The recent de-listing of SC Global Limited from the SGX-ST and subsequent waiver of its wholly-owned subsidiaries’ obligations to pay extension charges under the Qualifying Certificates (QCs, as they are commonly called in the industry) issued to them to acquire, develop and sell residential condominium units have drawn attention to the challenges facing property developers in Singapore.
The context is the Singapore land policy as reflected in the provisions of the Residential Property Act (Cap. 274) (the RP Act). In broad terms, only Singapore citizens and Singapore companies can own "residential property" (as defined in the RP Act) in Singapore. A Singapore company for the purposes of the RP Act is one where all the shareholders and directors are Singapore citizens. A listed developer, like SC Global was, is inevitably not able to fulfil the stringent requirements of being a Singapore company. Before acquiring land for residential development in Singapore, a non-Singapore company, in the context of the RP Act, has to obtain a QC from the Singapore Land Authority (SLA). The typical terms attached to the QC include: the provision of security amounting to 10% of the purchase price of the land, the development of the land to the grant of Temporary Occupation Permit (TOP) for the units in the development within a fixed period, and sale of all the units of the development within a fixed period (typically, 2 years) from the issue of TOP.
Being ahead of schedule in obtaining TOP for its developments is a hallmark of SC Global. Notwithstanding the acknowledged quality of its developments, there have been challenges in selling all the units. This is hardly surprising given the market conditions, including the various measures taken by the authorities to cool demand for residential property over the past years, such as the imposition of the additional buyer’s stamp duty. Those conditions have affected all developers.
SC Global’s Chairman and CEO, Simon Cheong, chose to launch a S$745 million offer to take the company private. The privatisation was hugely successful and consequently, SC Global and each of its subsidiaries (the SC Global Group) became a Singapore company in the context of the RP Act. The SLA then waived the conditions in the QCs held by the SC Global Group such that the group is no longer obliged to sell the units in its developments within any given time-frame. On 1 July 2013, Singapore’s The Business Times reported that this saved SC Global "millions".
The loss of this listed developer from the SGX-ST calls for reflection upon the QC regime. There must have been a calculation that the price of privatisation (and the value of retaining the unsold units) outweighed that of engaging the authorities to extend or waive the time periods for sale of all the units. This prompts the query as to whether the distinction between a "Singapore" developer (within the restrictive meaning of the RP Act) and a non-Singapore developer is justifiable.
The parliamentary intention behind the RP Act is to husband our scarce land and ensure that Singaporeans are able to own their own homes. In particular, the intention for imposing the QC conditions is to deter foreign housing developers from speculating or hoarding land. Thus expressed, these policies are uncontroversial and beneficial to the interests of Singapore citizens.
However, when it is considered that the RP Act does not restrict foreign ownership of dwelling units in condominium developments, it is less clear that the QC condition as to the sale of all the units furthers the legislative intent. Theoretically, there is no substantive difference between the original foreign developer retaining the unsold units (assuming that retention has been allowed by the authorities) or selling the unsold units to a foreign purchaser who could hold on to these units indefinitely without any restrictions. It should be queried whether the original developer should be the only person who cannot hold the units. This appears in fact to be a disincentive to foreign investors to commit resources to develop land in Singapore. Ultimately, this probably hurts home owners in Singapore.
Title to the units in a condominium development comes under the strata title regime. In simple terms, owners of such units own their units and a share of the common area, and collectively they own the development. It is common practice in Singapore to sell strata title units off-plan i.e. at the beginning of construction and there is, in place, legislation to ensure that monies received from purchasers are used only for the construction of the development. It is common for developments to be majority sold by TOP. Hence, it is somewhat unreal to consider a developer as hoarding residential property when most units have been sold by TOP and to sanction him for not selling all the units in a short period thereafter.
Finally, it is also the practice to charge a premium for the extension of time to sell the units in a development based on the price the developer paid for the site, with an increasing rate for longer periods of extension. This follows a policy developed for extension of time to develop land. It is questionable if the sale of units (on developed land) should be governed by the same policy as applies to encourage timely development of undeveloped land. Moreover, an irresponsible developer, faced with a high extension premium, could "force-sell" the units on hand and, if this leads to a sudden drop in the general market, would in fact negate the establishment of a stable and sustainable residential property market where prices move in line with economic fundamentals.
Is it time for a shift in the policy relating to this aspect? The equilibrium between local and foreign ownership of residential properties may require tweaking in the Singapore of the 21st century.