At the Budget 2024 statement on Feb 16, Deputy Prime Minister and Minister of Finance Lawrence Wong announced a tiered clawback rate for residential property developers' additional buyer's stamp duty (ABSD) regime. "Housing developers are now granted an ABSD remission provided they sell all the units in their development within a prescribed sale timeline," he says. "But despite their best efforts, the developers sometimes face difficulties in meeting this timeline requirement. They are then subject to a full clawback of the ABSD."
The new tiered ABSD clawback rate applies only to residential projects where developers have sold at least 90% of the units within the five-year stipulated time frame, with an additional six-month extension during the Covid period.
Source: MOF/MND
"This ensures that housing supply continues to be released promptly while providing some flexibility to the developers," says Deputy Prime Minister and Minister of Finance Lawrence Wong. "While the lower, tiered ABSD clawback rate offers some flexibility, the reduction rate is not very significant," Ismail Gafoor, CEO of PropNex, points out.
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Take a hypothetical example of a developer who purchased a site for $500 million after Dec 16, 2021, and developed it into a 546-unit residential project.
If the 546-unit project is 99% sold, the developer must pay a 25% ABSD on the land price. That means paying $125 million in ABSD. It excludes the 5% interest per annum payable on the ABSD remission.
Suppose the developer were to purchase the remaining 1% unsold units in the project under a corporate entity. In that case, the corporate entity would be subjected to a 5% buyer's stamp duty (BSD) and 65% ABSD. Assuming an average price of $2.5 million each, the purchase price for the five units would be $12.5 million. The BSD and ABSD combined would be $8.75 million, bringing the total purchase to $21.25 million.
Even if the five unsold units are priced at $10 million apiece, including the 5% BSD and 65% ABSD, the developer will pay $85 million in total purchase cost.
Assuming 94% of the project is sold at the end of the five-year timeframe, the ABSD clawback rate is 30%. Based on the land price of $500 million, the total ABSD payable is $150 million before the 5% interest rate per annum.
The remaining 6% unsold units is equivalent to 33 units. Based on an average selling price of $2.5 million each, the total purchase price of all 33 units would be $82.5 million. Adding the 5% BSD and 65% ABSD, the total cost is $140.25 million.
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Assuming the developer has sold 90% of the 546-unit project, the ABSD clawback rate at the end of the five-year timeframe is 34%. That amounts to $170 million, excluding the 5% annual interest.
If the developer buys up the remaining 10% or 55 unsold units, assuming an average price of $2.5 million each, the total purchase price is $137.5 million. Adding the 5% BSD and 65% ABSD, the total purchase price for the developer is $233.75 million.
Hence, the ABSD clawback rate is less than the purchase price of the remaining units. It only makes sense to purchase the unsold units if there are only a few left, according to a property developer who declined to be named. Alternatively, the developer could pay a higher commission to agents to sell out the remaining units.
"Housing developers will still be motivated to try to sell all 100% of the units within the five-year timeframe," says PropNex's Gafoor.
While about 90% of projects have successfully cleared their ABSD threshold, "developers have raised concerns of the hurdles to clear the last few units by having to offer excessive discounts or dangle abnormally high commissions," says Tricia Song, CBRE head of research for Singapore and Southeast Asia.
"The tiered clawback of developers' ABSD rates is a symbolic olive branch handed out to developers," says Alan Cheong, executive director of research and consultancy at Savills Singapore. "Developers would still hold to their existing marketing playbook of selling as many units as they can upfront instead of paying extra ABSD on the land."
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Although the policy adjustment may not be significant in scope as the ABSD clawback is still calculated based on the land acquisition cost and not on unsold units, a City Developments spokesperson said in a statement: "It provides some relief to the property sector, and we appreciate the gesture".
The ABSD is, therefore, very different from the Qualifying Certificate (QC) scheme, where developers pay only 8% of the land rate to extend the sales period by a year, and 16% to extend it on the second year and 24% on the third year, points out Lee Sze Teck, senior director of data analytics, Huttons Asia. The QC charges are also prorated based on unsold units.
"The staggered clawback reductions to ABSD payable could still motivate and incentivise developers to push through the offloading of their remaining units as close to 100% as possible," says CBRE's Song.
Housing developers are facing a multitude of challenges, says Chia Siew Chuin, JLL head of residential research, research & consultancy, Singapore, including escalating development costs and risks, reduced saleable floor area, a sluggish economic climate, and softer housing demand due to market cooling measures, increased interest rates, and inflation.
Chia sees housing developers remaining guarded, selective and strategic in their land acquisition activities. Meanwhile, the private collective sales market presents challenges due to differing price expectations between developers and sellers.
Larger sites with attractive locations may not automatically translate to high bids, notes CBRE's Song. "Developers have to build in higher contingency costs," she says. "This may encourage more competitive bids for attractive land sites in the future." CBRE Research maintains the forecast that private home prices could increase by 3% to 4% in 2024.