Forum: Tweaking ABSD timeline and pro-rating penalties can help contain rising housing prices

Housing seen in the central area of Singapore.
Housing seen in the central area of Singapore.ST PHOTO: KUA CHEE SIONG

With reference to The Straits Times' article (ABSD 'extension' may ease glut but experts flag limp demand, Dec 12) and Mr Lee Teck Chuan's letter (Extending ABSD deadline will not remove market risk, Dec 14), I wish to provide some clarification. While extending the five-year additional buyer's stamp duty (ABSD) timeline would ease the current supply glut, the greater concern is rising home prices.

Singapore has witnessed record prices over the past two years for condominium projects. Given a choice, many developers would prefer to sell at a lower price, ensuring a comfortable sell-out rather than test new benchmark prices.

What is the cause? Developers are burdened with high land cost and have little buffer. Why is land cost high? When the market started to recover in 2017 after a four-year slump, most developers were low on land and had to compete fiercely to replenish their land banks. Considering the five-year ABSD timeline, the cycle may repeat itself as developers eventually run low on land at around the same time.

Contrary to many observers' comments, a developer cannot stop bidding for land. Land is our primary raw material. Just like the manufacturing industry, we cannot afford to run out of raw materials as it would have an impact on the company's operations and ultimately jobs may be affected.

An ABSD extension by two years would provide more flexibility so developers can have the option to launch immediately or delay the launch by several months to a year. This will potentially avoid exacerbating a market that may already be overwhelmed with supply.

More importantly, it will stagger launches so developers don't all run out of land at the same time and have to bid furiously to replenish their land bank.

Another proposal I suggested is to pro-rate the penalty in accordance to the number of remaining unsold units. It doesn't make sense to penalise a developer which has only five unsold units with the same hefty penalty of 31.25 per cent of total land price as one which has 500 unsold units by the five-year deadline. As one veteran property analyst highlighted, the solution "cannot be a one-size-fits-all".

Tweaking the ABSD timeline and pro-rating penalties can help contain rising housing prices by ensuring developers don't run out of land at the same juncture, thus moderating land prices. This provides for a more stable and sustainable property market, which augurs well for the social fabric of Singapore.

Sherman Kwek

Group Chief Executive Officer

City Developments Limited

A version of this article appeared in the print edition of The Straits Times on December 17, 2019, with the headline 'Tweaking ABSD timeline and pro-rating penalties can help contain rising housing prices'. Subscribe