June 1, 2013
The purchase of residential property in Singapore is governed by the Residential Property Act (RPA), which also regulates foreign participation in housing developments. The Controller of Residential Property (the Controller) is in charge of the administration of the RPA.
Section 31(2) of the RPA requires a “Housing Developer”, as defined in the RPA, to apply to the Controller for approval to purchase or acquire any estate or interest in any residential property. Such approval is commonly known as a “Qualifying Certificate”. Section 31(18) of the RPA defines “Housing Developer” to include any person (being a foreign company or a Singapore company which has not complied with section 10(1) of the RPA) which constructs or intends to construct flats or dwelling houses for sale, whether or not such company is licensed or required to be licensed as a housing developer under the Housing Developers (Control and Licensing) Act.
A “Singapore company” under the RPA essentially means any company incorporated in Singapore and where its directors and members are all Singapore citizens. The Controller may issue to a Singapore company a certificate (clearance certificate) stating that it may acquire and retain residential properties subject to provisions of the RPA. Housing Developers which are Singapore companies with clearance certificates do not have to apply for a Qualifying Certificate in order to purchase residential property or land for each housing development. On the other hand, a “foreign company” means any company other than a Singapore company. Most housing developers in Singapore, including the public listed ones, come within meaning of “foreign company”, and therefore have to apply for a Qualifying Certificate for each housing development.
Conditions of a Qualifying Certificate
The salient conditions of a Qualifying Certificate are as follows:
- The Housing Developer shall within five years from the date of the Qualifying Certificate (or five years from the date of the Collective Sale Order for a collective sale deal approved under the Land Titles (Strata) Act) complete construction of the whole housing development and obtain the Temporary Occupation Permit or Permits (TOP) for the whole housing development.
- The Housing Developer shall sell all dwelling units in the housing development within two years of issue of the TOP.
- The Housing Developer shall not, at any time, lease or let out any unsold dwelling units in the housing development.
- The Housing Developer shall not, without the prior written approval of the Controller, enter into any arrangement to sell, assign, transfer, sublease or dispose of the residential property or any part of it in its vacant or undeveloped state (other than a mortgage or a charge).
- The Housing Developer shall not permit or allow any sale, assignment, transfer or disposal of its shares without the prior written approval of the Controller up to and until the date of issue of the TOP for the whole housing development or the date the Housing Developer has sold all dwelling units in the housing development, whichever is the later.
Pursuant to section 31(3)(c) of the RPA, performance of the conditions of a Qualifying Certificate is secured by the Housing Developer providing such security as may be determined by the Controller. The prevailing policy is to require a banker’s guarantee for a sum equivalent to 10% of the purchase price of the land. Where the Housing Developer fails to comply with any of the conditions of the Qualifying Certificate, the Controller may forfeit the banker’s guarantee.
Lands sold by government exempted from the RPA
Section 33(e) of the RPA highlights that the RPA does not prohibit the purchase or acquisition by a foreign person of any estate or interest in any residential property by way of tender or otherwise from URA or any person or body that is duly appointed as an agent of the Government in the sale of any estate or interest in any residential property. As such, all residential lands sold by URA or by HDB on behalf of the Government are exempted from the RPA and requirements of a Qualifying Certificate.
Housing Developers facing difficulties in selling high end residential properties
Housing Developers face substantial difficulties in selling high end residential properties in view of the higher sale prices. The introduction of property cooling measures by the Government, including Additional Buyer’s Stamp Duty (ABSD) and home loan curbs, have worsened the situation.
Housing Developers of residential lands meant for high end projects are subject to the conditions of a Qualifying Certificate including the condition to sell within two years of the TOP, since the lands are mostly bought from the collective sale market. In the past year, several of such Housing Developers have applied for an extension of time to sell, subject to payment of an extension charge.
