The Additional Buyer’s Stamp Duty (ABSD) has received its fair share of criticism for the pressure it has placed on developers and the market. Will an extension of the deadline for developers to build and sell all the units on a site be the solution to a growing inventory of unsold homes?
Developers asked for the timeline to be extended to 7 or 10 years
Under the current cooling measures, developers are required to complete and sell all units of their new development within a 5-year period after land acquisition. This helps developers qualify for a remission of the ABSD on the prices of the land they have acquired. Should they fail to sell all the units within the stipulated time period, they will be queried to pay the 25% ABSD with interest. Could these measures have created a housing supply glut as developers rush to put new units into the market and sell them as quickly as possible?
From mid-2016 to mid-2018 was the height of land sales and collective or en bloc sales. Developers actively sought and acquired considerable plots of land when the market was recovering, sometimes for high prices. This has resulted in a large supply of new housing units currently in the market and also in the pipeline. As of Sept 30, there are 32,000 unsold private residential units.
Buyers’ demand on the decline and extension may only be stopgap
Recently, City Developments Limited (CDL) has made an appeal for the timeline to be extended to 7 or 10 years. In light of the shaky economic outlook, limited growth and impending housing supply glut, this extension of the ABSD may help reduce pressure on developers to build and sell all the units, in particular in some larger or pricier developments in prime locations, within the current 5-year period.
Some analysts are however concerned that even with the extension of the ABSD deadline, the root of the problem may be the decline in buyer demand. As most of the unsold inventory are larger units, the main issue could be affordability. In the current market, about 90% of the new units sold are priced below $1 million. While developers are still able to hold on to their prices and have yet to be seen giving discounts, the current inventory may take 2 to 3 years to clear as more units are added in the years ahead.