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) may be shorter and may instead 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
This 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
This 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 immovable 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.
In recent years, however, the property market has been relatively dull, owing to the various rounds of successful property cooling measures to curb home prices12 and an oversupply that has continued to unravel.
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 person13 seeks to transfer, purchase or acquire restricted residential property,14 the Residential Property Act of Singapore (RPA)15 provides that approval by the Minister for Law must first be obtained.16 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.17
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.18
In Singapore, there is a relatively high additional buyer's stamp duty of 20 per cent that is levied on foreign purchasers of residential properties where the foreign purchaser is an individual, and 25 per cent if the foreign purchaser is a company.19 Nonetheless, despite the substantial stamp duty, there remains strong demand for Singapore residential properties from foreign purchasers. This is likely because of the levelling of taxation costs overseas, especially because other popular overseas destinations have also imposed restrictions to curb international demand for property.20 Singapore's tax rate hence appears lower, and is able to continue to attract foreign investors.
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 these consequences.
Notwithstanding the 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.
Up to the time of writing, REITs are the most heavily regulated in terms of business operations; however, REITs listed on the Singapore stock exchange (SGX-ST) are also 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. Following MAS's issuance of a Consultation Paper on the Proposed Framework for Singapore Vehicle Capital Companies on 23 March 2017, a new corporate structure known as the variable capital company (VCC), which is a synthesised creature of the common forms of real estate investment entities, seeks to spearhead Singapore as a frontrunner full-service international fund management centre.28
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 immovable 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),29 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;30 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).31
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.32 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,33 the Code of Collective Investment Schemes (CIS Code) first published by the Monetary Authority of Singapore (MAS) in 2002 (and last revised by the MAS on 8 October 2018) and the Singapore Code on Takeovers and Mergers of Singapore (Takeover Code) first published by the MAS in 2002 (and last revised by the MAS on 24 January 2019). In addition, REITs listed on the SGX-ST are required to comply with the SGX-ST Listing Manual. 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 2 December 2019, there were 37 listed REITs in Singapore, which span across the industrial, office, hospitality and retail sectors.34
Under the CIS Code, real estate investments and activities undertaken by REITs are subject to the following restrictions:
- at least 75 per cent of their deposited property should be invested in income-producing real estate;
- they should not undertake property development activities or invest in unlisted property development companies unless they intend to hold the developed property upon completion;
- they should not invest in vacant land and mortgages; and
- 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, the 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 conditions35 are satisfied.36
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.37 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. 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, and which 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.38
Listed REITs, unlike other investment entities,39 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.40 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.41 Third, withholding tax on REIT distributions to foreign non-individual investors would be lowered from 20 to 10 per cent until 31 December 2025.42 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.43
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.44
One of the amendments proposed by MAS, which took effect from 1 January 2017, was that REIT managers and individual directors would now 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. 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).45
iii Business trust
Business trusts are business enterprises structured as trusts and are regulated by the BTA.46 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.47
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.48
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.49
In addition, the compulsory squeeze-out acquisition of minority unit holdings is also permissible under the BTA.50 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.51
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 manager52 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.53
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.54
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.
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.55
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.
VCCs are recognised as corporate entities under the Variable Capital Companies Act (VCCA), which is administered by the Accounting and Corporate Regulatory Authority.56 In matters where anti-money laundering and combating the financing of terrorism are concerned, the VCCA shall instead be administered by the MAS.57
The VCC may take the form of a standalone fund or an umbrella fund with multiple sub-funds, in both instances they shall be regarded as a single legal entity. In the latter, economies of scale may be enjoyed as such structures allow common resources to be shared among multiple sub-funds.58
VCCs, unlike companies, are able to vary their capital without having to seek shareholders' approval.59 Although for tax purposes, VCCs shall be treated as a company and a single legal entity where they are able to enjoy the tax incentives for funds.
Unlike REITs, they are able to safeguard shareholders' liabilities given the sub-fund's assets and liabilities are ring-fenced.60 This limits shareholders' liabilities to their investments in the fund, as assets belonging to one sub-fund cannot be used to discharge the liabilities of another sub-fund belonging to the same umbrella VCC.
