Singapore’s recent unwinding of some property curbs, which initially appeared to boost prospects for developers, may instead be creating new problems. After regulators closed a tax loophole that allowed developers to offload apartments in bulk to institutional investors and wealthy Singaporeans, many of the city state’s builders now face an unpalatable choice: discount unsold luxury homes or pay stiff penalties for missing government-mandated sales deadlines.

Opting for discounts could push home prices even lower, prolonging a three-year slide in property values. The alternative could be even more costly. About 2,098 homes remain unsold in 57 projects and penalties on these could total about S$647 million (US$463 million) this year, according to industry estimates based on official data.

The city state, which has one of the highest rates of home ownership in the world, also has among the most stringent regulations. Under regulations aimed at preventing land hoarding, all property developers with non-Singaporean shareholders or directors are required to complete construction of projects and obtain a temporary occupation permit within five years of land acquisitions. They have a further two years to sell the apartments or face fines.

Since December 2011, developers have been given a five-year deadline to sell all units in a development or pay at least 10 per cent of the land price as a penalty. One way around that was the bulk sale of apartments through a share transfer to big investors, which pay a lower stamp duty than individual buyers. With the rule changes last month, that loophole has been shut by equalising the tax rates. The tax advantage, and a 20 per cent decline in luxury home prices since 2013, helped buyers such as Blackstone Group and wealthy investors cherry-pick prime properties.

On March 10, Singapore announced an easing of some restrictions after price declines since 2013 made homes more affordable. The move spurred a sharp rally in the shares of Singapore developers on optimism that prices would recover. Since then, the initial euphoria has faded.



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