THERE is confusion in property circles concerning the application of the new stamp duty to certain types of real estate.
The major grey area centers on whether commercial units like shops or offices constructed within residential developments on residential-zoned land will be covered by the additional buyer’s stamp duty (ABSD) and seller’s stamp duty (SSD).
Industry players explain that there is ambiguity on what really defines a ‘residential property’ that would incur the duties: Will it be based on the approved use of the units or the zoning of the land under the Urban Redevelopment Authority’s (URA) master plan?
They add that queries to the Inland Revenue Authority of Singapore (Iras) have produced varying replies, particularly on the subject of units in mixed-use land zoning.
There also appears to be complexity pinning down precisely how the ABSD will be applied considering that the present e-tax guide is vague on this area.
An Iras spokesman said that ‘in general, properties approved for commercial use on residential land should not be subject to the ABSD or SSD’.
However, there are exceptions. This would include Singapore property that was accorded provisional approval for commercial use by the URA such as a residential shop house being given temporary approval as an office or shop space. In similar cases, the seller’s stamp duty of up to 16 per cent is applicable.
Nevertheless commercial units in condominiums – minimarts, for example, or salons – on the ground floor of certain blocks that have acquired long-term approval for such use are not likely to be slapped with any of the stamp duties.
The Iras spokesman further added: ‘When the use of the property is not residential on a land zoned residential, we will need to examine the facts of the case to determine if the property is residential property within the scope of ABSD and SSD.’
The taxman did not explain further on what precisely these criteria are.
While there are most likely a small number of commercial units that will be subject to the extra stamp duties, experts say the ambiguity only added more questions within the industry as to what exactly the ABSD applies to.
Mr Lee Liat Yeang, a partner at Rodyk & Davidson’s Real Estate Practice Group, said Iras should formulate a clearer definition of ‘residential property’ for the application of ABSD.
The ABSD should be applied in accordance to the approved use specified by URA rather than the zoning of the land under the URA master plan, he said.
‘According to the e-tax guide, Iras appears to be looking at the masterplan zoning in order to establish whether the approved use is residential in whole or in part.
‘But the master plan shows only the general parameters of possible uses for the land upon which URA will then approve specific use for properties,’ he added.
Mr Lee cited the fact that there are full commercial-zoned lands sites such as Eon@Shenton that have acquired URA approval for residential, office and retail uses.
There are also approved commercial units built on land zoned fully or partially residential under the master plan.
‘Iras should speedily tackle this definition issue of residential property in order for the public and lawyers to distinguish whether ABSD is payable in the purchase of specific property which has approved use different from the zoning,’ he added.
SP Setia Bhd, one of the country’s leading developers, is investing up to RM30 million to put up an integrated rail transport hub at its RM6 billion KL Eco City mixed development in Kuala Lumpur.
The company is constructing a KTM commuter station, which will be incorporated with the existing Abdullah Hukum light rail transit (LRT) station at the project location by the year 2013.
Executive vice president Richard Ong said SP Setia is in the process of completing the design proposals intended for the KTM station with the rail authorities.
“Subject to the authorities’ requirements, the KTM station is estimated to cost around RM30 million,” Ong told Business Times.
SP Setia, through its unit KL Eco City Sdn Bhd (KLEC), is developing KL Eco City on the former Kampung Haji Abdullah Hukum site at the end of Jalan Bangsar. The 10-year development will contain a number of residential towers, offices and a 5.7 million sq ft retail podium.
Ong said KLEC has started initial works on the site such as earthworks, tests piles and transferring of existing utility services, as well as realignment of Sungai Pantai (river diversion works).
Substructure works which includes piling and foundation are likely to begin in two months, said Ong, who happens to be KLEC project director.
Ong said these are part of the construction works for Phase One of the project, comprising 12 blocks of boutique offices, a strata office and a corporate office tower on a four-storey retail podium, worth almost RM2 billion.