V REAL ESTATE OWNERSHIP
The Planning Act of Singapore61 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 2019. 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. Development charge rates for commercial properties have increased by 8.3 per cent on average while residential non-landed properties have increased by 9.8 per cent on average.62
The effects of the cooling measures are most visible with non-landed residential property. Colliers reported that 54 collective-sale tenders, of which seven with commercial components, have closed without a sale. As of 22 October 2018, 33 deals worth S$9.89 billion were completed, almost half fewer as compared to the same quarter in 2016 with 64 deals worth S$19.1 billion completed.63
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),64 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.65
Stamp duty is payable on the acquisition or disposal of immovable 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 the 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 this 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. However, for properties acquired on or after 11 March 2017, SSD is only payable where it is disposed of within three years of its acquisition.68 The amount of SSD payable varies according to the holding period.69 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.70
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)71 (in particular, Part III on leases), the LTA (in particular, Part IV on leases) and the Civil Law Act of Singapore.72
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.73 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.74 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).75 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, these 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.76
VII DEVELOPMENTS IN PRACTICE
i Additional Conveyance Duties (ACD)
ACD was introduced by the Singapore government on 11 March 2017 to address the differential treatment in stamp duty between a direct acquisition or disposal of residential properties and an indirect acquisition or disposal of residential properties via a transfer of equity interest in a property holding entity (PHE).77 Enacted under Section 23 of the Stamp Duties Act,78 ACD for PHEs acquiring shares applies where the grantee is a significant owner of the entity immediately before the execution of the conveyance or becomes one upon the execution of the conveyance, and the entity is a PHE at the time of the execution.79 A qualifying disposal occurs when the seller, along with any of its associates, is a significant owner of the residential PHE, and the equity interest of the PHE that was disposed of was acquired on or after 11 March 2017, and is disposed of within three years of acquisition based on a first-in-first-out basis.80 ACD essentially becomes a de facto ABSD on the purchase of shares in these entities that have property-owning special purposes.81 Under this provision, a qualifying acquisition or disposal of equity interest in a PHE will, therefore, be treated as a transfer of interest in the properties, attracting the imposition of ACD in addition to the share transfer duty.
While it might appear that the scope of ACD is wide-ranging, it is restricted purely to entities that own substantial interests in residential properties. As such, if the entity and its associates do not have a significant interest in the residential PHE after the acquisition, ACD will not be applicable.
At present, the additional conveyancing stamp duty for buyers (ACDB) rates for instruments executed on or after 20 February 2018 is up to 19 per cent and up to 34 per cent for instruments executed on or after 6 July 2018.82
ii Reduction in SSD rates
However, SSD was relaxed by the Singapore government on 10 March 2015, from four years to three years for residential properties purchased on or after 11 March 2017. It also reduced the SSD rate by four percentage points, with sellers of properties within the first year paying a stamp duty rate of 12 per cent instead of 16 per cent. However, as the Managing Director of the MAS, Ravi Menon, has said, the recent easing of the property cooling measures should not be viewed as a signal that the government would continue to ease these property cooling measures.83
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.84 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.85
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 deposit86 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 Increase in ABSD rates
After the gradual decline in the past few years, private residential prices have risen sharply by 9.1 per cent in 2017.87 On 6 July 2018, the Singapore government introduced a fresh round of property cooling measures.88 The ABSD rates were increased for all buyers except for Singaporean citizens buying their first residential property and permanent residents buying their first residential property.89
Developers should take note that in addition to the 25 per cent ABSD rate for non-individuals, housing developers will be subject to an additional 5 per cent ABSD and the latter is non-remissible. With regard to remission of ABSD, the law remains unchanged for joint purchase of first home by married couples.90
Overall, the increase in ABSD and ACDB rates have translated to a heftier price tag for Singapore residential property.
v Tightening loan-to-value (LTV) limits
The LTV is a pertinent consideration for many home-buyers and property investors in Singapore, and is essentially the housing loan quantum a bank or financial institution offers as a percentage against the value of the property being purchased.
One of the property cooling measures implemented on 6 July 2018 was the tightening of LTV limits across all housing loans, except loans granted by HDB.91
Similarly, LTV limits for mortgage equity withdrawal loans (MWL) were tightened accordingly.92 MWL are loans which are secured using the equity of the borrower's residential property as collateral. Accordingly, this tightening of MWL will benefit asset-rich but cash-poor individuals.
Since the cooling measures were introduced in 2018, Minister for National Development Lawrence Wong provided a status update that the aforementioned cooling measures have effectively stabilised and moderated the property cycle.93 The latest data provided by the URA regarding the Property Price Index revealed that prices of private residential properties have increased modestly by 1.3 per cent in the third quarter of 2019, which is similar to the 1.5 per cent increase in the second quarter.94
vi Electronic Transactions Act (ETA) under review
The ETA was initially enacted in 1998 to provide a legal basis for digital signatures, and to give predictability and certainty to electronic contracts.95 It was amended once in 2010 to provide flexibility and to keep up with technological advancements, which is in line with the UN Convention on the Use of Electronic Communications in International Contracts.96
At current, the ETA remains under review,97 although the Stamp Duties Act has since been amended with effect from 4 October 2018 to include certain electronic records that effect a transfer of interest in immovable properties and shares as chargeable with duty.98 It is likely that the ETA will be amended accordingly to accommodate the emerging technological developments and business models in both the financial and property markets.
