I INTRODUCTION TO THE LEGAL FRAMEWORK
i Ownership of real estate
In Singapore, all land is held by the state;2 as such, land is not the subject of absolute ownership but of tenure. The state in turn issues various grants or leases of the land. These grants and leases are more commonly known as estates and typically comprise freehold estates, leasehold estates and estates in perpetuity.3 Each estate is reflective of the duration of the owner’s interest in the land.
There are two main types of freehold estates: fee simple, where a person owns the land indefinitely, without conditions, and upon his or her death, the land passes onto his or her successors (i.e., the closest to absolute ownership); and life estate, where a person owns the land for the duration of his or her lifetime.4
A leasehold estate lease has a definite duration, typically of 99 or 999 years. However, leases granted by government landlords, the JTC Corporation (JTC) (the industrial landlord) and the Housing and Development Board (HDB) tend to be shorter and typically last for 30 or 60 years. At the end of the lease period, the land will revert to these government landlords, who themselves own the land under the head lease from the state.
Irrespective of the type of estate, all land may be acquired by the state under the Land Acquisition Act of Singapore,5 and any development of land is subject to planning controls under the Planning Act of Singapore.6
Estates in perpetuity
An estate in perpetuity (or a statutory land grant) is an interest in land under which a person owns the land indefinitely, subject to certain conditions such as those set out in the State Lands Act of Singapore (SLA)7 (e.g., the right of the state to have free access to the land). Pursuant to the SLA, every grant of land granted before 1 March 1961 shall be deemed to confer an estate in perpetuity on the grantee.8
ii System of registration
Since the 1960s, two systems of land registration have operated in parallel in Singapore: registration under the Registration of Deeds Act of Singapore (RODA)9 and registration under the Land Titles Act of Singapore (LTA).10 However, with the enactment of the Land Titles (Amendment) Act 2001 of Singapore, virtually all land in Singapore has been converted and brought under the latter regime.
Land registered under the RODA
Such land is known as ‘unregistered land’, and interest in the land is achieved by way of the signing, sealing and delivery of a deed. Registration of the deed with the Registry of Deeds secures priority (which is based on the date of registration) and ensures admissibility as evidence of title to the land in court. One of the key problems with this regime is the tedious process of the checking of title, which typically requires tracing back to at least 15 years prior to a deed registration to ensure a good root of title.
Land registered under the LTA
Such land is known as ‘registered land’, and the advantage of this system over the unregistered land regime lies in the fact that only one document of title, upon which is endorsed every transaction affecting the particular property, has to be examined. However, registration is mandatory to effect the transfer of an interest in the land and, upon registration, the title is regarded as practically indefeasible. Upon registration, the Singapore Land Registry will issue a certificate of title containing the registration particulars of the title and a legal description of the property; a duplicate certificate of title is to be held by the current registered proprietor as proof of his or her title.
iii Choice of law
Transactions involving real estate in Singapore are typically governed by Singapore law, on the basis of the lex rei sitae rule.
Where the proceedings are principally concerned with a question of title to, or right of possession of, foreign immoveable property, the Singapore court has no jurisdiction to entertain such proceedings unless the question is based on a contract of personal equity between the parties, or if the question arises in the administration of a trust or the estate of a deceased person that is within the court’s jurisdiction.11
II OVERVIEW OF REAL ESTATE ACTIVITY
Land has always been a much sought-after asset in land-scarce Singapore. Coupled with the government’s active efforts to attract foreign investors and the increasing appetite for land among domestic players, it is no surprise that the Singapore real estate investment market has traditionally been a favourite with investors. For investors looking to acquire real estate in Singapore, financing can be obtained from banks and finance companies.
However, with the global economic slowdown in recent times, coupled with the government’s reluctance to cut back on its relatively successful property cooling measures to curb home prices12 and an oversupply that is still in the midst of unravelling,13 the outlook for the Singapore property market – be it in the industrial, retail, office or residential sector – looks set to remain bleak.14
III FOREIGN INVESTMENT
i Acquisition of property
Land in Singapore may be zoned for residential, commercial or industrial purposes. In general, there is no restriction on foreign ownership of commercial or industrial property. However, when a foreign person15 seeks to transfer, purchase or acquire restricted residential property,16 the Residential Property Act of Singapore (RPA)17 provides that approval by the Minister for Law must first be obtained.18 For the purposes of the RPA, a foreign person includes a company incorporated in Singapore if the company has directors or members who are not Singapore citizens.19
Even if approval from the Minister for Law is granted, foreign persons may be required to use the residential property only for their (and their families’) occupation, or for their employees’ (and their employees’ families’) occupation; or ensure that the estate or interest in the residential property is not sold, assigned, transferred or otherwise disposed of within a certain period, among other conditions.20
ii Development of property
Foreign persons who wish to purchase residential property21 for the purpose of constructing flats or dwelling houses22 for sale must apply to the Controller for Residential Property for approval. Such approval, if granted, may be conditional on (1) the development being completed within a certain prescribed period; (2) all units in the development not being sold to Singapore citizens or companies within two years from the date a temporary occupation permit is issued under the Building Control Act of Singapore;23 and (3) where the foreign person is a company, its shares or any interest in such shares shall not be sold, assigned, transferred or otherwise disposed to any other person.24 Because the failure to complete the development within five years and sell all the units within another two years of obtaining temporary occupation permit for the development could result in foreign developers facing hefty penalties25 (including the forfeiture of a banker’s guarantee equivalent to 10 per cent of the land purchase price), the developers may exert further downward pressure on property prices to avoid such consequences.
