Government to plug loophole in residential property stamp duty

Banker Wee Cho Yaw bought 45 unsold units at The Nassim (above) for $411.6 million through the purchase of a 100 per cent stake in Nassim Hill Realty.
Banker Wee Cho Yaw bought 45 unsold units at The Nassim (above) for $411.6 million through the purchase of a 100 per cent stake in Nassim Hill Realty. ST PHOTO: ALPHONSUS CHERN

The Government intends to plug a loophole that allows property buyers to avoid stamp duty by purchasing shares in a holding firm rather than buying the property directly.

In recent times, some major developers have made bulk purchases of condo units in this way.

National Development Minister Lawrence Wong told Parliament on Tuesday: "In principle, we should treat transactions in residential property on the same basis, regardless of whether a property is transferred directly or through a transfer of shares in a company whose primary business is in residential property in Singapore."

He was responding to a suggestion from MP Yee Chia Hsing.

"We plan to make legislative changes to effect this," he added.

Currently, a direct purchase of residential property incurs buyer's stamp duty of 3 per cent. Depending on the buyer's citizenship, up to 15 per cent additional buyer's stamp duty (ABSD) is imposed. But the buying of shares in a firm which owns the property incurs a tax of only 0.2 per cent of the firm's net asset value.

The Government's move comes after several such high-profile deals.

Veteran banker Wee Cho Yaw made headlines in January for buying 45 unsold units at upmarket condominium, The Nassim, for $411.6 million. The deal was made through the purchase of a 100 per cent stake in Nassim Hill Realty.

Last July, Wing Tai Holdings sold its share in its joint venture company Summervale Properties, which developed the Nouvel 18 condo, to City Developments. In October, CDL then offloaded Nouvel 18 to a group of Singaporean investors via a $977.6 million profit participation securities platform. Of the $977.6 million, $102 million was raised through issuing equity shares.

Dentons Rodyk & Davidson senior partner Lee Liat Yeang said the news was making the market "very anxious" as it was not clear how or when the rules will be changed.

"The devil is in the details here, because there are many different types of residential assets, as well as questions about whether it matters how long the company has owned the property for," he added.

KPMG Singapore principal tax consultant Leung Yew Kwong emphasised the complexity of the potential legislative changes.

"While each residential property is separate, distinct and comes with a transaction value which lends itself for easy taxation, the transaction value of the shares of a company reflects the net result of its assets and liabilities, which does not lend itself for easy taxation.

"In working out the implementation details, the authorities may have to be discerning so as not to adversely impact share transactions which do not have their primary objective of residential property as an investment asset," he added.

Analysts fear instability in the property market should the prevailing ABSD be imposed. "It may destabilise the property market... particularly the high-end market, where demand is still sluggish," said Ms Christine Li, director of research at Cushman & Wakefield.

Dr Lee Nai Jia, head of South-east Asia research at Edmund Tie and Co, said the measures would hit developers with substantial unsold properties. "Developers will have to consider... the costs of each option, including share transfer, giving discounts or paying the extension and ABSD charges while waiting for the market to improve," he added.

He noted that with more high-profile deals, more buyers could follow suit and possibly exploit the loophole.

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A version of this article appeared in the print edition of The Straits Times on March 09, 2017, with the headline Government to plug loophole in residential property stamp duty. Subscribe