What is Qualifying Certificate (OC) Scheme and ABSD?
Additional Buyer Stamp Duty (ABSD)
From late 2011, property developers have to develop all residential site that they buy and then ensure that the units are 100% sold within 5 years. Failing that, developers have to pay ABSD of 10% on the purchase price of the site. For sites bought from 12 Jan 2013, they will have to incur higher ABSD of 15%.
Qualifying Certificate (QC)
The Qualifying Certificate (QC) Scheme is one that affects foreign property developers. As long as the company has non-Singaporeans as directors and shareholders, these listed companies are considered foreign developers. This is because foreigners can purchase the company’s shares.
The QC Scheme stipulates that:
- a site must be developed and completed within 5 years after it is bought; and
- all its units have to be 100% sold within 2 years after completion.
If the above conditions are not fulfilled (eg: the developer needs more time to sell his units), he will have to incur an extension charge that is pro-rated based on the number of unsold units.
Developers are able to have this time period extended to a maximum of 3 years. However, do note that the following fees are levied for extensions:
- First year of extension – 8% of land purchase price
- Second year of extension – 16% of land purchase price
- Third year & further extensions – 24% of land purchase price
One exception is that the luxury developments in Sentosa Cove are excluded from the QC Scheme.
Currently the segment most hit by this QC scheme is the luxury market as foreign buyers are not fervently picking up local housing properties due to the cooling measure of 15% ABSD imposed on foreign buyers. The measure was put in place to moderate the Singapore property market.
What are developers’ reaction to the QC issue?
- Some decide to de-list from the Singapore Stock Exchange. This will free them from the ‘foreign’ status and hence, from the QC restrictions as well. The first developer to take this route is SC Global. They managed to avoid paying the QC penalty even though they had some luxury units left.
- Private investment fund companies are always on the lookout to do bulk purchase from developers with unsold units. This method works well for some developers as this is better than incurring extension charges.
- Yet some others work along the line of offering discounts on some units in order to attain bulk sales. This method benefits both buyers and developers. However, developers are not in favour of taking this step as it reflects a lower quantum in the caveat.
- Another alternative is that developers may set up a company to buy all the unsold units. When one chooses this method, one has to ensure that the costs incurred in buying the units and the payment of stamp duties must not be more than the extension charges.
How does this benefit buyers?
Price paid for land purchase runs in the millions, so any extension of the charges will amount to quite a large sum as well. This being the case, developers may have to choose wisely which alternative is best for them in order to avoid hefty extension charges.
Following developments had to pay extension charges in 2013:
- 8 Raja
- Goodwood Residence
- ILIV@Grange – Developer Heeton Holdings is planning to do a bulk sale of the entire project to a single buyer, Cushman & Wakefield.
- The Interlace
- Urban Resort Condo
Currently, retail prices for units in the above developments have maintained although the extension charges are looming overhead.
The government has already stated its stand that the cooling measures will not be lifted anytime soon as it feels that the red-hot Singapore property market needs to cool down some more. Will the developers feel pressured enough to take drastic measures as the ABSD for developers places a 5-year time limit and cost for not completely selling off all units in a development.
So for buyers who wish to invest in the high-end luxury category, they may likely catch a good buy this 2016 as developers try to avoid the hefty ABSD and QC costs.