SP Setia will build a pedestrian bridge connecting KL Eco City and The Gardens at Mid Valley City to further enhance the Malaysia property development.
In the meantime, SP Setia will invest RM150 million to connect KL Eco City to the Federal Highway by the use of two dedicated ramps.
The ramps will allow traffic in the direction towards Petaling Jaya and Kuala Lumpur to gain direct access into KL Eco City and to leave the development directly onto the Federal Highway.
There will also be linkages to Jalan Maarof in Bangsar through Lingkaran Syed Putra. KL Eco City will also have direct access to and from the New Pantai Expressway (NPE) using the existing Jalan Pantai Baru and Jalan Bangsar interchange.
Ong said SP Setia has obtained all the essential approvals from the pertinent authorities concerning the design proposals for the ramps and the linkages.
“Tenders have been called and the evaluation process and award is expected to be completed in the next two to three months,” he said.
Notwithstanding the depressing economic outlook and latest cooling measures, private home sales in February continued strong and set a new record with transactions hitting 3,138 units including executive condominiums (ECs).remain
Data from the Urban Redevelopment Authority (URA) make public that with the exclusion of ECs, the figures mark a 118 percent increase year-on-year to 2,413 units, in contrast to the 1,105 units recorded in the same period last year.
Top selling projects through the month were Parc Rosewood at Woodlands, which sold 380 units at a median price of S$994 psf, and Guillemard Edge at Geylang, which sold 275 units at a median price of S$1,215 psf.
As for ECs, Twin Waterfalls saw 257 units sold at a median price of S$727 psf while The Tampines Trilliant sold 187 units.
Most sales occurs in the OCR (Outside Central Region) with a record of 1,830 transactions. ECs accounted for 23 percent of the total private home sales volume, as 725 units were snapped up in February backed by the higher income ceiling for acquiring ECs.
“Singapore property developers had held back the launches in December 2011, especially after the ABSD. However, encouraged by the strong take-up rate of properties in January 2012, developers’ timely release of new launches in February had gained momentum and many had pushed ahead with their launches in the OCR while activity remained muted within the Core Central Region (CCR),” noted Mohammed Ismail, Chief Executive Officer of PropNex Realty.
The numbers are still strong “even after a seemingly draconian round of ABSD measure and after five rounds of property cooling measures that began in 2009,” said Alan Cheong, Director, Research & Consultancy at Savills (Singapore) Pte Ltd.
“It could be that Singaporeans have an innate desire to own properties. This desire, built up over a generation of public housing policy is evidenced by the fact that 87 percent of Singaporeans own their homes.”
Cheong further commented that the run up in the stock market could also be influential in improving buyers’ sentiment.
“However, the main demand driver has been low mortgage rates which are generally below 1.5 percent,” he noted.
BUYING Malaysia property that finally becomes deserted is a excruciating experience for many house buyers. It not only harms purchasers who have lost their hard-earned money but also affects the property industry’s standing which has taken a whipping owing to unethical activities of a small number of culprits.
This is primarily so when the abandoned project is not caused by factors such as economic downturn or withdrawal of purchasers, but exclusively owing to irresponsible people who assert to be “developers” but do not hold a license to do so.
It was of late reported that our Housing and Local Government Ministry has recognized 195 abandoned developments that have no license to operate in our country. I am perplexed as to how these “developers” are able to begin their projects when they do not even possess a license to apply for financing in the event they are required a bridging loan, and is their sales and purchase (S&P) agreement appropriately attested by a lawyer prior to the start of selling?
In this situation, what can be done and who should take part in minimizing these unlawful developers? Evaluating our existing housing development process would provide us with some ideas.
When a developer plans for a housing project, he must first secure the essential approvals and licenses from the pertinent authorities such as the development order, building plan, advertising permit and developer’s license. The developer then may require to source for a bridging loan from a financial institution and this is followed by hiring the services of lawyers to prepare the legal documents that will include the S&P agreement.