Notwithstanding parts (1) and (2) above, foreign persons are allowed to acquire the following without having to comply with the requirements of the RPA: a mortgage, charge or reconveyance of residential property;26 and residential property by way of tender or otherwise from the Urban Redevelopment Authority of Singapore (URA) or any person or body that is duly appointed as an agent of the government.27
IV STRUCTURING THE INVESTMENT
Real estate investment entities in Singapore commonly take the form of real estate investment trusts (REITs), business trusts, stapled entities or (private) companies.
REITs are the most heavily regulated in terms of business operations; however, at the same time, REITs listed on the Singapore stock exchange (SGX-ST) are accorded the most favourable tax treatment. On the other hand, business trusts and limited liability companies offer unitholders and shareholders respectively the benefit of limited liability.
i Limited liability company
Investment in real estate in Singapore can be done by way of a special purpose vehicle company that holds the title to the real estate. However, the distinction between a Singapore company (as defined in the RPA) and a foreign company is critical. While both types of companies can hold immoveable property in Singapore, only a Singapore company may own and hold restricted residential property.
Companies are primarily regulated under the Companies Act of Singapore (CA),28 and the advantages of relying on a corporate structure to invest in real estate are as follows: it has a separate legal personality such that the company has the capacity to sue and be sued, separate from its shareholders;29 and it offers limited liability protection for the shareholders (i.e., each shareholder is only liable up to the extent of his or her shareholding).30
On the other hand, there are restrictions on the powers of certain companies to hold land. For instance, a company formed for objects not involving the acquisition of gain by itself or by its individual members shall not acquire any land without the approval of the Minister for Finance.31 In addition, a company generally does not enjoy favourable tax treatment and would be liable for the payment of income tax and goods and services tax (where applicable).
REITs are unit trusts that may be either listed or unlisted and that invest or propose to invest primarily in real estate and real estate-related assets. Essentially, capital is provided by investors in exchange for units in the REIT, and the acquired assets are held by the trustee as a trust property but are managed by a manager.
REITs are regulated by Part XIII of the Securities and Futures Act of Singapore (SFA),32 the Code of Collective Investment Schemes (CIS Code) published by the Monetary Authority of Singapore (MAS) in 2014 (and last revised by the MAS on 1 January 2016) and the Singapore Code on Takeovers and Mergers of Singapore (Takeover Code) published by the MAS in 2012 (and last revised by the MAS on 25 March 2016). In addition, REITs listed on the SGX-ST are required to comply with the SGX-ST Listing Manual. It should be noted that although listed REITs are structured as trusts, they have their redeemability feature suspended while they are listed: in other words, unitholders of listed trusts can only exit from their investments by selling them on the SGX-ST. As of 6 December 2016, there were 28 listed REITs in Singapore, which span across the industrial, office, hospitality and retail sectors.33
Under the CIS Code, real estate investments and activities undertaken by REITs are subject to the following restrictions:
- a at least 75 per cent of their deposited property should be invested in income-producing real estate;
- b they should not undertake property development activities or invest in unlisted property development companies unless they intend to hold the developed property upon completion;
- c they should not invest in vacant land and mortgages; and
- d the total contract value of activities and investments undertaken in accordance with (b) should not exceed 10 per cent of their deposited property (with effect from 1 January 2016, such value may exceed 10 per cent of the property fund’s deposited property (subject to a maximum of 25 per cent of the property fund’s deposited property) provided certain conditions are satisfied.34, 35
Although REITs are allowed to borrow for investment purposes and may mortgage their deposited property to secure such borrowings, the CIS Code provides that their total borrowings and deferred payments (collectively, aggregate leverage) should not exceed 45 per cent of their deposited property.36 Do note that the borrowing limits for REITs with effect from 1 January 2016 have to be seen in light of the amendments to the REITs regulatory regime (for further information, see Section VII, infra). Under the Takeover Code, any party intending to acquire 30 per cent or more of the total units of a REIT, or any party holding not less than 30 per cent but not more than 50 per cent of the total units of a REIT, intends to acquire more than 1 per cent of the total units of the REIT in any six-month period, should make a general offer for all units in the REIT.37
Listed REITs, unlike other investment entities, are accorded favourable tax treatment in Singapore. First, trustees of listed REITs that distribute at least 90 per cent of their taxable income to unitholders in the same year in which the income is derived and obtain a tax ruling from the Inland Revenue Authority of Singapore (IRAS) are not required to pay income tax on such distributed income.38 Second, individual unitholders need not pay income tax in respect of distributions from the taxable income of listed REITs, regardless of their nationality or tax residence status.39 Third, withholding tax on REIT distributions to foreign non-individual investors would be lowered from 20 to 10 per cent until 31 March 2020.40 In early 2015, the government decided to extend the tax concessions for REITs, which were scheduled to expire on 31 March 2015, save for the stamp duty concessions, which have since lapsed (for further information, see Section VII, infra).41
