December 1, 2012
The Controller of Residential Property has announced a change to the commencement date of the Project Completion Period (PCP) in respect of the conditions of a Qualifying Certificate (QC) for specific Developers who purchase residential land sold pursuant to a Collective Sale Order. Separately, it is reported in the press that the Ministry of Finance (MOF) is about to make a similar change in the commencement date for the timing for completion and sale of all residential units in the proposed project in the Developers’ letter of undertaking to the Commissioner of Stamp Duties when they apply for upfront remission of Additional Buyers Stamp Duty (ABSD) for their purchase of residential land sold pursuant to a Collective Sale Order.
Commencement of PCP for Developers under rules of QC
QCs are issued to foreign Developers (as defined in the Residential Property Act) for their purchase of residential land with certain conditions, including that such Developers must complete (that is obtain TOP for) the proposed residential project within a PCP of five years, commencing from the date of the issuance of the QC. Such Developers must get their QC issued no later than the date of legal completion of their purchase of the residential land. It is useful to note that the Developer will first get an in-principle approval for the QC and will then have up to six months to give a bankers’ guarantee before they can get the QC issued.
For land sold pursuant to the collective sale regime under Part VA of the Land Titles (Strata) Act, the Collective Sale Order (whether issued by the Strata Titles Board or the High Court as the case may be) will have to be obtained before legal completion. As such, it is fairly usual to have the legal completion date in such cases pegged to a date falling three months after the Collective Sale Order. Further, it is usual for vendors of such residential land to take between four months to 12 months to obtain the Collective Sale Order.
While the Developers will usually want to time applying for and obtaining their QC after the Collective Sale Order, there are some Developers who are bound under the terms of their respective contracts to purchase to apply for and obtain their QC within a short period of time after the date of contract. This might result in their QC being issued before the issuance of the Collective Sale Order. In such situations, and in particular where the Collective Sale Order is delayed due to protracted litigation at the High Court, the Developer will be unfairly prevented from completing the purchase and starting construction works on the land in order to meet the PCP of 5 years which would have commenced from the earlier QC date.
In response to the situation described above, the Controller of Residential Property has announced a change to the commencement date for a PCP in a case where a Collective Sale Order is required. For QCs issued on or after 1 July 2012, the PCP will commence from the date of the issuance of the Collective Sale Order. According to the Controller, “this is to enable the developer to have the full PCP to complete the project.”
In our view, this is a good gesture on the part of the relevant authorities who manifest the willingness to accommodate reasonable requests to amend their rules to address the special nature of collective sale deals.
It is humbly suggested that the commencement date of the PCP in such cases should be the date of issuance of the Collective Sale Order or the date of issuance of the QC, whichever is the later. In this way, Developers who apply for and obtain their QC after the Collective Sale Order will not be unintentionally prejudiced by the change in rule.
Extension of PCP for certain cases
In the same announcement, the Controller of Residential Property revealed that the Land Dealings (Approval) Unit will “grant a one-time extension of the PCP” to match the period of the tenancy, upon application made by Developers who had responded to the Government’s call in 2008 and deferred the redevelopment of their respective residential land and rented them out instead to alleviate the rental housing supply crunch then. This indulgence will benefit a limited group of Developers who would have to meet the requisite conditions to apply for this one-time extension of the PCP.
Commencement date for timings in letter of undertaking for Developers applying for upfront remission of ABSD
Developers who purchase residential lands on or after 8 December 2011 will have to pay ABSD on their purchase unless they apply for upfront remission of the ABSD. These Developers have to sign and submit a Letter of Undertaking confirming that they will do certain things within specific timings. The key condition for the undertaking is that the Developers must complete the construction of the residential units and sell them all within a five year period commencing from the date of the contract to purchase. The Developer must also undertake to commence the foundation work and the demolition work within two years from the date of the contract to purchase. Since the vendors may take a few months, if not more, to get the Collective Sale Order, it is obvious that Developers who purchase residential land under a Collective Sale Order will have effectively less time to meet the obligations of their undertaking for the ABSD remission. Developers who breach this undertaking for the ABSD remission are liable to pay the ABSD calculated at 10% of the higher of the purchase price or market value, plus accrued interests.
Since the introduction of the ABSD in December 2012, we have witnessed a significant decline in the number of concluded deals of collective sale land sites sold to Developers who are concerned about the “shortened” time period to fulfill the terms of the aforesaid undertaking for the ABSD remission where the collective sale deals require the Collective Sale Order to proceed to fruition. But Developers looking for well-located freehold land will still want to consider collective sale lands.
It is reported in the Business Times, as well as in the Straits Times, that MOF has responded to say that “the start date of the five year period for the completion and sale of all residential units to qualify for ABSD remission will start from the date of the collective sale order.” This is a fairer position than the initial one where the commencement date starts from the date of the contract to purchase. We are still waiting to see the written direction from MOF or the Commissioner of Stamp Duties on this proposed change.
Although these changes will not affect Developers who do not need to apply for a QC to purchase residential lands or those who buy residential lands sold by the government, they will definitely be welcomed by all Developers. It is a good signal from the relevant authorities that they are willing to temper their rules in response to feedback. These positive changes are expected to inject some degree of confidence back into the collective sale market.