As the project is launched to the market, the developer will oblige the buyers to sign the S&P agreements in order to finalize the purchase. Should the purchaser obtain a housing loan from a bank, the bank will enter the picture to process the loan application submitted by the purchaser. These are the basic procedures involved in developing and marketing a housing project in Malaysia.
For unlicensed development, the regulatory bodies are not in the picture. In such cases, it becomes obvious that the lawyers and/or bankers, both representing the house purchaser, have a role to play as the first line of defense to safeguard the interest of the purchaser.
Therefore, there are questions that asked for an answer. How is it doable for financial institutions to endorse the end financing loan for a property development in the absence of all or part of the required approvals and licenses? The same questions are posted to lawyers who get ready all the legal documents for unlicensed development.
I suppose everyone has a part in identifying irresponsible players in the industry, particularly the bankers and lawyers with their better access to information and strong regulatory network as compared to the general public. As a purchaser and a customer, you would have anticipated your banker and lawyer to carry out due diligence to guarantee that your interest is not compromised.
In other industries, professional practitioners who do not express the right message and do not look after customers’ interests can be given severe punishment as their action may be construed as negligence, fraud or even criminal breach of trust.
According to the record of National House Buyers Association, in the case of Keng Soon Finance Bhd (1996), a financial institution had approved a loan to an unlicensed developer, and it was decided that the loan and the security offered were invalid. The bank is unable to institute the foreclosure proceedings on the said land and consequently could not recover its loan.
Under our Housing Development Act, a property developer that engages in, carries out or undertakes housing development without a proper license can be subjected to a fine between RM250,000 and RM500,000 or to imprisonment for a term not exceeding five years or both. This is an opportunity to take action against unlicensed developers. While we have the law in place, it is likewise important to make certain that strong enforcement comes along.
For house buyers, you are strongly advised to buy property from reputable developers and to do thorough “shopping” and analysis prior to affixing your signature on the dotted lines. Responsible developers are eager to work hand-in-hand with purchasers and welcome the role of the National House Buyers Association which advocates the protection of house buyers in Malaysia. We should stand jointly as a team to fight against irresponsible developers.
And for anyone of you who believe that you have purchased one of those unlicensed developments as mentioned earlier in the article, it is right time to write and call your banker or lawyer for clarification.
The rich in Singapore are losing confidence in their wealth and are searching for solid investment options.
According to Channel News Asia, a Standard Chartered survey concluded that many of Singapore’s affluent have declined in wealth confidence owing to unsure economic landscape.
The study by Standard Chartered Bank and Scorpio Partnership is a Future Priority Report 2012 that aspires to capture sentiments of over 2,700 wealthy individuals across nine markets in Asia.
The Singapore property markets included 300 individuals from Singapore with an average annual income of S$159, 290 (US$126,000).
The study demonstrated that as the confidence level is lower than the year before (76 per cent) a majority of Singapore’s affluent (70 per cent) stay confident in increasing their wealth in the next 12 months.
Channel News Asia noted that while “Singaporeans are bullish on Asia,” about a third of Asian respondents view Europe and North America as “offering good wealth creation prospects in the next 12 months.”
Throughout a five-year horizon these numbers have increased considerably, predominantly for the Middle East, Latin America, and Africa.
The Singaporeans survey was shown to enlarge their wealth to an average of S$4.5 million (US$3.6 million) from a present average wealth of S$1.5 million (US$1.2 million).
The Asian affluent showed a liking for tangible investment options, stating gold (44 per cent), high interest savings (43 per cent), and real estate (34 per cent) as their top choices.
Nonetheless, it was reported that “Singaporeans are less bullish on gold and opt for high interest savings and shares as investment preference.
To realize the wealth gold over an average of 10.9 years, they require 10 per cent annual returns on their wealth.
Still, the average Asian affluent is perceived as more insistent, aspiring to increase their wealth by 12 per cent per annum over the next 10 years to S$5 million (US$4 million).
