Some property developers have turned to creative restructuring over the past few months to escape hefty penalties for their unsold private homes.
They have sold those homes to a subsidiary, or gone to the extent of delisting, in order to avoid those penalties.
Under the Residential Property Act, "foreign developers" must apply for Qualifying Certificates (QC) when they buy private residential land for development.
Foreign developers are defined as developers whose shareholders and directors are not all Singaporean. Listed companies are deemed foreign as they would have some foreign shareholders.
Once it obtains this certificate, the developer is bound by the QC rules. One of the rules gives a developer five years to complete a project and two more to sell all the units - or a total of seven years from the date it bought the land. It is not allowed to rent out unsold units.
If it fails to meet this deadline, it may have to forfeit a banker's guarantee worth 10 per cent of the land purchase price. Unsold units risk being force-sold by the Government.
By limiting foreign companies' holding period, the QC scheme was meant to prevent them from hoarding land or buying land for speculation in Singapore.
But it allows developers to pay an extension fee to get another three years to sell the units. The fee goes from 8 per cent of the purchase price for the first year to 16 per cent for the second year and 24 per cent for the third. Since land purchases are often in hundreds of millions of dollars, that adds up to a staggering sum.
Developers don't want to pay the high fees, but are also loath to slash prices further to move units in a lacklustre market. As a result, some have turned to creative ways to get out of the bind.
One is to delist, if it happens to be a listed company.
Mainboard-listed Popular Holdings declared in January that it wanted to delist to avoid QC penalties, which could cost it up to $99 million.
Another way for a foreign developer to solve the problem is to sell all the units in the development to a privately-held Singapore company. This buyer could be the foreign developer's privately held parent company or subsidiary.
The buyer of the units would have to pay an additional buyer's stamp duty of 15 per cent - this is the rate for companies - of the homes' purchase price.
One example is mainboard-listed Hiap Hoe, which launched a high-end condominium near Orchard Road in 2012 but failed to sell any units. Eventually, it sold the entire project to its privately-held parent company in December last year for about 15 per cent lower than the bulk sale's initial asking price in October 2013.
Before that, Hiap Hoe offloaded some luxury units in another project last year to a subsidiary to avoid having to pay any extension charges on its unsold units.
Since Hiap Hoe's private homes did get sold, albeit to a related company, Hiap Hoe would not have breached QC rules.
Such actions are legitimate and, of course, not cheap for the developer to undertake.
However, they do raise a fundamental question: Is such a move in line with the spirit of the QC policy? Developers first found out that they could escape QC penalties by delisting back in 2013. That was when luxury developer SC Global - the developer of ritzy projects such as The Marq on Paterson Hill - decided to delist from the mainboard.
SC Global's delisting was closely watched because the developer had many unsold luxury units. Market watchers had believed at the time that the QCs it had obtained for its existing private projects would still apply.
After it delisted, SC Global was considered a privately-held Singapore company, and therefore not required to follow QC rules.
SC Global applied later that year to the Singapore Land Authority (SLA) to get the QCs on all its projects cancelled, and succeeded. Freed from the seven-year rule, it could hold on to unsold units and not have to pay millions in extension charges.
Extending the sale deadline at its 66-unit The Marq on Paterson Hill for a mere six months, for instance, would have cost $5.5 million.
The SLA at that time explained that SC Global's QCs were cancelled because it had now become a Singapore company.
Although SC Global was the first case made public, the SLA disclosed that Soilbuild Group had delisted and got its QCs cancelled a few years earlier. Soilbuild delisted in 2010 and became a Singapore company, got its QCs for its private project cancelled, then re-listed in 2013.
The SLA's pivotal decision that foreign-turned-Singaporean developers could get their existing QCs cancelled surprised market watchers in 2013, and for good reason.
By doing so, the SLA effectively sent the signal that developers can list, and tap foreign funds to buy Singapore land. If the market is bullish, they can sell and pocket profits. If the market turns bearish, they can choose to delist, hold on to their units and avoid paying extension fees. This lets them avoid the full brunt of the consequences of their investment.
It also goes against the objective of the QC in the first place, which was to prevent foreign developers from hoarding land or projects.
To be sure, developers are not to blame for wanting to avoid QC penalties. Their actions to delist or sell units to a subsidiary make perfect sense, given the rules in place and the poor condition of the property market.
It is not too late, however, for regulators to review how they assess future applications for retroactive QC clearances, which would make for a fairer marketplace.