However, the CIS Code does not require the trust deed of REITs to provide that the liability of investors should be limited to their investment in the scheme. Therefore, unlike the beneficiaries of business trusts and shareholders of limited liability companies, unitholders of REITs could conceivably be liable to creditors for the debts of the REIT.42
One of the proposed amendments by MAS, which will take effect from 1 January 2017, is that REIT managers and individual directors would be subject to a statutory duty to prioritise the interests of REIT unitholders over those of the REIT manager and the shareholders in the event of a conflict of interest (for further information, see Section VII, infra). The imposition of such a statutory duty would be in line with the current obligations on trustee managers under the Business Trust Act of Singapore (BTA).43
iii Business trust
Business trusts are business enterprises structured as trusts and are regulated by the BTA.44 They may be listed on the SGX-ST and, when so listed, will have to comply with the SGX-ST Listing Manual. In addition, the Takeover Code will, unless waived by the Securities Industry Council, apply to listed registered business trusts and unlisted registered business trusts with more than 50 unitholders and net tangible assets of S$5 million or more.45
As with REITs, capital in a business trust is contributed by investors in exchange for units in the business trust. However, legal ownership and management of the acquired assets are vested in one single entity: the trustee manager.46
The investments, activities and borrowings of business trusts are not subject to any restrictions under the BTA and as such, business trusts, unlike REITs, are free to hold various assets, undertake developments and borrow more than 60 per cent of their deposited property without a credit rating.47
In addition, the compulsory squeeze out acquisition of minority unit holdings is also permissible under the BTA.48 Therefore, an offeror who is making a general offer for units in the business trust will be able to compulsorily acquire the units of the dissenting minority if he or she has obtained acceptances in respect of more than 90 per cent of the units offered.
An advantage of the business trust is that unitholders, like shareholders of limited liability companies, are entitled to limited liability notwithstanding any provision to the contrary in the trust deed of the business trust.49
However, business trusts do not enjoy the same favourable tax treatment offered to REITs. Another disadvantage of the business trust structure is that unitholders may have limited ability to ensure proper corporate governance, as a 75 per cent majority vote of all unitholders is required to remove a trustee manager50 and, in practice, the sponsor group often retains a significant holding of units sufficient to block any such vote. In contrast, the CIS Code requires the trust deed of REITs to provide that the manager may be removed by way of a resolution passed by a 50 per cent vote of unitholders present and voting at a general meeting.51
iv Stapled entity
A REIT may be stapled with a business trust under a stapling deed to form a stapled entity that issues stapled securities. The combined entity will be traded under one trading name, and the two different securities stapled together cannot be traded separately thereafter except in de-stapling events such as termination of the trust.52 As of 10 November 2016, there were six stapled entities.53
With effect from 1 January 2016, MAS has imposed a further requirement that the REIT have a sufficient nexus to the non-REIT entity with active operations that it will be stapled to. Such a nexus may be established so long as both are in the same industry or if the entity with active business operations is operating a business or providing a service ancillary to the assets held by the REIT (for further information, see Section VII, infra).
Although the stapled structure is recognised by regulators as an allowable listing structure, the underlying securities retain the rights and obligations attached to each of the individual securities. For example, from a tax perspective, the REIT component of the stapled entity will be eligible for REIT-specific tax concessions, while the non-REIT component (i.e., the business trust) will continue to be taxed under normal tax rules.54
Stapled entities may appeal to investors who value the business and income diversification benefits brought about by such a combination. To a certain extent, the stapled structure combines the best of both a REIT and a business trust.
V REAL ESTATE OWNERSHIP
The Planning Act of Singapore55 is the primary legislation that provides the legal basis for land use planning and controls in Singapore. Pursuant to the Planning Act of Singapore, no person may develop land outside a conservation area without obtaining planning permission. Likewise, no person can subdivide land without first having obtained subdivision approval pursuant to the Planning Act of Singapore.
The statutory body responsible for carrying out such planning is the URA. The URA publishes a Master Plan every five years, which is a statutory land-use plan that will guide Singapore’s development in the medium term (over the following 10 to 15 years). The latest Master Plan is the Master Plan 2014. The Master Plan designates the zoning and permissible uses of land in Singapore. It is important to check the permissible use of a property prior to its acquisition to ensure that it is in line with the purchaser’s intended use. In this regard, purchasers would typically conduct legal requisitions with the planning authority as to the land use zoning of the property.
Where a change of use of a particular premise is desired, an application will have to be made to the URA for permission. If the application is successful, a tax, known as a development charge, will be levied on the applicant if the proposed development project increases the value of the land.