The highest money goal is set in South Korea (US$6 million), followed by India (US$4.8 million) and China (US$4.5 million).
KUALA LUMPUR: Malaysia Building Society Bhd (MBSB) will fund the builder and buyers of Malaysia’s major abandoned housing project, to be found in Bandar Baru Salak Tinggi, Sepang as part of its efforts to decide its corporate legacy accounts issue.
MBSB, which is 65.5%-owned by the Employees Provident Fund (EPF), will grant term and bridging finance facilities of up to RM215mil to builder NCT United Development Sdn Bhd (NCT), and an added RM243mil to the buyers, said MBSB CEO Datuk Ahmad Zaini Othman.
“When the new management (of MBSB) came in in 2009, we wanted to find a way on how we can resolve these legacy problems.
“And one of the ways is to support this project through NCT to revive the project.
“This project have been unresolved for more than 10 years,” Ahmad Zaini said.
“We foresee they’re (the buyers) are going to face problems to secure financing from the banks.
“So we are also putting up another package which is the end financing package to support purchasers.
“We are shifting the corporate risk from NCT to the purchasers,” he added.
Buyers will have to pay an interest rate of base financing rate minus 0.5%, which is somewhat more costly compared with conventional loans because of the fact that these borrowers are mostly in their 50s. This is according to MBSB.
MBSB is also classified as an ‘exempt finance company’ and as a result it is not restricted by any financial regulators in Malaysia.
“It is only fair and just to do so as they (these borrowers) have honoured their initial obligations but failed to receive their end of the bargain,” Ahmad Zaini said.
Following deliberations with the purchasers, an accord was arrive at to separate them into two classes.
According to NCT, one class of buyers who desire to carry on with the purchase will have to top up another 30% to the original purchase price of either RM140,000 (for 20X70) or RM97,000 (for 18×60) units.
These units have make out a price appreciation of about 80% from the time it was abandoned.
The second group of buyers can obtain a full amount as refund for their units as construction of their units was at a minimum.
“This is a big step for us.
“Hopefully it will be a win-win situation for all,” Ahmad Zaini said at the signing ceremony here yesterday, adding that there were two more such abandoned legacy projects that were scheduled to be revived.
“NPL (non performing loans) will not go away unless and until you revive the project,” he said, adding that MBSB’s net NPL stood at 8.5% as at December 2011.
The project, named Taman Kenanga, was deserted in 1999.
The developer, Kumpulan Sepang Utama Sdn Bhd (KSUSB), is at present in liquidation.
The signing of the said agreement yesterday has involved three parties – MBSB, NCT and KSUSB’s liquidators, GTC Corporate Advisory Sdn Bhd.
According to MBSB, the Malaysia property housing project was abandoned by reason of the cost overruns together with the “unfavorable economic situation then”.
It will be renamed Sepang Perdana and is likely to be completed within the span of two years, said NCT CEO Zulfikri Saidin.
The project was originally earmarked to have 2,536 units of commercial, linked houses and low cost houses on 110 acres.
Based on the most recent research report conducted by Knight Franks, in March 2012, the Grade-A office market continued to be the weakest property sector in Hong Kong property. The retail sector persists to outperform on the back of strong demand from retailers, at the same time as the residential market reported additional rebounds throughout the traditional peak season. However, the Grade-A office leasing market saw signs of more correction, with large-scale transactions continued to be scarce.
Prime office
Companies continued to scale back their operations, ensuing in slow-moving leasing activity. Only a handful of Grade-A office leasing transactions were documented last month. Remarkable deals included a 12,000-sq-ft low floor in Exchange Square in Central, taken up by Hong Kong Exchanges and Clearing for HK$100 per sq ft per month.
Armani leased two floors totaling 34,000 sq ft in Kerry Centre, Quarry Bay for HK$40 per sq ft per month, while Swatch committed to one and a half floors in the same building, covering 25,000 sq ft.
