Singapore Property News This Week #31

Residential

A need for clearer ABSD guidelines

The Additional Buyer’s Stamp Duty (ABSD) is the latest governmental measure aimed at cooling the residential market. The ABSD is imposed on foreigners and companies buying any residential property (including residential land), permanent residents buying their second and subsequent property and Singapore citizens buying their third and subsequent property at 10%, 3% and 3% of the purchase price or market value, whichever is higher, respectively. This measure to restrict investment purchase of residential properties is in addition to the extension of the Seller’s Stamp Duty (SSD) on residential properties acquired on or after Jan 14, 2011 and sold within four years of acquisition, with the duty being 16%, 12%, 8% and 4%respectively for properties sold in the first, second, third and fourth year after acquisition.

The ABSD and SSD have different impacts on licensed and non-licensed developers. Licensed developers need not pay an SSD when selling residential properties developed by them and if they complete and sell all the residential units within five years, they need not pay an ABSD either.  Non-licensed developers need not pay an SSD if they are registered companies or businesses and are lawfully carrying on the business of housing development but non-licensed developers who buy land that is not capable of being developed into at least five residential units have to pay an ABSD.

Allowing remission by licensed developers eliminates the additional cost to the project since the ABSD is targeting end-buyers; not allowing remission for non-licensed developer will increase the cost of developing small sites of between two and four residential units, disadvantaging owners of small land plot in both landed and non-landed housing areas. The latter would have been spared the ABSD should there not be a minimum plot size requirement of 1,000 sqm for new flat development island-wide on Nov 23, 2011.

Whether the land plot will be affected by the ABSD also depends on what form of landed housing they have been safeguarded for. In mixed landed housing and non-landed housing areas for cluster terrace housing development, landed housing areas for semi-detached house and bungalow, the minimum land area required to build five units are 750 sqm, 1,200 sqm and 2,000 sqm respectively. Should the plot size be smaller, the developer has to pay the ABSD. Good Class Bungalow areas have an additional requirement of 34m plot width in addition to the minimum plot area of 7000 sqm.

Even when using one’s personal name to purchase such property, one cannot avoid paying the additional stamp duty since individuals cannot apply for remission of the SSD. As such projects usually take at least two years for completion; the SSD he has to pay is 8%, higher than the 10% ABSD he has to pay. It is also possible to amalgamate the plot with neighbouring plots so that it can be developed into at least five residential units but this depends on whether the owners of these plots are willing to cooperate.

The ABSD is likely to drive up the prices for landed housing rather than lowering it, since developers may be less willing to take on new landed housing projects, leading to a smaller supply.

ABSD aims to curb investment demand of private residential properties and is targeted at end buyers but owners of small land plots have also suffered because demand for their land comes from non-licensed developers disadvantaged by the ABSD.  Non-licensed developers are not treated the same under the SSD as a licensed developer under the ABSD despite having the same conditions attached – proof of piling and foundation works within two years and all units to be disposed of within five years.

Clearer guidelines on ABSD are also needed for certain cases such as industrial properties in Hillview and Jalan Ampas, commercial and hotel properties which can be changed to residential use. ABSD also needs to make clear on what will be considered the material date of acquisition if there is amalgamation with land bought much later. There are also questions of whether a piece of land purchased by an individual is considered a third property. Developers may also find themselves in a situation where they bought a piece of land with a proposal for a five-unit project but URA does not approve, resulting in them owing the ABSD.

HDB resale prices to decrease by 1-5%

Despite the expected marginal decrease of the COVs (cash-over-valuation) which could lead to a slight decrease of HDB resale prices by 1-5%, the prices for HDB resale are likely to be stable otherwise. However, there are also analysts who believe that resale prices are likely to increase by 5-6% for the first half of 2012, given the limited supply in the market.

The limited supply might have been due to new policies implemented. One policy requires private property owners who buy resale flats to dispose of their private homes within six months of the resale purchase. The Minimum Occupation Period (MOP) of non-subsidised flats was also increased from three to five years, resulting in HDB upgraders’ reluctance to sell their HDB flats for fear of not being able to purchase another in the future. Instead, they will likely rent out their flats, limiting the supply of resale flats.

With the raising of income ceiling and increased supply for ECs and BTO flats, many buyers (including first-time buyers) may turn away from resale flats to ECs and BTOs instead. However, home buyers may still opt for resale flats as they are better accessibility to amenities and larger floor area.

The ABSD which may cause prices for private housing to drop may also result in less transactions in the resale market when home buyers who previously cannot afford private housing now finding it affordable.

Two 99-year leasehold projects drawing Singapore buyers

While developers are worrying over whether they ought to release new projects since the introduction of the ABSD, the two developers of The Hillier in the Hillview area and The Nautical in Sembawang have decided to preview these two projects.

Far East Organization, the developer of The Hillier has collected more than 100 cheques for its 500 to 800-plus sq ft apartments with a flexible floor plan and a 3.4-metre ceiling height, mainly from Singaporeans. The mixed-use development with 528 Soho apartments above a two-storey retail and lifestyle podium is located near the future Hillview MRT station. It achieved an average price of $1,150 psf, after absorption of the standard 3%buyer’s stamp duty and a furniture voucher.

