Against the Clock

At least 5 developments affected by the Qualifying Certificate Rules are running out of time to dispose their remaining unsold units. These developments were completed in 2013 and have less than a year to meet stringent QC requirements.

Under the Residential Property Act’s Qualifying Certificate (QC) rules, all developers with non-Singaporean shareholders or directors are required to obtain the Temporary Occupation Permit (TOP) for their housing developments within 5 years and to sell all dwelling units within two years from the date of TOP.

To extend the deadline, developers will have to fork out an additional 8 per cent, 16 per cent and 24 per cent of the land purchase price for the first, second and subsequent years respectively. The amount is pro-rated accordingly to the proportion of unsold units. Should developers fail to comply with the QC rules, their banker’s guarantee of 10 per cent of the land purchase price that they put up will be forfeited. Interestingly, all Sentosa Cove projects and developments by Far East Organization are not affected by the QC rules.


Developments completed in 2013 and affected by QC Rules

With an outstanding 169 unsold units remaining, The Interlace by CapitaLand tops the chart with the most number of unsold units. This, however, is consequential to its massive supply of 1,040 units in total. Contrary to beliefs that the developer will cut price, prices of The Interlace have actually seen a gradual increase over time. The price in the primary market, however, is noticeably lower than recent transaction prices in the secondary market on a per-square-foot basis. With more than 80% of the units sold, the developer should have profited from the development and may not see the need to reduce prices immediately. The estimated fees payable to extend its deadline to sell also does not appear to be substantial.



Another project affected by the QC rule, iLiv @ Grange has yet to launch since its completion in 4Q13. Heeton Holdings, the developer, has expressed interest in selling the development en-bloc to a single buyer at $2,200 to $2,300 psf, about 25% below its original intended sale price of $3,000 psf. With an estimated breakeven price of about $2,200 psf, the developer might be hoping to just break even on this project. Heeton Holdings might face a $5.82m extension charge should they fail to meet the stipulated deadline by end of the year. Should they choose to buy back the development at $2,200 psf, they will have to fork out an estimated $150m, including Additional Buyer Stamp Duty (ABSD), which would not really make sense for the developer.


Developers’ Woes

Due to poor market sentiment and weak demand, the number of unsold completed units swelled for the fifth consecutive quarter since the implementation of Total Debt Servicing Ratio on 29 June 2013 to a record high in 3Q14 (Figure 2). Excluding Executive Condominiums (EC), the number of completed unsold units increased by 5.4% q-o-q and 21.2% y-o-y to a record high (since 4Q15) of 1,488 units in 3Q14. Notably, 63% of the total unsold completed units are located in the Central Core Region (CCR) (Figure 3).





Apart from throwing in discounts and incentives to entice buyers and improve sales, a few developers have opted to put up their developments for bulk purchase or sell off their shares in the company (for example 111 Emerald Hill by Lian Beng Group and Hamilton Scotts by KOP Properties) as an alternative to avoid the extension charges, presumably the sale price of the shares would have taken into account the expected extension charges. Getting a sole buyer to purchase the entire development in bulk, however, may prove to be a challenge especially in today’s bearish market. 

While some companies are willing to pay the extension fees, the majority shareholder of SC Global has decided to take the company private to become a Singapore company within the meaning of the Residential Property Act, which are exempted from QC rules. In some cases, it may make sense for the company to buy back the remaining unsold units, even if it has to pay 15% Additional Buyer Stamp Duty (ABSD). This is especially true for developers with projects located in CCR, in view of the limited supply and high replacement cost in that area. This would give developers greater control and flexibility in managing the unsold units by either leasing them out or selling them when the property market recovers.