Introduction

In a report jointly produced by PwC and the Urban Land Institute, “Emerging Trends in Real Estate^® Asia Pacific 2020”, Singapore is ranked as the top market in the Asia Pacific in terms of real estate investment prospects for 2020. According to CBRE Research’s report, “Real Estate Market Outlook 2020 – Singapore”, while the effect which the ongoing COVID-19 outbreak will have on the Singapore real estate market is currently uncertain, the Singapore real estate market remains attractive in the medium to long term as an investment destination for foreign capital inflows, due to Singapore’s macroeconomic stability and conducive environment for long-term capital value appreciation and preservation.

This article aims to provide foreign investors with a brief introduction to the common transaction structures and some legal considerations, in relation to an acquisition of real estate in Singapore.

Transaction Structures

There are various methods to acquire real estate in Singapore, the most common 2 structures being:

• Asset purchase – the purchaser acquires the real estate asset from the vendor (ownership of the title to the real estate is hence transferred from the vendor to the purchaser).
• Share purchase – the purchaser acquires all the shares in the company which owns the real estate asset (ownership of the title to the real estate hence remains with the company).

Tax considerations are usually the main driver behind which structure to choose.

Legal Considerations

We highlight below some legal considerations for foreign investors who wish to acquire real estate in Singapore:

Residential Property

In relation to private residential property:

• The Residential Property Act imposes restrictions on the ownership by a foreign person of certain types of residential property in Singapore (including vacant residential land and landed houses). Even where the foreign person obtains the requisite approval for such ownership, the approval may be subject to conditions (for example, an undertaking that the residential property will be owner-occupied, or the imposition of a moratorium period on the sale thereof). There is no restriction on foreign ownership of flats or condominium units.
• For the purpose of the Residential Property Act, a foreign person includes a company incorporated in Singapore if the company has a director or a shareholder (whether direct or indirect) who is not a Singapore citizen.
• The Residential Property Act also imposes separate restrictions on the acquisition by a foreign housing developer of any residential property in Singapore. Even where the developer obtains the requisite approval for such acquisition, the approval is usually subject to conditions (for example, that the developer completes the development and sells all units in the development within specified time periods). There are limited exemptions to the foregoing, such as the acquisition of residential property from the Government or a duly appointed agent of the Government (such as the Urban Redevelopment Authority), or where the developer is publicly listed and has a substantial connection to Singapore.

The Housing and Development Act and the Executive Condominium Housing Scheme Act also impose restrictions on the foreign ownership of public residential property.

Industrial Property

Industrial property in Singapore can be broadly categorised into:

• industrial land which is owned by JTC Corporation (JTC) (the statutory board which spearheads the planning, promotion and development of Singapore’s industrial landscape); and
• privately owned industrial land.

Some points to note about JTC properties:

• JTC properties are typically acquired by industrialists, through (i) direct allocation from JTC or (ii) by way of private treaty acquisition from an existing lessee of industrial land leased from JTC. To facilitate private sector participation in the industrial market, JTC also permits certain third-party facility providers (for example, trusts/investment funds which are holders of trust business licences/capital markets services licences issued by the Monetary Authority of Singapore, or developers with the requisite track record) to acquire JTC properties under the "Third-Party Build and Lease" scheme or the "Sale and Leaseback" scheme.
• For a direct allocation from JTC, JTC assesses applications based on its prevailing criteria (which includes fixed assets investments, plot ratio and the credibility of the applicant’s business proposal).
• For a private treaty acquisition from an existing lessee of industrial land leased from JTC, JTC’s consent is required. Conditions are typically imposed pursuant to such consent (for example, the vendor may be required to carry out an environmental baseline study and, if applicable, decontamination in respect of the site; the purchaser may be subject to a prohibition period, and may also have to grant to JTC a right of first refusal, in respect of any subsequent sale or transfer of the site).
• Lessees of JTC properties are also required to comply with JTC’s prevailing policies (for example, in relation to any subletting).

Land Planning and Development

The Planning Act regulates the development of land in Singapore in accordance with the Master Plan (a statutory land use plan which designates the zoning and permissible uses of land in Singapore, and which is renewed every 5 years).

Under the Planning Act, permissions and approvals must be obtained from the Urban Redevelopment Authority for the development, subdivision and change of use of any land.

