SPK briefly talked about this observation in an earlier blog post – Deep diving into the Singapore enbloc scene (Part 1) and coincidentally, The Business Times did a full coverage on this topic this morning.
Below is a summary of the expert views quoted in the Business Times article:
- Industry players see insufficient supply from government land sales (GLS) and strong purchasing demand for mass-market private homes among the biggest factors
- Larger leasehold sites that can achieve greater economies of scale and churn out substantial revenue
- The collective sales cycle started from the mass market. This came on the back of strong purchasing demand for mass-market private homes from Singaporeans
- Many of the HUDC owners are in their 60s and would want to cash out of their ageing properties that have depleting leases
- The urgency among owners of former HUDC estates may explain their land rates being more reasonable than some freehold properties
- 10-15 per cent price premium that freehold properties tend to command over leasehold properties also present a hurdle to quantum-sensitive buyers and investors
Probably one of the important factors that led to this change in trend was missed out in the coverage by Business Times – the introduction of Additional Buyer Stamp Duty (“ABSD”) remission rules in 2011. Under the ABSD remission rules, developers who complete and sell ALL their units within five years of the acquisition date of a site will not have to pay ABSD on the purchase of land. In the event that they fail to do so, they will incur a 15% on their land cost. A 5% interest rate per annum will also be levied.
In the past, developers prefer to buy Freehold sites as they can landbank the sites and have greater flexibility and control over their launch strategy. But with the ABSD remission rules, land banking is not feasible anymore. Also, with the run up in property prices and a 10-15% price premium of a freehold project over leasehold projects, affordability of freehold projects may be an issue which could lead to slow take-up rate, and, in turn, result in ABSD on their land cost if they can’t fully sell their projects within 5 years. On the other hand, leasehold projects are more affordable and take-up rates tend to be stronger than leasehold. Hence, from a risk management perspective, it would have made more sense for developers to go for leasehold sites instead.
The owners of ageing leasehold properties would probably have the government to thank for this round of leasehold enbloc frenzy!