ABSD – A Double Edged Sword
A piece of legislation introduced at the back end of 2011 is going to have a dramatic effect on the Singaporean property market – meaning potential bargains for house hunters and on the flip side sizeable losses for developers.
It all stems from the ABSD – additional buyers stamp duty. This ticking time bomb, set in motion on the 8th December 2011, stated that developers had to not only complete all residential projects, but sell all of their units within 5 years of purchasing the land. Any units remaining unsold would then be liable to a levy of 10% of the purchase price of the site. That percentage was increased to 15% in January 2013.
That is a significant cost, particularly when developers are already seeing a squeeze in margins and profits. Just how much of an impact this will have very much depends on who you speak to – and how honest or bullish they are. Pessimists are predicting that this could end up costing developers more than S$320 millions in fees alone. This figure, already alarming, doesn’t take into account the profit lost through reducing prices in order to beat the deadline, something many – but not all – developers are claiming they are already having to do.
The size of the effect this will have on developers is obviously dependent on a couple of factors. The odd unit here and there is not going to cause too many waves, but Singapore properties with significant numbers of units remaining unsold will face huge charges.
The timelines mean that it will be a race for the sales and marketing teams to sell units at as high a rate as possible, particularly if there was a delay in starting or completing the unit. This will put pressure on developers to complete as quickly as possible in order to give themselves as much time as possible to shift the units.
As an example, Nouvel 18 the luxury residences along Anderson Road, has still to launch and as such hasn’t sold any units to date. It has until November this year to sell its units or face charges – up to S$38 million. Le Nouvel Ardmore, another top end development, also by Wing Tai, has over 90% of its units still unsold a year after launching. Unless things pick up – and quickly, they are facing charges of around S$15 million.
This highlights two other important factors. First of all, we have to consider QC (Qualifying Certificate) rules. These state that foreign developers have to not only complete within 5 years, but they must sell all the units within 2 years of completion. They are able to extend this deadline, but charges are incurred. Unlike with ABSD, these charges are pro-rated according to the number of units unsold and the year the land was purchased. In this case a firm is deemed to be foreign, if it has just one director or shareholder.
The second factor is that the amount this will affect each developer will depend on their size. Large multinational businesses will be able to swallow these costs relatively easily, whereas the smaller developers will find it a massive hit to their finances and ability to invest in new projects, or even make ends meet.
The flip side of this is that with developers desperate to sell as many units as they can to avoid these charges, they will cut prices. This has already been seen, with not insubstantial discounts already being offered on many residences on the island. For the canny buyer, this is a very good time to secure their dream property at maybe not a knockdown price, but certainly a better one than they may have expected only 2 years ago.
References:
http://www.straitstimes.com/business/property/home-prices-starting-to-fall-as-stamp-duty-deadline-nears
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