VIII OUTLOOK AND CONCLUSIONS
Studies appear to suggest that diversification remains a central strategy adopted by Singapore property developers in their efforts to cope with the string of cooling measures introduced over the past three years on the purchase of Singapore residential properties. The cooling measures have been effective to curb developers' and investors' demand in the market and the additional costs (also from an increase in development charges in 2018) and weakened demand from increased ABSD rates and tightened LTV limits have been a great setback to those who had hoped to participate in the flurry of en-bloc activity in 2018. It is also not expected for the cooling measures to be lifted in the near future. On the commercial front, demand for Singapore office spaces looks to be bright, a result of healthy demand and limited supply, and this is likely to translate to higher rental yields and capital values.
1 Jennifer Chia is a partner, Yvonne Lian is a senior associate and Lena Yeo is an associate 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 page 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.
12 Specifically, the imposition of stamp duty on sale and purchase of immovable property in Singapore as well as the tightening of property loan rules.
13 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.
14 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.
15 Cap 274, 2009 Rev Ed Sing.
16 Sections 3 and 25, RPA.
17 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.
18 Section 25(7), RPA.
19 Inland Revenue Authority of Singapore, 'Additional Buyer's Stamp Duty': https://www.iras.gov.sg/irashome/Other-Taxes/Stamp-Duty-for-Property/Working-out-your-Stamp-Duty/Buying-or-Acquiring-Property/What-is-the-Duty-that-I-Need-to-Pay-as-a-Buyer-or-Transferee-of-Residential-Property/Additional-Buyer-s-Stamp-Duty--ABSD-/.
20 The Straits Times, 'Singapore property analysts turn bullish, predict 5-10% price gain by end-2018' (18 September 2017): https://www.straitstimes.com/business/property/singapore-property-analysts-turn-bullish-predict-5-10-price-gain-by-end-2018.
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): https://www.straitstimes.com/opinion/qualifying-certificate-scheme-time-for-review.
26 Section 3(1)(c), RPA.
27 Section 33(e), RPA.
28 Indranee Rajah S.C., Minister, 'The VCC: A Game-Changer for Singapore's Funds Industry' (2 October 2018).
29 Cap 50, 2006 Rev Ed Sing.
30 Section 19(5), CA.
32 Section 23(2), CA.
33 Cap 289, 2006 Rev Ed Sing.
34 Singapore Exchange (15 November 2019): https://www.sgx.com/wps/portal/sgxweb/home/marketinfo/securities/reits.
35 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.
36 CIS Code at Appendix 6, paragraph 7.1.
37 CIS Code, at Appendix 6, paragraph 9.2.
39 As of 1 July 2018, Exchange Traded Funds (ETFs) invested in Listed REITS have also been granted tax transparency treatment, to ensure parity between investors of Listed REITs and ETFs.
40 IRAS, 'IRAS e-Tax Guide – Income Tax Treatment of Real Estate Investment Trusts and Approved Sub-Trusts (Fifth Edition)' (21 October 2019), at paragraph 5.3.
41 ibid., at paragraph 8.
42 ibid., at paragraph 7.1.
43 Stamp Duties (Real Estate Investment Trusts) (Remission) Rules 2010 (S.515/2010 Sing), regulation 3.
44 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.
45 Cap 31A, 2005 Rev Ed Sing.
47 Takeover Code at page 3.
48 Section 6, BTA.
49 The Schedule, BTA.
50 Section 40A, BTA.
51 Section 32, BTA.
52 Section 20, BTA.
53 CIS Code at Appendix 6, paragraph 4.1(a).
55 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.
56 Section 8 of the VCCA.
57 ibid., section 83.
58 Singapore Parliamentary Report (2018, October 1), Vol. 94, page 2, https://sprs.parl.gov.sg/search/sprs3topic?reportid=bill-19.
59 ibid., page 1.
60 ibid., page 2.
61 Cap 232, 1998 Rev Ed Sing.
62 Ministry of National Development, 'Revision of Development Charge Rates (September 2018)' (31 August 2018): https://www.mnd.gov.sg/newsroom/speeches/view/revision-of-development-charge-rates-(sept-2018).
63 Grace Leong, 'Collective-Sale Fever Cools For Large Residential Sites' (22 October 2018): https://www.straitstimes.com/business/collective-sale-fever-cools-for-large-residential-sites.
64 Cap 94A, 2002 Rev Ed Sing.
65 Section 10, EPMA.
66 With effect from 20 February 2018, BSD is calculated as follows: the first S$180,000 – 1 per cent; the next S$180,000 – 2 per cent; the next S$640,000 – 3 per cent; and the remainder – 3 per cent for non-residential properties and 4 per cent for residential properties.