Hao Yuan Investment, developer of The Nautical located at Jalan Sendudok in Sembawang, have issued options for about 50-plus units. The buyers are mainly Singaporean HDB upgraders. After a 5% early-bird discount, the average price for the 435-unit five-storey project consisting of one, two, three and four-bedroom units and penthouses (including 32 dual- key units) is about $860 psf. A typical unit without private enclosed space or roof terrace will cost between $850-880 psf on average. Absolute prices range from $409,000 for a 420 sq ft one-bedder t o slightly over $1.5 million for a 1,916 sq ft penthouse.

3 residential sites potentially yielding 1,325 units released by URA

The three sites released by URA could potentially yield 1,325 units, bringing the total number of units launched for sale under the Government Land Sales (GLS) programme in 2011 to around 22,900 units and providing developers and home-buyers more choices for private housing.

The two 99-year leasehold sites – one at Bedok South Avenue 3 and the other at Jervois Road are released under the confirmed list of the government land sales programme for the second half of 2011.

The first site located next to Bedok Court and near the MRT has a 647,491 sq ft maximum gross floor area, and is expected to yield about 595 units. The winning bid is predicted to be around $470 to $500 psf with a potential selling price of $1,000 to $1,050.

The latter located at Jervois Road has a maximum gross floor area of about 135,000 sq ft, and is expected to yield 140 units. Being smaller than the first site, it is expected to garner good response with the winning bid at $900 to $950 psf and a potential selling price of $1,600 to $1,650.

The third site a 99-year leasehold site at Boon Lay Way offered under the reserve list. It has a maximum gross floor area of 523,879 sq ft and could yield around 590 units. While being an attractive site with its easy accessibility to Jurong East MRT station, the ABSD may deter developers from triggering the site.

Tender for sites at Jervois Road and Bedok South Avenue 3 will close at 12 noon on Feb 2 and 9, respectively.

Commercial

JTC launched CPT for fifth phase of Fusionopolis

A concept and price tender (CPT) for the fifth phase of Fusionopolis has been launched by JTC Corporation. Based on a two-envelope system where the price and non-price criteria are evaluated separately, the tender for the 207,560 sq ft 60-year leasehold site located above the one-north MRT station may not be given to the highest bidder. The site has a 3.5 plot ratio, with a maximum of 15% of its 726,456 sq ft maximum gross floor area allowed for commercial type activities. The site is likely to draw good response as a result of its location, being near an MRT station and major expressways. It also has a higher potential yield since it is a mixed use site.

Freehold MacPherson industrial site up for sale

The 30,157 sq ft freehold site located at the junction of MacPherson Road and Howard Road is asking for between $33 million and $35 million, or $438 to $464 psf ppr. With a 2.5 plot ratio of, the allowable gross floor area is around 75,393 sq ft. It could be redeveloped into 66 industrial strata units, assuming an average 1,000 sq ft unit size and an 88% building efficiency. Zoned ‘Business 1’, the site near Tai Seng MRT station is suitable for various uses, such as light industry, clean industry or telecommunications. Bids are expected to be in the range of $350 to $450 psf ppr, with potentially five or less bidders as a result of the site’s long and narrow layout. However, there may be a better response if the market shows that the rental yield could be between 4 to 6%.

The tender for the site will close on Jan 12, at 3pm.

Landlords offering more incentives to attract tenants

Given the slowing office leasing market as a result of increased supply and decreased demand from the global economic uncertainty, landlords are expected to offer more incentives such as rent-free periods and fit-out capital contributions in the first half of 2012. They may also offer more flexible lease terms. Agent commissions for a two or three-year lease have also been increased from one month’s rental to between 1.2 months and two months’ rent.  Some may even adjust the rents to market rates. There are different predictions as to how the market would fare, with some expecting a 15% contraction of rents while others expecting a less dramatic change.

Prime retail rents to stay stagnant next year

The retails rents have remained stagnant in Q4 2011, and the prime retail rent is likely to be flat the next year. The Q4 average gross fixed rent of prime first-storey space in the Orchard/Scotts Road area was $40.20 psf per month, the same as Q3’s and a 1% year-on-year increase. There has been less demand for retail spaces as retailers have more considerations about expanding and selecting new spaces as a result of the economic outlook, but there are new tenants in the form of international retailers seeking to expand in Asia and escape the lower consumer demand in the West.

Stable rents are predicted for Q1 next year, with a potential decrease after that, which may be alleviated b y expected increased retail sales, tourism and limited stock.

Rents in prime, first-storey retail space in other city areas as well as suburban areas remained unchanged in Q4, the latter as a result of increased supply. The supply is expected to continue to increase to around 4.6 million sq ft of net lettable area from 2012 to 2016, with more than 50% in suburban areas, restricting the suburban retail rental growth next year.

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