Singapore’s property glut is an unintended consequence of government measures to force developers to build and sell apartments quickly or face stiff penalties, according to City Developments Ltd.
The city-state’s second-biggest home builder has come out swinging against a rule that imposes a levy on companies if they don’t complete construction and sell all units within a period of five years from acquiring land.
Chief Executive Officer Sherman Kwek said the timeline should be lengthened to seven or even 10 years “so that it reduces the immense pressure on developers and prevents the current supply glut from worsening.”
Singapore has almost 32,000 either finished or under-construction apartments in the pipeline. It’s a glut market watchers say could take years to clear. Last month, the central bank warned the over-supply also threatens to push down prices.
Far East Organisation Pte declined to comment on the property glut. CapitaLand Ltd. said it will “adopt a disciplined approach in our bids.” “We will monitor market conditions and tailor marketing and sales strategies accordingly,” a spokesperson said in an email.
Kwek said that after the most-recent cooling measures in July 2018, the penalty now stands at a “petrifying rate” of 31.25%, comprised of a 25% penalty compounded at an interest rate of 5% per annum for five years.
Market sentiment for the residential sector in Singapore was very depressed during the four-year period spanning mid-2013 till mid-2017. This was a result of the initial hike in additional buyers’ stamp duty (ABSD) and the implementation of the total debt servicing framework in 2013, both of which were bitter pills for the market to swallow.
Consequently, developers were also less active during those depressed years and focused mainly on clearing their inventory rather than replenishing land. As a result, by the time market sentiment started to improve in 2017, many developers were running out of land bank and desperately in need of replenishment.