More companies looked to surrender existing leases owing to weak business environment. Grade-A office rents in Central had decreased by about 16% by the end of March, from its peak in mid-2011.
Mr Thomas Lam Ho Man, Head of Research at Knight Frank in Greater China, anticipates the same to go down further 10–15% in the rest of 2012. In the meantime, rents in non-core districts will stay, thanks to low vacancy levels and continued relocation demand.
Luxury Residential Sentiment in the residential market remained robust, fuelled by more reductions in mortgage interest rates and the results of two residential site tenders. Residential sales surged 192% month on month, the highest level since November 2010. The number of secondary home sales climbed up by 200% to 9,923 and a few luxury flats were allegedly transacted at record-breaking prices.
A 3,966-sq-ft, high-floor duplex in Hong Kong Parkview, Island South and a 2,169-sq-ft duplex in Hillsborough Court, Mid-Levels Central were sold for HK$19,617 and HK$25,357 per sq ft, respectively—the highest prices in these developments to date. Mr. Lam thinks this momentum, however, will not be maintained with slow progress in the global economic recovery. Homebuyers will waver to buy with decreasing available flats, escalating asking prices and limited room for negotiation. Residential sales and home prices may fall again in the coming months.
Prime Retail
Rivalry between retailers for prime retail space showed no signs of abating. From February, the sales value of retail properties has doubled to about HK$7 billion and shop rents in prime retail areas increased by 3.5% in the first quarter of this year. The outlook for Hong Kong’s prime retail market continues to be positive in the midst of sustained leasing demand. Luxury retailers are expected to keep on outbidding existing tenants and secure prime spaces. Mr. Lam expects retail rents in core areas to rise about 10% in 2012.
Latest newspaper articles have increasingly laid blame on real estate investment trusts (REITs) for the increasing occupancy costs in retail and industrial properties.
In fact, in my earlier article in this newspaper titled “Hawker centres and REITs: An inflation face-off?” (Nov 25, 2011), I also highlighted that REITs, in their relentless pursuit of superior shareholder returns, have generally been very proactive and efficient in raising the rental rates of their investment properties. This is in the best interests of REIT shareholders; unfortunately, it also results in higher rental costs, which eventually filter through to the inflation basket.
However, while potentially resulting in higher inflation, REITs also have their benefits. And having followed the Singapore REIT sector since its birth in 2002, I feel it is my accountability to also emphasize such benefits.
First, the introduction of REITs has given a cost-effective way for investors in Singapore property, particularly the retail investors, to gain exposure in a pool of diversified commercial or industrial properties. Prior the introductions of REITs, common investors were largely shut out of commercial and industrial real estate owing to the usually large amount of capital involved. REITs have helped to entice retail money into these previously unreachable property sectors, thus increasing the investment options of ordinary Singaporeans.
This, in turn, has boosted the supply of commercial and industrial properties in Singapore. Even if REITs largely purchase existing buildings from property developers, they efficiently free up capital in the property developers, who then gain the incentive to build new commercial and industrial buildings. In fact, many property developers who are large REIT sponsors in Singapore have been recycling the capital they make from the sales of their investment properties to their sponsored REITs to put up new retail properties. This helps to create a more exciting retail mall scene in Singapore. One might even say REITs have helped to improve Singapore’s profile as a tourist and commercial hub.
Second, REITs also help to improve the quality of existing commercial and industrial buildings. Due to their focus on shareholder returns, REITs are usually very active in enhancing the premises, facilities and services of their investment properties whenever the occasion arises. This has resulted in better quality investment properties (especially the retail malls) that are more exciting to visit. For example, many retail malls (such as Plaza Singapura and IMM Building) have been successfully restored and enhanced by their REIT owners.
Last but not least, the Singapore REIT sector was created to provide an additional high-yielding financial instrument for Singaporeans to invest their savings in order to realize a steady income upon retirement. This is especially important given Singapore’s ageing society. The sector has developed well over the past decade with more than 20 REITs being listed currently, offering investment opportunities into various investment property asset classes. In fact, the Singapore REIT sector is at present the second-largest in Asia, just behind Japan, another ageing society.
