On 6 February 2020, the Ministry of Law and Singapore Land Authority (LDAU) jointly announced that they are prepared to grant exemption to Singapore listed housing developers with a substantial connection to Singapore from the requirements of the Qualifying Certificate (QC) regime.
The acquisition of residential properties (including vacant lands) in Singapore is regulated by the provisions of the Residential Property Act (the Act).
Section 25 of the Act requires all foreign persons (including all companies) to seek the prior approval of LDAU to acquire and retain restricted residential properties in Singapore. While individuals who are foreign persons may be able to obtain approval with conditions to acquire one restricted residential property for their own stay, approval under Section 25 is very rarely granted to any company to acquire and retain any restricted residential property.
As a distinct exception to Section 25, Singapore companies (meaning those incorporated in Singapore with all their respective shareholders and directors being citizens of Singapore) which have been issued a Clearance Certificate pursuant to Section 10 of the Act may acquire, retain and/or develop residential properties at such times as they deem appropriate
Prior to the aforesaid announcement on 6 February 2020, all other companies (including but not limited to all listed housing developers) who wish to acquire restricted residential properties (including vacant lands) were required to and could apply to LDAU for approval to purchase or acquire restricted residential properties only as housing developers under Section 31 of the Act. Such approval, given in the form of a QC backed by a banker's guarantee or insurance guarantee for 10% of the land price, required the housing developer to complete building the housing project within 5 years after purchase, and to sell all residential units within 2 years after the issuance of TOP for the housing project.
In the announcement, the Ministry of Law and LDAU noted that the existing framework meant that listed housing developers which are substantially Singapore companies are considered as foreign companies even if they have just one non-Singaporean shareholder. They are now prepared to exempt listed housing developers with a substantial connection to Singapore from the requirements of the QC regime prescribed by Section 31 of the Act. According to Ministry of Law and LDAU, this change will "better align the QC regime and the objectives of the RPA".
Listed housing developers may apply for such exemption and will be assessed by reference to the following criteria:
- Incorporation in Singapore;
- Primary listing is on the Singapore Exchange Limited (SGX) and principal place of business is Singapore;
- The chairperson of the company is a Singapore citizen;
- The majority of the Board of Directors are Singapore citizens;
- "A significantly Singaporean substantial shareholding interest in the company", which means – either (a) substantial shareholders who are Singapore citizens, Singapore companies or Singapore Government entities hold at least 50% interest in the voting rights and issued shares in the company; or (b) the largest single substantial shareholder is a Singapore citizen, Singapore company or a Singapore Government entity and holding at least 25% interest in the total voting rights and issued shares in the company.
-
** "Substantial shareholders" refer to persons or companies who have an interest in at least 5% of the votes attached to all the voting shares in the company or class of shares.
- Track record of development projects in Singapore
As part of the application, the Developer-applicant would also need to provide the following documents/information as discerned from the application form:
a) Applicant's organisation chart/corporate structure;
b) Information on applicant's directors – including their citizenship and legal basis of stay in Singapore;
c) Information (including share type, voting rights (%), issued shares (%)) on the applicant's substantial shareholders (i.e. shareholders who hold "at least 5%" of the votes attached to all the voting shares in the company or class of shares. In addition,
- For individuals who are shareholders, information on their citizenship and legal basis of stay in Singapore would have to be provided; and
- For entities which are shareholders, the list of directors and shareholders of each entity would have to be provided, and, if the shareholder is an entity, the list of its shareholders would also have to be stated until all shareholders listed are individuals.
d) Applicant's track record. To provide information on the following:
- Number of years of activity in Singapore as a housing developer;
- Number of employees in Singapore in the last 3 years;
- Development project(s) in Singapore – including status of
each development (e.g. redeveloped, completed, under construction),
date of TOP/CSC, development type, number of units, land area,
GFA);
While this is unclear in the application form, it should include the track record of related corporations (within the meaning of Section 6 of the Companies Act). It would also appear from the form that notwithstanding the definition of "housing developer" in Section 31 of the Act, the track record provided in the form is not limited to residential projects and includes commercial (and mixed) developments.
e) Statutory Declaration – essentially to confirm that (a) the particulars, statements, and declarations in the application are true and correct, and (b) the company has a significantly Singaporean substantial shareholding interest (as detailed in item (v) above);
f) Supporting documents (including ACRA records); and
g) Application Fee of S$500.
Unlike an application for a QC pursuant to Section 31 of the Act which is specific to the acquisition/intended acquisition of a particular residential property, this application for exemption from the QC regime appears to be an application for an exemption status that is tied to the applicant-developer. The application for exemption therefore appears to be more akin to an application for a Clearance Certificate under Section 10 of the Act, without need to specify details of any restricted residential property to be acquired or retained.
It is usual and likely that the listed housing developer will set up a wholly-owned subsidiary or special-purpose vehicle (SPV) to acquire the restricted residential property and to undertake the development on it. The question then arises whether such SPV would be required to make a separate application for an exemption status to allow the SPV to acquire the restricted residential property free from the usual QC regime.
It is also fairly common for housing developers to come together to set up a joint venture company (JV Co.) to acquire and redevelop restricted residential property. In such event, the status of each of these entities would need to be separately assessed for compliance with the requirements of the Act. If possible, such JV Co. will need to apply for its own exemption status from the QC regime. It is fair to assume that the LDAU will not grant the exemption status to a JV Co. established by a Singapore listed housing developer and a foreign company, even if the former is a company with a "substantial connection to Singapore" and would have been in a position to obtain the exemption status on its own.
It is unclear whether LDAU will expect strict compliance with all the stated criteria for the application for exemption. For instance, it is not clear if exemption status would be granted to a listed housing developer whose substantial shareholders holding 49% of its shares are Singapore citizens, Singapore companies or Singapore Government entities if this listed housing developer is able to meet all the other criteria. The specific number of development projects which will fulfil the track record requirement, is also unclear – this may well depend on the frequency of the development business and the size (in terms of units) of each of the projects.
In view of the sanctity of the Act that protects ownership of restricted residential properties in Singapore, one can expect that the approval for exemption from the QC regime may come with certain conditions. After all, the target beneficiaries for this exemption appear to be listed housing developers, which are in the business of housing development, that is to construct flats or dwelling houses on the relevant residential land for sale. We should expect more details on this in the months ahead.
Impact on the residential property market
While listed housing developers with a substantial connection to Singapore will welcome this proposed exemption from QC regime, we believe that the positive impact on the residential property market will be limited. The distinctly separate Additional Buyer's Stamp Duty (ABSD) tax regime operates to require housing developers to build and sell all residential units within 5 years as part of their undertaking to IRAS in exchange for upfront remission of ABSD. Housing developers who fail to meet the requirements of the undertaking will have to pay the remitted ABSD plus interest thereon.
Housing developers do not need to be reminded that since July 2018, the remittable part of ABSD has been increased from rate of 15% to 25%, in addition to a non-remittable ABSD of 5%. As such, housing developers should still be motivated to push ahead with sales of residential units built on residential lands, albeit most of these may be under the 15% ABSD era.
Conclusion
We anticipate a flood of applications for exemption from QC from listed housing developers who believe that they are essentially Singapore developers with a substantial connection here. It will be interesting to see the extent of flexibility to be adopted by LDAU in assessing whether these applications have met the relevant criteria. Perhaps what is most interesting are the terms which may be stipulated by LDAU in any approval of exemption granted by LDAU.
About Dentons
Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