67 With effect from 6 July 2018, a purchaser that is a Singaporean citizen is required to pay ABDS at a rate of 7 per cent when purchasing or acquiring a second residential property. A foreign person who is an individual is required to pay ABSD at a rate of 15 per cent when purchasing or acquiring any residential property. A non-individual (i.e., a corporate entity), is required to pay ABSD at a rate of 25 per cent on the purchase or acquisition of any residential property. A housing developer is required to pay ABSD at a rate of 30 per cent on the purchase or acquisition of any residential property.
68 IRAS, 'Seller's Stamp Duty for Residential Property': https://www.iras.gov.sg/irashome/Other-Taxes/Stamp-Duty-for-Property/Working-out-your-Stamp-Duty/Selling-or-Disposing-Property/Seller-s-Stamp-Duty--SSD--for-Residential-Property/.
69 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.
70 IRAS, 'Seller's Stamp Duty (SSD) for Industrial Property': https://www.iras.gov.sg/irashome/Other-Taxes/Stamp-Duty-for-Property/Working-out-your-Stamp-Duty/Selling-or-Disposing-Property/Seller-s-Stamp-Duty--SSD--for-Industrial-Property/.
71 Cap 61, 1994 Rev Ed Sing.
72 Cap 43, 1999 Rev Ed Sing.
73 Such prohibitions are typically contractual and provided for in the lease agreement.
74 Section 87, LTA.
75 Cap 58, 1985 Rev Ed Sing.
76 Cap 152, 1985 Rev Ed Sing.
77 IRAS, 'IRAS e-Tax Guide Stamp Duty: Additional Conveyance Duties on Property-Holding Entities' (Third Edition) (5 July 2018) at paragraph 2.1.
78 Cap 312, 2006 Rev Ed Sing.
79 Cap 312, 2006 Rev Ed Sing, section 23(2).
80 IRAS, 'Stamp Duty: Additional Conveyance Duties on Property-Holding Entities' (Third Edition) (5 July 2018) at paragraph 4.2.
81 The Business Times, 'Time to rethink investment in residential property' (31 March 2017): http://www.businesstimes.com.sg/hub-projects/property-march-2017/time-to-rethink-investment-in-residential-property.
82 IRAS, 'IRAS e-Tax Guide Stamp Duty: Additional Conveyance Duties on Property-Holding Entities (Third Edition)' (5 July 2018) at paragraph 4.3.1.
83 CNBC, 'MAS: Singapore property cooling measures remain necessary' (29 June 2017): https://www.cnbc.com/2017/06/29/mas-singapore-property-cooling-measures-remain-necessary.html.
85 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).
86 The deposit is refundable provided the bid is in accordance with the agreement, but not to the highest bidder in the tender.
87 MAS, 'Raising Additional Buyer's Stamp Duty Rates and Tightening Loan-to-Value Limits to Promote a Stable and Sustainable Property Market' (5 July 2018): http://www.mas.gov.sg/News-and-Publications/Media-Releases/2018/Raising-Additional-Buyers-Stamp-Duty-Rates-and-Tightening-Loan-to-Value-Limits.aspx.
89 ABSD rates were raised by 5 per cent across all types of buyers, except first-time buyers who are Singaporean citizens or Singaporean Permanent Residents.
90 Married couples need to consist of at least one Singaporean citizen spouse.
91 LTV limits tightened by 5 per cent for all housing loans granted by financial institutions.
92 MWL for a borrower with no outstanding housing loan, purchasing another property is at 75 per cent, and MWL for a borrower with an outstanding housing loan, purchasing another residential property is at 45 per cent.
93 Bloomberg, 'Singapore No Place for Speculators as Home Stability Goals Met': https://www.bloomberg.com/news/articles/2019-05-30/singapore-says-property-price-curbs-achieved-stabilization-goals; CNA, 'Property market “more sober” after cooling measures; no need to shift gears significantly: MAS': https://www.channelnewsasia.com/news/business/property-market-more-sober-cooling-measures-no-need-shift-gear-11666398.
94 URA, 'Release of 3rd Quarter 2019 real estate statistics': https://www.ura.gov.sg/Corporate/Media-Room/Media-Releases/pr19-47.
95 IMDA, 'The Electronic Transactions Acts (Cap.88)': https://www.imda.gov.sg/regulations-and-licensing-listing/electronic-transactions-act-and-regulations.
96 Convention on the Use of Electronic Communications in International Contracting (23 November 2005) U.N. Doc. A/60/21.
97 Singapore Parliamentary Debates, 'Stamp Duties (Amendment) Bill': https://sprs.parl.gov.sg/search/sprs3topic?reportid=bill-13.
98 Stamp Duties (Amendment) Act 2018.