JTC, which leases out most of the industrial land in Singapore, typically imposes environmental clean-up obligations on a lessee whose use of the land is potentially pollutive. If any such lessee wishes to assign its lease to a third party, JTC’s consent is usually required. As part of its consent, JTC may require the lessee to conduct an environmental baseline study (to determine the extent of contamination of a particular site) and, if it deems it necessary, require the lessee to carry out an environmental clean up before assignment of the lease.
Separately, under the Environmental Protection and Management Act of Singapore (EPMA),56 the occupier of any industrial or trade premises is required to maintain any fuel-burning equipment and any air pollution control equipment installed in or on the premises in an efficient condition, and ensure that such equipment is working in a proper and efficient manner. Failure to abide by these obligations would render the occupier guilty of an offence.57
Stamp duty is payable on the acquisition or disposal of immoveable property situated in Singapore. The amount of stamp duty payable is computed on the purchase price or market value of the property, whichever is higher, and is payable within 14 days of the date of the instrument effecting the acquisition or disposal of such property (or, where the instrument is executed overseas, within 30 days of receipt of the instrument in Singapore). A penalty of up to four times the amount of unpaid duty can be imposed where there is a failure to pay such duty.
Where the property concerned is a residential property acquired on or after 20 February 2010 and is disposed of within four years of its acquisition, seller’s stamp duty (SSD) may be applicable. The amount of SSD payable varies according to the holding period.60 With effect from 12 January 2013, SSD is also payable on industrial properties acquired on or after that date and sold or disposed of within three years.
iv Finance and security
The most common forms of security over real estate situated in Singapore are the mortgage and the charge.
A mortgage operates by way of an outright conveyance of the borrower’s title (as the owner of the property) in the property with a proviso that the lender will reconvey the property when the borrower has performed his or her obligations under the loan. Where separate title for the property has been issued, the mortgage must be registered with the Singapore Land Registry in the approved form. Where separate title for the property has not been issued, an assignment of the rights, title and interest under the relevant contract (for instance, a sale agreement) coupled with a mortgage-in-escrow is effected instead.
A charge creates a security interest in the property, but without an outright conveyance of the property itself. As with a mortgage, the formalities depend on whether the land is registered or unregistered, and whether separate title has been issued.
Other forms of security that are commonly taken over interests emanating from real estate situated in Singapore include an assignment of sale and rental proceeds, an assignment of insurances over property and debenture (fixed and floating charge over a company’s assets).
VI LEASES OF BUSINESS PREMISES
In Singapore, the primary statutes governing leases are the Conveyancing and Law of Property Act of Singapore (CLPA)61 (in particular, Part III on leases), the LTA (in particular, Part IV on leases) and the Civil Law Act of Singapore.62
The formalities that apply to leases in Singapore differ depending on whether the leased premises are registered or unregistered. Where registered land is concerned, Section 87 of the LTA provides that leases with a duration of over seven years may be registered with the Land Titles Registry (the Registry). However, in practice, not all leases with a duration of over seven years are registered at the Registry. This is because some landlords are unwilling to grant tenants registrable leasehold interests and, as such, prohibit them from registering their interests at the Registry.63 Where unregistered land is concerned, Section 53 of the CLPA provides that a lease with a duration of over seven years must be established by deed in the English language.
It should be noted that in land-scarce Singapore, the provisions of a typical Singapore lease of commercial premises tend to be extremely landlord-friendly, and unless the tenant has strong bargaining powers, it will be difficult to amend the provisions in the tenant’s favour. For instance, the landlord usually does not make or give any representations or warranties as regards premises leased on an ‘as is where is’ basis.
The main characteristics of a typical occupational lease of commercial premises in Singapore are as follows.
Generally, the term of the lease (or, where there is an option to renew, the aggregate term – e.g., three years plus three years) will not exceed seven years. This is because, under the LTA, the Registrar will not be obliged to register a lease unless it exceeds seven years.64 There is usually an option to renew for a further term within the lease at a rent rate either pre-agreed upon by both parties or at the prevailing market rent rate at the time of renewal.
ii Rent and rent increases
Since the implementation of the Control of Rent (Abolition) Act 2001 of Singapore, rents have been freely negotiated in Singapore.
Where the term of the lease is relatively short (three years or less), rent is usually fixed throughout the term. However, where the term of the lease is longer, there may be provision for rent revisions, subject to a cap or pegged to the prevailing market rental rate. Notwithstanding the above, a rent revision clause is almost invariably included in leases of commercial premises to ensure that the current market value of the demised premises is reflected. Where the lease is in respect of retail spaces in shopping malls, rent is usually pegged to a percentage of the tenant’s monthly revenue.
In addition to the rent, the landlord may require the tenant to pay the service charges (for all outgoing costs and expenses in respect of insurance, lift and air-conditioning services, repair services, etc.).