Payment of development charge and/or differential premium (in the case of leasehold properties governed by State leases) may also be applicable.

Tax

In an asset purchase, the following taxes are relevant:

• Buyer’s Stamp Duty (BSD) – BSD is payable in respect of the acquisition of all real estate in Singapore. BSD is computed based on the purchase price or market value of the property (whichever is higher). BSD rates are differentiated between residential and non-residential properties – the top marginal BSD rate for residential property is 4%, while the top marginal BSD rate for non-residential property is 3%.
• Additional Buyer’s Stamp Duty (ABSD) - Depending on the profile of the transferee, ABSD may also be payable in respect of the acquisition of residential property in Singapore. ABSD rates range from 5% to 30% of the purchase price or market value of the property (whichever is higher). A housing developer which acquires a residential site for the purpose of housing development and sale is generally liable for ABSD at the rate of 30% (of which 25% may qualify for upfront remission, subject to certain terms and conditions).
• Seller’s Stamp Duty (SSD) – SSD is payable in respect of (i) the sale or disposal of residential property in Singapore which is acquired on or after 20 February 2010 and sold within the specified holding period and (ii) the sale or disposal of industrial property in Singapore which is acquired on or after 12 January 2013 and sold within the specified holding period. SSD rates for residential property acquired on and after 11 March 2017 range up to 12% of the purchase price or market value of the property (whichever is higher), while SSD rates for industrial property range up to 15% of the purchase price or market value of the property (whichever is higher).
• Goods and Services Tax (GST) – Generally speaking, the sale of non-residential real estate in Singapore is subject to GST at the prevailing rate of 7%. However, GST is not chargeable if such sale is part of the transfer of a business as a going concern and certain prescribed conditions are satisfied.
• Withholding Tax – Where the vendor is a non-resident property trader, the purchaser is required to withhold 15% of the purchase price of the real estate and pay this amount to the Inland Revenue Authority of Singapore.

In a share purchase, the following taxes are relevant:

• Stamp Duty – In respect of the acquisition of shares, stamp duty of 0.2% of the purchase price or the net asset value of the shares (whichever is higher) is payable.
• Additional Conveyance Duty (ACD) – In addition, where there is an acquisition or disposal of equity interests in a property-holding entity whose primary tangible assets are residential properties in Singapore, under certain circumstances, ACD may also be payable by both the vendor and the purchaser in respect of such acquisition or disposal. ACD is designed to address the differential treatment in stamp duty between direct acquisitions/disposals of residential properties and indirect acquisitions/disposals of residential properties via a transfer of the equity interest in a holding entity.

Financing

Where the acquisition of real estate is financed by a loan from a bank or a financial institution, the borrower will typically grant a mortgage of the real estate in favour of the lender.
Where separate title to the real estate has been issued, the borrower may provide security by way of a mortgage which will be registered against the title in the land register. Where separate title to the real estate has not been issued, the borrower may provide security by way of an assignment of the rights under the relevant contract for sale, together with a mortgage which is executed in escrow.

Other forms of security that are commonly granted include an assignment of the rights and interests under contracts relating to the real estate (for example, assignment of tenancy agreements and rental proceeds, or assignment of insurances) and a debenture (fixed and floating charge over a company’s assets).

Leases

In Singapore, the law does not prescribe the form of lease or tenancy agreement to be entered into between the lessor and the lessee, be it of residential, commercial or industrial premises. The terms of a lease (including rent) are freely negotiable between the lessor and the lessee.

However, certain covenants and conditions are implied by legislation. For example, the Land Titles Act provides for certain powers for the lessor to be implied in every registered lease unless the contrary is provided in the lease. The Conveyancing and Law of Property Act also qualifies the lessor’s right of re-entry or forfeiture under any provision in a lease, for a breach of any covenant or condition in the lease.

Collective Sale of a Strata-Titled Development

Under the Land Titles (Strata) Act, a specified majority of owners in a strata-titled development may, subject to certain conditions, force a collective sale of all the lots and common property in the development.

Compulsory Acquisition

Under the Land Acquisition Act, the State is empowered to compulsorily acquire land in private ownership under certain circumstances (for example, where the land is needed for any public purpose), in return for compensation which is determined by the State taking into account certain prescribed matters.
Other legislation (such as the Street Works Act) also empower statutory boards to enter land in private ownership and take possession of the land or acquire parts of the land for public purposes.