Developers may be forced to offer residential units at a discount, which could prolong the three-year decline in property values.
Property developers in Singapore are faced with a difficult decision, to discount unsold luxury homes or pay penalties for failure to meet government-mandated sales deadlines, after the government closed a tax loophole that enabled them to offload residential units in bulk to institutional investors and wealthy individuals, reported Bloomberg.
To prevent land hoarding, the government now requires developers with non-Singaporean shareholders or directors to complete construction of projects and obtain the Temporary Occupation Permit within five years of acquiring the land. They are given another two years to sell all residential units or face hefty fines.
Since December 2011, developers have been given a five-year period to sell all units within a project or pay 10 percent of the land price as penalty.
Developers skirted the rules by selling the houses in bulk via a share transfer to wealthy investors, who pay lower stamp duty.
But with the tax loophole now closed, developers may be forced to offer residential units at a discount, which could prolong the three-year decline in property values. Paying the penalty, on the other hand, could prove to be more costly.
Industry estimates based on official data shows that around 2,098 residential units remain unsold across 57 projects, with penalties for these units reaching about $647 million this year.
“This could incentivise them to give greater discounts to buyers who have been waiting on the sidelines for further price corrections,” said Christine Li, Director of Research at Cushman & Wakefield Singapore.
She noted that smaller developers may offer bigger discounts while bigger developers may hold out.
“Paying the penalties will still be the last resort,” she said.