Changes to housing developers' rules

The revised criteria were set out in a URA circular to real-estate professionals at the start of this month and will take effect from next month.
The revised criteria were set out in a URA circular to real-estate professionals at the start of this month and will take effect from next month.ST FILE PHOTO

More paid-up capital to apply for sale licence; harder now for those with limited track record

Recent rule changes by the Urban Redevelopment Authority (URA) will make it harder for aspiring developers with limited track records to build and sell private homes.

The changes also mean that developers must commit more paid-up capital in order to apply for a housing developer's sale licence.

The revised criteria were set out in a URA circular to real-estate professionals at the start of this month, and will take effect from next month.

The previous criteria for licensing housing developers were enacted in 1989. Since then, the real estate industry has undergone significant changes," a URA spokesman told The Straits Times.

The licensing framework changes arise from a review of standards developers are held to, and is "critical to protecting the interests of home buyers who purchase uncompleted housing units directly from developers," the spokesman added. 

In one rule tweak, housing developers must have a minimum paid- up capital or deposit of $1 million to $4 million to qualify for a sale licence, depending on the size of the housing project. This is up from $1 million previously.

While a developer would be able to use this amount in its operations, the rule change could hamper a smaller player with difficulties in obtaining financing, said Mr Nicholas Mak, SLP International executive director of research and consultancy.

ACCOUNTABILITY MATTERS

Developers can always disappear from Singapore after taking profit... But if they have a couple of people who are qualified directors, these people would hopefully behave more responsibly and can be held accountable.

MR KU SWEE YONG, Century 21 chief executive.

In another change, while potential housing developers could previously get away with claiming a reasonably sized non-residential project as evidence of a track record, they can no longer do so.

This is "given the differences in developing residential and non-residential projects", the URA said.

Mr Mak said this change could deter some smaller players in the industrial property space from crossing over to developing residential properties. "Over the past few years, JTC Corporation has been selling many small industrial development sites of less than 1ha. There could be small developers of purpose-built factories who now wish to enter the residential market."

Century 21 chief executive Ku Swee Yong said the change could also deter foreign firms that may have entered Singapore as pure construction or manufacturing players.

In addition, the sizes of completed projects in a developer's track record will determine how large a project it can now build.

For example, if the completed housing project cited in its track record has fewer than 10 units, a developer can obtain a sale licence to develop only a new project of fewer than 50 units.

Finally, for housing developers applying for a sale licence based on the track record of their companies, at least one of the directors involved in the cited completed project must now remain on board as a director of the company.

"This move enhances accountability. The concern could be that when we allow developers to 'strata title' and sell everything, they wash their hands of any future problems," said Mr Ku. "Developers can always disappear from Singapore after taking profit... But if they have a couple of people who are qualified directors, these people would hopefully behave more responsibly and can be held accountable."

Overall, the revised rules are simply in line with the fact that "you cannot just allow anyone with the money to be a developer", said Mr Ku.

Mr Augustine Tan, president of the Real Estate Developers' Association of Singapore, called it a fair move by URA. "It gives buyers more comfort that a developer is significant... By tightening the rules, it will protect the interests of buyers from small developers who want to go big (without necessarily having the experience)."

A version of this article appeared in the print edition of The Straits Times on March 10, 2016, with the headline 'Changes to housing developers' rules'. Print Edition | Subscribe