Thus, like in most situations, the case for or against REITs is not an uncomplicated one as it involve both social and financial benefits and costs. I guess the key question is whether Singapore as a society values the social and financial benefits of REITs more than its costs.
SINGAPORE: The quantity of new private homes disposed within the first quarter of this year crossed the 6,600 mark – a record high, according to Singapore property analysts. Nevertheless have prices of private home sales peaked?
Riversound Residences and the Palm Isles were amongst last month’s top four selling projects, every one situated in the suburbs.
The month of March have raked in over 2,300 new private homes, a little lower than February’s 2,400.
Yet, the initial three months of 2012 have witnessed monthly sales of private units reached above 1,500 units – still considered high by many property analysts.
Whereas analysts do not see a bubble forming in the property market, they said additional cooling measures may well have a momentary effect. And the mid tier and high end market will still see correction of an estimated 15 per cent by the end of 2012, dragging overall prices by 5 per cent.
Chia Siew Chuin, director of research, Colliers, said: “When we talk about a property bubble, one has to be aware that we not only look at sales per se, but also at prices. The number of sales in this period is really supply-driven, but it is also likely to be at the expense of very little price movement we have seen in the market.”
Still, a number of analysts said developers are catering to demand, launching at least 2,000 units each month in 2012 – a number only achieved in April last year.
Chris Koh, director, Chris International, said: “The number of units being pushed out and the numbers being taken, you can see does not differ much. Like what we have shared, 2,500 units against a 2,300 take-up is actually a very healthy number.”
Different market outlook between the mass and luxury markets are expected to affect prices.
Ong Teck Hui, executive director, Credo Real Estate, said: “Where we are just talking about OCR where the volumes have been pretty strong, then the outlook for this year is fairly positive. We are likely to see a stable market with some slight upside in prices, perhaps 3-5 per cent. For CCR, in particular, the softening of prices is likely to continue.”
With the record high number of new private home units being taken up, analysts predicted that 2012 is destined to surpass last year’s sales of 16,000 units.
PETALING JAYA: United Malayan Land Bhd (UMLand) will be having negotiations with Iskandar Investment Bhd (IIB) about investments in Medini, Iskandar Malaysia.
The developer said in a filing with Bursa Malaysia yesterday that it had entered into a collaboration agreement with IIB to have a discussion about its proposed investments in the flagship project. Situated in the Nusajaya development zone, Medini is one of the five flagship developments and part of the eight catalyst developments of Iskandar Malaysia, in addition to Johor State New Administration Centre, Puteri Harbour, Southern Industrial and Logistic Cluster, Afiat Healthpark, EduCity, International Destination Resort and Nusajaya Residences.
IIB president and chief executive Datuk Syed Mohamed Syed Ibrahim said in a press statement that the 2,230-acre Medini is well-positioned and on track to be converted into the central business district of Nusajaya.
“The proposed investment by UMLand, one of the renowned property developers in the local real estate industry, does not only reflect the attractiveness of Medini as an investment hot spot but will add a new dimension to the vibrancy of the lifestyle development,” he said.
UMLand chief operating officer Lim Eng Kuan said that UMLand had been a main player in the Johor property industry ever since 1990, beginning with its initial development Bandar Seri Alam.
“Over the years, the group has made concerted efforts in collaboration with the state government and has seeded vast infrastructure and amenities allowing the group to spread its wings further in Johor.
“This can be seen in the group’s strong presence in the region with projects in four out of five flagship zones of Iskandar Malaysia,” he said, adding that the group had also acquired several parcels of land amounting to 1,000 acres in the Iskandar region, earmarked for industrial, commercial and residential development.
It was lately reported that Medini’s Arab investors is likely to dispose of their land over time in favor of other Malaysia property developers.