On a related note, payment of a refundable security deposit (usually equivalent to two or three months’ gross rent) is common practice and is payable by the tenant upon its acceptance of the letter of offer. The security deposit will usually be refunded to the tenant without interest after the expiration of the term and the delivery of vacant possession of the demised premises. However, if the tenant commits a breach of any provisions of the lease agreement, the landlord is entitled to apply the security deposit to make good the breach.
Where the tenant intends to carry out renovations or fitting-out works prior to taking possession of the premises, a refundable fitting-out deposit is also payable by the tenant.
iii Tenant liability and obligations
The usual obligations imposed on the tenant are generally to pay rent, to keep the premises in repair (fair wear and tear excepted), to permit the landlord to view the premises, and not to assign, sublet or part with possession of the premises without the consent of the landlord. In addition, the tenant is usually required to take out a public liability insurance policy (in the joint names of the landlord and tenant) with an insurance company approved by the landlord, at the tenant’s sole cost and expense.
iv Security of tenure
Previously, security of tenure was available for tenants who satisfied the requirements under the Control of Rent Act of Singapore (CRA).65 However, the CRA was abolished with effect from 1 April 2001.
v Covenants and conditions; compulsory acquisition
The LTA and CLPA provide for certain implied covenants and conditions in respect of a lease.
Where registered land is concerned, Section 93 of the LTA (implied powers of lessors) provides that the landlord has the power to enter the premises and view the state of repair, and to require the lessee to repair any damage within a reasonable time. However, such statutory powers may be varied or negated by express provision in a particular lease. In addition, where the lease contains a non-assignment covenant (subject to landlord’s prior consent), Section 17 of the CLPA provides that such a provision shall be deemed to be subject to a proviso that no fine or sum of money is payable for the landlord’s consent, unless the lease contains an express provision to the contrary. Section 18 of the CLPA also qualifies the landlord’s right of re-entry and forfeiture for a breach of covenant or condition of the lease in that the lessor is required to first serve on the lessee a notice specifying the breach and requiring the lessee to remedy the breach, if applicable.
The landlord may at any time, without liability to the tenant, terminate the lease where the relevant government authority compulsory acquires the premises pursuant to the Land Acquisition Act of Singapore.66
VII DEVELOPMENTS IN PRACTICE
i Changing environment for Singapore REITs
Enhancements to the regulatory regime governing REITs and REIT managers
On 2 July 2015, the MAS published its written response to public feedback on its October 2014 consultation paper on enhancements to the regulatory regime governing REITs and REIT managers.67
The aim of the proposed enhancements is to provide REIT unitholders with better protection and greater accountability (by strengthening corporate governance of REITs and increasing transparency of REIT managers’ fee structure) while offering REIT managers greater operational flexibility. In particular, the development limit of a REIT has been increased from 10 per cent to 25 per cent of its deposited property and the leveraged limit imposed on a REIT has been increased from 35 per cent to 45 per cent of the REIT’s total assets. This has provided REITs with greater operational flexibility to rejuvenate their maturing portfolio of assets.68
The majority of the proposed enhancements took effect on 1 January 2016 (with certain consequential amendments to the Securities and Futures Act to take effect from 1 January 2017).
Extension of tax concessions for listed REITs
The Minister for Finance announced during the Singapore Budget 2015 that in line with the government’s plans to continue to promote the listing of REITs and strengthening of Singapore’s position as a REITs hub in Asia, the existing package of tax concessions for REITs listed on SGX, save for stamp duty concessions,69 originally scheduled to lapse in March 2015 will be extended for another five years (till 31 March 2020).
The range of income tax concessions70 includes (1) a concessionary income tax rate of 10 per cent for non-tax-resident non-individual investors, (2) tax exemption on qualifying foreign-sourced income (i.e., foreign-sourced dividend income, interest income, trust distributions and branch profits) for listed REITs and wholly owned Singapore tax resident subsidiary companies of listed REITs, subject to satisfaction of certain conditions,71 and (3) enjoyment of tax transparency if the trustee of a listed REIT distributes at least 90 per cent of its taxable income to unitholders in the same year in which the income is derived by the trustee.
Likewise, to facilitate Singapore REITs and qualifying Registered Business Trusts listed in Singapore (S-RBT) to raise funds through financing special purpose vehicles (SPV), the existing GST concessions will be extended to 31 March 2020 and will be further enhanced by extending such concessions to SPVs that are set up by Singapore REITs and qualifying S-RBTs solely to raise funds for the business operations of the S-REITs or qualifying S-RBTs, subject to satisfaction of certain conditions.72
ii JTC and industrial land in Singapore
JTC is the leading agency in Singapore spearheading the planning, promotion and development of Singapore’s industrial landscape.
JTC offers industrial sites through sale (through the Industrial Government Land Sales Programme and Concept and Price Tender) or rental (through the Temporary Occupation Licence Launch). Lessees or tenants of JTC land are required to abide by JTC’s published guidelines, which include the requirement to gain JTC’s consent in relation to subletting the premises and assignment of the lease. As a condition to assignment of the lease, an environmental baseline study must be carried out where the assignor’s usage or proposed assignee’s industry or activity falls within a prescribed list where the use of the land is potentially pollutive (e.g., oil installations, chemical plants).
