching as it applies to any residential land acquired. Developers have to complete building and selling all units within five years from the land purchase date to qualify for ABSD remission, or pay a 10 per cent ABSD on land cost with interest. A higher 15 per cent ABSD applies to sites bought from Jan 12, 2013 onwards.

Given the stiffer time limit under the ABSD as well as the prevailing 60-month project completion period in tender conditions of private residential sites, the five-year construction time limit under the QC is rendered unnecessary. The definition of "foreign developers" is another area that can be refined, taking into consideration controlling shareholding and board composition.

With the weighty ABSD in force, there is room for the QC rules to be fine-tuned to enhance its effectiveness.

hopeful
10-05-17, 12:16
perhaps it is harder to change QC than ABSD.
i think:
change ABSD need only Minister of Finance
change QC need Parliament.
MOF can act very fast, today announce, tomorrow implement.
and while parliament discuss, developers wait and see.