Property cooling measures have led to supply glut, should be eased: Developer

SINGAPORE — Property cooling measures intended by the Government to prevent developers from hoarding land have led instead to the supply glut of private homes seen today, the chief executive of Singapore’s second-largest private home builder has said.

In an article published by Bloomberg on Wednesday (Dec 11), City Developments (CDL) CEO Sherman Kwek called on the authorities to ease the property curbs to alleviate the “immense pressure” placed on developers and prevent the current supply glut from worsening.

Today, around 32,000 private homes, excluding executive condominiums (ECs), are in the pipeline but remain unsold based on the latest housing data.

Mr Kwek took aim at a levy imposed on developers when they are unable to sell all their units within five years, and suggested that the Government lengthens this timeline to “seven, or even 10 years” to take the pressure off developers.

Based on current rules, the five-year clock begins ticking for property developers after they acquire land to build new projects. They must fully sell all units within the five years in order to qualify for upfront remission of Additional Buyer’s Stamp Duty (ABSD) on the purchase price of the land.

If they are unable to do so after the five-year mark, developers have to fork out a significant sum, with interest, to pay for the ABSD.

Before July 6 last year, this remissible ABSD was set at 15 per cent of the purchase price for the land. But this was increased to 25 per cent when property cooling measures were announced on July 5.

If developers failed to meet the five-year deadline to sell all units, they would not be able to stomach the significant levies, which amounted to a "petrifying rate" of 31.25 per cent due to compounding interest over five years, Mr Kwek told Bloomberg.

The Monetary Authority of Singapore warned last month that the large unsold supply of private homes could weigh on the private property market in the medium term, thus causing downward pressure on prices if demand does not keep pace with the rising supply.

Excluding ECs, the number of unsold units from launched projects doubled from 2,172 units in the third quarter last year to 4,377 units in the same period this year.

“While I understand the rationale behind the ABSD, unfortunately, the fear of running out of the primary raw material — land — ultimately outweighs the fear of penalties and this causes developers to bid aggressively for land,” Mr Kwek was quoted as saying. He also noted the “ferocious bidding” seen at Government Land Sales and during the period when collective sales fever took hold after 2017.

This has resulted in the “dizzying” price of land, which has placed significant pressure on developers when bidding for land sold by the Government and translates to higher home prices.

The source of the problem is the five-year ABSD timeline, he said, noting that developers cannot freely react to housing market conditions.

“While the intention is to prevent developers from hoarding land, it has created unintended consequences whereby all developers are forced through a narrow funnel to build and sell in a short time frame,” said Mr Kwek. “To be clear, the five-year ABSD restriction is not the only reason for high land prices but it is certainly a significant contributing factor.”

Developers have little choice but to launch new projects, even in a depressed market, to avoid running out of time to sell the units, he said. As a result, developers could run out of land at around the same time and will need to compete for land again, causing a repeat of the cycle of intense bidding for land seen after 2017.

Mr Kwek gave two suggestions for the authorities to consider:

• Lengthen the ABSD timeline to seven or 10 years, which will still prevent developers from hoarding land for too long.

• Prorate the ABSD penalty based on the number of unsold units when the deadline is reached, in order to make the penalty more bearable for projects with only a few remaining unsold units.

In response to TODAY's queries, a Ministry of National Development spokesperson said: "The Government will continue to monitor the property market closely, and will take the necessary measures to ensure a stable and sustainable property market."

ANALYSTS MIXED ABOUT KWEK’S COMMENTS

Speaking to TODAY, Mr Nicholas Mak, head of research at ERA Realty, said Mr Kwek's suggestions appear to be more acceptable solutions for the authorities compared with past ideas, which had included reducing the ABSD and lifting the property cooling measures altogether.

“I also think the ABSD timeline cannot be a one-size-fits-all, because it should not be that it takes five years to sell all units in a project regardless of whether the project has 20, 200, or 2,000 units,” he said.

The larger the project, the harder it is for developers to sell all of the units within five years, which explains why many of the en-bloc sales attempts of larger properties have been unsuccessful, he said.

He likened private housing supply to a factory production line that cannot be stopped, as developers cannot simply build fewer new homes on the land they bought after 2017.

From 2013 to 2017, developers had sought to clear their inventory instead of replenishing their land reserves owing to the initial round of property cooling measures. An uptick in market sentiment in 2017, however, led many developers to change their priorities and buy more land.

“So you have a steady supply that must come online, that must be built and entirely sold in five years’ time. And yet, at the same time, the Government also curbed demand from buyers, putting developers in a very difficult position,” said Mr Mak.

Property analyst Ong Kah Seng said: “Without that stringent ABSD regulation, they could have kept some of these sites in their land bank reserves and release or launch (projects) at suitable timings.”

He did not agree entirely with Mr Kwek, however, stating that during the euphoric 2017 and 2018 housing market, marked by en-bloc fever, it was the developers themselves who added too much stock to their land inventory and "bidded excessively high”, expecting residential property prices to continue rising.

This turned out to be too optimistic, he said.

“Even as there was intense pressure to stock up land inventory during property market recovery from the second half of 2017, there actually wasn’t a valid necessity to acquire sites at such an aggressive pace then,” said Mr Ong.

Associate Professor Sing Tien Foo, director of the Institute of Real Estate and Urban Studies, also disagreed with the suggestion to extend the five-year period, noting that the purpose of the ABSD was also to curb speculation in the housing market.

Extending the ABSD timeline may weaken the Government’s intention to cool the property market, as it gives developers more room to time the market and gain an advantage in influencing housing prices when the market is weak, he said.

“The current ABSD rules will force developers to be more prudent in acquiring more sites, and also to make sure that they will not (create) a glut in the markets in the short term by being overly aggressive in bidding and acquiring new sites, especially the en-bloc sites.

“They would have to revise the price downward to reflect the market sentiment, in order to sell their units. The ABSD will then serve the purposes of cooling the housing market as intended,” said Assoc Prof Sing.