In line with JTC’s policy goal to ensure a stable and sustainable industrial property market in land-scarce Singapore, JTC has recently revised a number of its policies. First, since November 2013, JTC has introduced longer assignment prohibition periods from (originally) three to (currently) five years to ensure that its lessees are committed to the allocated land over a sustained period. Second, since October 2014, the maximum allowable sublet quantum for its lessees and third-party facility providers has been reduced from (originally) 50 per cent to (currently) 30 per cent of the gross floor area (GFA), while JTC tenants are strictly not allowed to sublet the premises any longer.73 This would reduce their reliance on subletting income and encourage them to focus on their core business. More recently in October 2015, JTC tweaked its minimum GFA requirement for anchor subtenants (reducing from 1,500 square metres to 1,000 square metres) and allowed anchor tenants to renew their lease for any duration (instead of the previous requirement to renew for three years), as long as they have fulfilled their initial minimum occupancy period;74 the implementation of these revised policies would likely provide some comfort to the industrial sector by expanding the pool of qualified anchor subtenants.75
iii The URA and land sales in Singapore
The URA, which is Singapore’s land use planning and conservation authority, manages the sale of government land in Singapore. For sites on the Reserve List System, applications can be made on the Government Land Sales Programme.76 A site on the Reserve List System will be put up for sale if a developer’s indicated minimum price in his or her application is acceptable to the government. The government will also consider launching a Reserve List site for sale if it has received sufficient market interest for the site.77
An application may be made by either an individual or a company (firm). Applicants should submit only one application per site – if more than one application is received from an applicant, only the application with the highest minimum price will be considered. For the minimum bid to be accepted, it must amount to at least 85 per cent of the Chief Valuer’s estimated market value for the site. The successful applicant’s identity will not be revealed. Upon acceptance of an application, and upon execution of an agreement to submit a tender price not less than the minimum price and the payment of a deposit78 of 3 per cent of the minimum price (capped at S$5 million), the successful trigger of the site will be announced publicly. Tender proceedings typically last for a period of four weeks, with larger and more complicated sites enjoying a longer tender period.
iv HDB and its policies
The HDB is the statutory board that acts as Singapore’s public housing authority.
As part of the government’s commitment to ensure that public housing in Singapore remains affordable for Singaporeans, only a Singapore citizen or a Singapore permanent resident can buy an HDB flat, whether from the open market or from the HDB directly, and this is subject to further conditions (such as the marital status and income of the purchaser) as prescribed by the HDB from time to time.
To minimise the use of HDB flats as an investment vehicle, the HDB legislated a minimum occupation period policy that requires the current owner of an HDB flat, Design, Build and Sell Scheme flat or executive condominium to physically occupy the flat for a period (i.e., the minimum occupation period which ranges between 5-7 years, although different requirements apply to resale flats purchased from the open market79) before such an owner is eligible to sell the flat on the open market. The minimum occupation period depends on the purchase mode, flat type and date of flat application.
To keep up with Singapore’s changing demographics and lifestyles, while maintaining its commitment to affordable public housing in Singapore, in the 2015 National Day Rally speech, the government announced several new housing policies, which included the raising of income ceilings to enable families with higher incomes to continue to remain eligible for government-subsidised housing. In the same speech, the government announced the introduction of a proximity housing grant to encourage young couples to live near their parents.80
VIII OUTLOOK AND CONCLUSIONS
While there has been much talk that the government’s slew of property cooling measures (introduced back in 2013 at a time when there was pent-up demand and undersupply combined with low interest rates) have outlived their usefulness, in particular, the imposition of additional buyer’s stamp duty, there has been little indication of the government’s intention to cut back on these measures as yet.81, 82
The continuing tightened financing and regulatory environment, and predicted worsening economic conditions, have contributed to a downward pressure on both transaction volumes and prices in the Singapore property market in the past year. Notably, Singapore has fallen down the ranks in terms of investment prospects – from 11th to 21st – in a survey conducted jointly by the Urban Land Institute and PricewaterhouseCoopers.83
Notwithstanding such statistics and the sluggish market and weak economic outlook, Singapore remains on the map of foreign investors (as evidenced by a spate of retail, office and residential property dealings by foreign investors across 2016), by virtue of various factors including political stability, good infrastructure and rule of law.84 Despite the downturn in the real estate sector, local REITs are also ready to ride out the storm through precautionary measures, which include securing cheap financing and through issuing longer-term bonds. Other measures include selling existing assets to seize opportunities for higher-yielding assets in the near future.85 Some property investors have also started to set their sights abroad, looking to greener pastures in the likes of Australia, the United Kingdom and China for better returns and opportunities in the meantime.86 Overseas real-estate investment by Singapore investors amounted to a record of US$26.31 billion in 2015, a 49 per cent increase from 2014 figures.87
With the economy looking set to remain bleak and an interest rate hike anticipated in the year to come – external factors beyond any single government’s control – it is hoped that at least on the Singapore government’s part, the same wisdom that led it to intervene in the Singapore property market back in 2013 will guide it to scale back to allow the interplay of market forces at the appropriate juncture.