Extension charge imposed by the Controller
In January 2011, Parliament amended section 31 of the RPA by adding a new sub-section (5A) which allows the Controller, when extending any time period in the conditions of the Qualifying Certificate, to require the Housing Developer to pay an extension charge of such amount as may be determined by the Controller. While the Controller did not publish any official policy guidelines on this extension charge, it is understood that the Controller is likely to impose the extension charge (similar to the extension premium scheme under the conditions of tender for sale of Government lands) as follows:
- 8% per annum on the purchase price of the residential property for the first year of extension;
- 16% per annum on the purchase price of the residential property for the second year of extension; and
- 24% per annum on the purchase price of the residential property for the third and subsequent years of extension.
This extension charge is applicable to an extension of time to obtain the TOP of the housing development and to sell all dwelling units in the housing development. For extra time to sell the units, the extension charge shall be pro-rated based on unsold units over the total number of units in the housing development.
Conversion to a Singapore company with clearance certificate
Some Housing Developers have sought to avert the conditions of the Qualifying Certificate by converting themselves into Singapore companies holding a clearance certificate. A listed Housing Developer will need to be “privatised” as a first step to becoming a Singapore company where all its directors and members are Singapore citizens. Once that is done, the Housing Developer should be "discharged" from future obligations under the Qualifying Certificate.
Comparison with project completion period for lands sold by the Government
For residential lands sold by the Government, all Housing Developers (including Singapore companies with a clearance certificate) will have to comply with the applicable conditions of tender sale imposed by the Government, including the condition of the Project Completion Period (PCP). The prevailing PCP is 60 months from the date of purchase for all developments, other than executive condominium developments where the PCP is 48 months from the date of purchase. In comparison, this PCP (of 60 months) is the same tenure as the five years’ completion period in the conditions of a Qualifying Certificate. There is usually no requirement in the conditions of tender sale by the Government for a Housing Developer to sell all dwelling units within any time period.
Effect of ABSD
Housing Developers buying all residential property or land will now have to pay ABSD (now chargeable at 15% of the purchase price), unless they apply for upfront remission of ABSD by signing an undertaking in respect of certain conditions including completing and selling all dwelling units in the proposed housing development within five years from the date of contract for purchase (or five years from the date of the Collective Sale Order in the event of a collective sale under the Land Titles (Strata) Act). If the Housing Developer fails to comply with any of the conditions of the undertaking, then the ABSD amount shall be repaid in full with interest.
The conditions in the undertaking for remission of ABSD appear more stringent than the Qualifying Certificate conditions. Of course, ABSD is part of the Government’s property cooling measures and should be repealed in the future when the property market cools down sufficiently.
Case for review of the conditions of a Qualifying Certificate
It is opined that there is no fair justification for a requirement to sell all dwelling units in a housing development (other than landed and strata landed properties or developments) within two years of the TOP or any period of time. There should not be differential treatment of residential lands sold by the Government (where there is no need for a Qualifying Certificate) and of other residential lands including the collective sale developments (where there is a need for the Housing Developer to get a Qualifying Certificate, unless it is a Singapore company with a clearance certificate). After all, Housing Developers want to sell after having put in substantial money and undertaken significant risks in the process. As such, it is suggested that this requirement of sale should be removed from the conditions of the Qualifying Certificate to make it consistent with the conditions in the tender sale of Government lands where there is no such general requirement.
If the Government should insist on a requirement of sale, then it should allow Housing Developers more time beyond two years of the TOP to sell all dwelling units. At the same time, Housing Developers should be allowed to lease out the dwelling units while they try to sell them.
Further, the Controller should publish official policy guidelines on the extension charge payable under section 31(5A) of the RPA so that Housing Developers will be in a better position to plan and budget for such contingency in view of much risk due to possible changes in market conditions and policies.
In summary, the Government should consider fine-tuning the conditions of the Qualifying Certificate by removing the requirement of sale, which is not usually present in conditions of tender sale of Government lands. Housing Developers are already exposed to the exigencies of the market and should be allowed more time to sell their dwelling units, especially in the high end segment.