1 Jennifer Chia is an executive director and Priscilla Lim and Alicea Tan are associates at TSMP Law Corporation.
2 Tan Sook Yee, Tang Hang Wu and Kelvin FK Low, Tan Sook Yee’s Principles of Singapore Land Law, 3rd Edition (Singapore, LexisNexis) at 12.
3 Halsbury’s Laws of Singapore Volume 14 (Land), 2005 reissue.
4 Such estates are rare in Singapore.
5 Cap 152, 1985 Rev Ed Sing.
6 Cap 232, 1998 Rev Ed Sing.
7 Cap 314, 1996 Rev Ed Sing.
8 Section 4(5), SLA.
9 Cap 269, 1989 Rev Ed Sing.
10 Cap 157, 2004 Rev Ed Sing.
11 Yeo Tiong Min, ‘Ch.06 The Conflict of Laws’: www.singaporelaw.sg.
12 Specifically, the imposition of stamp duty on sale and purchase of immoveable property in Singapore as well as the tightening of property loan rules.
13 Urban Redevelopment Authority, ‘Release of 3rd Quarter 2016 real estate statistics’ (28 October 2016): www.ura.gov.sg/uol/media-room/news/2016/oct/pr16-66.
14 Savills World Research Singapore (November 2016): www.savills.com.sg.
15 Under Section 2(1), RPA, a foreign person means any person who is not a citizen of Singapore, a Singapore company, a Singapore limited liability partnership or a Singapore society.
16 Under Section 2(1), RPA, restricted residential property includes vacant land, landed housing and land meant for residential purposes, but excludes flats in buildings and units in condominiums as long as they do not comprise all the flats in the building or units in the condominium; and estate or interest in any development for a term not exceeding seven years, inclusive of any further term that may be granted by way of an option for renewal.
17 Cap 274, 2009 Rev Ed Sing.
18 Sections 3 and 25, RPA.
19 Under Section 2(1), RPA, a foreign person includes a person that is not a Singapore company, and a Singapore company is defined as a company that is incorporated in Singapore and whose directors and members are all Singapore citizens.
20 Section 25(7), RPA.
21 The exclusions applicable to restricted residential property do not apply to residential property.
22 Under Section 2(1), RPA, a dwelling house includes a building or tenement for human habitation.
23 Cap 29, 1999 Rev Ed Sing.
24 Section 31(3), RPA.
25 The Straits Times, ‘Qualifying Certificate scheme: Time for review’ (6 March 2015):
26 Section 3(1)(c), RPA.
27 Section 33(e), RPA.
28 Cap 50, 2006 Rev Ed Sing.
29 Section 19(5), CA.
31 Section 23(2), CA.
32 Cap 289, 2006 Rev Ed Sing.
33 Singapore Exchange (8 December 2016): www.sgx.com/wps/portal/sgxweb/home/marketinfo/securities/reits.
34 The conditions to be satisfied are (1) the additional allowance of up to 15 per cent of the property fund’s deposited property is utilised solely for the redevelopment of an existing property that has been held by the property fund for at least three years and that the property fund will continue to hold for at least three years after the completion of the redevelopment; and (2) the property fund obtains the specific approval of the participants’ at a general meeting on the redevelopment of the property.
35 CIS Code at Appendix 6, paragraph 7.1.
36 CIS Code, at Appendix 6, paragraph 9.2.
37 Securities Industry Council, ‘Practice Statement on Real Estate Investment Trusts’ (8 June 2007): www.mas.gov.sg; Takeover Code, pages 17 and 73.
38 IRAS, ‘IRAS e-Tax Guide – Income Tax Treatment of Real Estate Investment Trusts’ (3 November 2015), at paragraph 5.3.
39 Id. at paragraph 8.
40 Id at paragraph 7.1.
41 Stamp Duties (Real Estate Investment Trusts)(Remission) Rules 2010 (S.515/2010 Sing), regulation 3.
42 Lee Suet Fern and Linda Esther Foo, ‘Real Estate Investment Trusts in Singapore – Recent Legal and Regulatory Developments and the Case for Corporatisation’ (2010) 22 SAcLJ 36 at 62 and 63.
43 Cap 31A, 2005 Rev Ed Sing.
44 Cap 31A, 2005 Rev Ed Sing.
45 Takeover Code at page 3.
46 Section 6, BTA.
47 The Schedule, BTA.
48 Section 40A, BTA.
49 Section 32, BTA.
50 Section 20, BTA.
51 CIS Code at appendix 6, paragraph 4.1(a).
52 Singapore Exchange, ‘Securities Products, Stapled Securities – Education and Resources’: www.sgx.com.
54 Stoscheck, Stefano Simontacchi and Fabrizio Acerbis, Guide to Global Real Estate Investment Trusts (The Netherlands: Kluwer Law International, 2011) at 6 (Singapore); see footnote 53.
55 Cap 232, 1998 Rev Ed Sing.
56 Cap 94A, 2002 Rev Ed Sing.
57 Section 10, EPMA.
58 With effect from 22 February 2014, BSD is calculated as follows: the first S$180,000 – 1 per cent; the next S$180,000 – 2 per cent; and the remainder – 3 per cent.
59 In the case of a purchaser that is a foreign person or non-individual (i.e., a corporate entity), such a purchaser is required to pay ABSD at a rate of 15 per cent on the purchase or acquisition of any residential property.
60 To ensure that the seller has duly paid the SSD, the purchaser may request a copy of the stamp certificate from the seller’s lawyer as proof that SSD has been paid. All sellers of residential and industrial properties are also required to complete a seller’s stamp duty declaration form when disposing of the property.
61 Cap 61, 1994 Rev Ed Sing.
62 Cap 43, 1999 Rev Ed Sing.
63 Such prohibitions are typically contractual and provided for in the lease agreement.
64 Section 87, LTA.
65 Cap 58, 1985 Rev Ed Sing.
66 Cap 152, 1985 Rev Ed Sing.
67 Monetary Authority of Singapore, ‘MAS Consultation Paper: Response to Feedback Received – Consultation on Enhancements to the Regulatory Regime Governing REITs and REIT Managers’ (2 July 2015): www.mas.gov.sg.
68 However, importantly, a REIT will no longer be allowed to leverage up to 60 per cent of its total assets with a credit rating.
69 This refers to stamp duty concessions on (1) the transfer of a Singapore immoveable property to a REIT and (2) the transfer of 100 per cent of the issued share capital of a Singapore-incorporated company that holds immoveable properties situated outside Singapore, to the REIT.
70 Inland Revenue Authority of Singapore, ‘Budget 2015 – Annex A-6: Tax Changes for Business (REITs)’: www.iras.gov.sg/irashome/uploadedFiles/IRASHome/News_and_Events/Singapore_Budget/Extending%20the%20tax%20concessions%20%20for%20listed%20REITS.pdf.
71 Subject to the condition that the overseas property (1) is acquired by the trustee of the REIT or its wholly owned Singapore tax resident subsidiary company on or before 31 March 2020; and (2) continues to be beneficially owned by the trustee of the REIT or its wholly owned Singapore tax resident subsidiary company after 31 March 2020.
72 Inland Revenue Authority of Singapore, ‘GST: Concession for REITs and Qualifying Registered Business Trusts Listed in Singapore (Second edition)’ (Published on 31 March 2015).
73 HDB has also aligned its subletting policy for its industrial land with JTC’s latest revised policies to ensure that scarce industrial land in Singapore is used more productively.
74 JTC, ‘Latest Policy Review (with effect from 1 October 2015)’ (1 October 2015): www.jtc.gov.sg/customer-services/pages/policies-for-third-party-facility-providers.aspx#fndtn-subletting.
75 The Straits Times, ‘Industrial REITs ‘doing better than expected’’ (11 November 2015):
76 URA, ‘Reserve List Procedures’: www.ura.gov.sg.
77 This happens when more than one unrelated party has submitted a minimum price that is close to the government’s reserve price (which depends on a number of factors, including prevailing market conditions, number of independent bids received for the site and specific circumstances of the site) within a reasonable period (roughly six months).
78 The deposit is refundable provided the bid is in accordance with the agreement, but not to the highest bidder in the tender.
79 HDB, ‘Minimum Occupation Period’ (1 October 2015): www.hdb.gov.sg/cs/infoweb/business/estate-agents--salespersons/selling-a-flat/mop-undone-page.
80 Property Guru, ‘Raised income ceiling a game changer for property market’ (28 August 2015): www.propertyguru.com.sg/property-management-news/2015/8/105824/raised-income-ceiling-a-game-changer-for-property-.
81 Ministry of Finance, ‘Singapore Budget 2016’; (24 March 2016): www.singaporebudget.gov.sg/data/budget_2016/download/FY2016_Budget_Statement.pdf.
82 Channel NewsAsia, ‘“Too early” to lift property cooling measures: MAS Chief’ (25 July 2016): www.channelnewsasia.com/news/business/too-early-to-lift/2984722.html.
83 Urban Land Institute and PricewaterhouseCoopers, Emerging Trends in Real Estate Asia Pacific 2017 (2016): www.pwc.com/sg/en/publications/assets/aprealestemerging_2017.pdf.
84 The Straits Times, ‘Foreign Investors “Still Eye Singapore Property”’ (4 June 2016):
85 Urban Land Institute and PricewaterhouseCoopers, Emerging Trends in Real Estate Asia Pacific 2017 (2016): www.pwc.com/sg/en/publications/assets/aprealestemerging_2017.pdf.
87 The Business Times, ‘Singapore investors buy record US$26.3b of overseas properties in 2015’ (20 January 2016): www.businesstimes.com.sg/real-estate/singapore-investors-buy-