RESIDENTIAL PROPERTY (AMENDMENT) BILL

RESIDENTIAL PROPERTY (AMENDMENT) BILL: Order for Second Reading read.

4.43 pm

The Minister for Law (Mr K Shanmugam): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

The Residential Property Act (RPA) restricts foreign ownership of landed residential properties, including strata landed housing and land meant for residential development. We generally call them Restricted Properties.

In Singapore, only citizens have the right to own landed residential properties. In addition, Permanent Residents who make significant economic contribution, can, with the approval under the RPA, purchase such properties for their own occupation.

Foreign developers who wish to purchase land for residential development, other than from the Government, must also apply for approval under the RPA. Those who are granted approval are required to develop and sell the residential units in a timely manner.

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We now seek to amend the Residential Property Act to make changes to the penalty provisions as well as other amendments to improve the administrative efficacy of the RPA. I will highlight the key amendments.

Foreign developers – Introduction of a new extension charge framework

The first group of key amendments relates to foreign developers who are given approval under the RPA to acquire or retain land for residential development. They are required to complete their residential development within a stipulated Project Completion Period, which is currently five years. They are then required to sell off all units in the residential development within two years from the issue of the Temporary Occupation Permit (TOP). This is to prevent them from hoarding or speculating in residential land. If they fail to meet the stipulated timelines, we may forfeit their Banker’s Guarantee, which is pegged at 10% of the land price.

With the amendments, the Controller of residential property will be empowered to levy an extension charge for any extension of time beyond the project completion period. The extension charge framework is essentially the same as the extension premium scheme that applies to the sale of sites under the Government Land Sales programme today. The key advantage of the extension charge framework is to make the cost of delay apparent to the developers and encourage them to complete the developments in a timely manner.

We will apply the same penalty regime and extension charge framework to Singapore entities which are given approval to convert to foreign entities and to retain their residential land for development and sale as well as to

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foreign entities that have been granted approval to change the use of their land to residential use on the basis that they will develop the land and sell the units.

Purchase of individual restricted properties for owner occupation – Fine-tuning the penalty provisions

The second group of amendments relates to the penalties for offences relating to foreign ownership of individual restricted properties will be enhanced. Today, permanent residents can apply to purchase restricted properties. To prevent speculation in such properties, approved purchasers are allowed to purchase only one property, which cannot be sold within the initial period, currently three years. Approved purchasers are also required to use the property for their own occupation and are not allowed to rent the property out. Owners who breach these conditions are subject to criminal penalties under the RPA, which have not been updated since 1973.

These penalties will be revised to ensure that they continue to be an effective deterrent. Foreign owners who illegally dispose of their property during the non-disposal period are currently liable, upon conviction, to a maximum fine of $5,000. This is far below the amount of profit they might have gained from speculating in the property. We will raise the fine to a maximum of $200,000. As an additional safeguard, the Controller of residential property will be empowered to lodge a caveat on restricted properties purchased pursuant to an approval granted under the RPA. The approval to purchase is granted to selected foreigners on condition that there is no early disposal of the property and a caveat will prevent such unauthorised disposal.

There are other offences where sanctions have to be made commensurate with the severity of the offence. For example, if foreign owner who rents out

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his residential property without approval will now face a financial penalty of up to three times the rental income earned over the period of breach, or $10,000, whichever is higher. We will remove the current criminal sanction, as that may not be appropriate.

Overall, the revised penalties will allow us to take a more calibrated and effective approach in the enforcement of the RPA.

Requiring ex-Singapore citizens and ex-Permanent Residents to dispose of their restricted properties

The final group of key amendments deals with the disposal of restricted properties belonging to ex-Singapore citizens and ex-Permanent Residents (PRs), and to foreign persons beneficially entitled to restricted properties through inheritance. Our policy is that only foreigners who are PRs and who have been given specific approval under the RPA can own restricted properties. Foreign beneficiaries who inherit such properties and Singapore citizens and PRs who renounce or lose their citizenship or permanent residency, must dispose of their interests in the properties in a timely manner.

Currently, the executors or administrators have 10 years to dispose of the foreign beneficiaries’ interest in a restricted property if the beneficiaries do not qualify for approval under the RPA. As the estate administration process has been simplified with the abolishment of estate duty in 2008, we will shorten the disposal period to five years.

We will now also require individuals who renounce or lose their Singapore ctizenship or permanent residency to dispose of their restricted properties. The amendment will address the current anomaly in our laws whereby an ex-Singaporean or ex-PR can continue to hold on to their restricted properties.

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Sir, I beg to move.

Question proposed.

4.50 pm

Mdm Ho Geok Choo: Mr Speaker, Sir, I would like to focus on three issues in the Residential Property (Amendment) Bill.

On individuals who give up their Singaporean citizenship or PR status, Sir, I understand that it is fair that ex-Singaporeans should be treated just like foreigners and they will no longer be entitled to property ownership in a land-scarce country like Singapore. This is in line with the Government’s intention to continually emphasise that the status of a Singaporean citizenship is a matter of honour and pride and comes with many privileges. We must constantly show that Singaporeans come first, especially on matters pertaining to property and housing. I would like to raise some suggestions for consideration.

First, in recent years, more and more Singaporeans are venturing to live and work abroad in major cities in the world, such as Shanghai and London. Many local firms also have partnerships and overseas offices in these major cities. Prime Minister Lee Hsien Loong, during his US trip in April 2010, called upon overseas Singaporeans to return to help in the country’s next phase of development. Just as Singapore seeks out foreign talents to take root in Singapore, overseas Singaporeans are also being courted by these overseas’ local authorities to sink their roots in these countries. The proposed measure will force Singaporeans, especially those on the brink of giving up their citizenship to rethink their decision.

In the interim two years, what other softer approach are we considering to convince them to stay? Would the

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Government be prepared to carry out an exit interview to find out the reasons why Singaporeans are leaving the country and take the opportunity clarify these people’s misgivings. Managing the exit of Singaporeans is no different from managing attrition in a company. We need to take stock.

Sir, on inheritance, the reduction from 10 years to five years serves as a stern deterrence. The question is: how do we leverage this stern measure to woo ex-Singaporeans to return? The very fact that they are named as beneficiaries signals the desire of their benefactors to keep the ties with them with Singapore. Would the Ministry consider the five-year period as a general rule, but grant flexibility on a case-by-case basis when there is strong evidence that we can win over the ex-Singaporeans to return?

Sir, the other significant change is the tightening of rules for foreign property developers. Currently, the RPA mandates that foreign housing developers must complete residential developments within five years. They must also sell all units within two years from the time the project receives its Temporary Occupation Permit. With this Bill, the Ministry of Law is now proposing that developers who fail to complete and sell their developments within the stipulated period will be subject to a new extension charge framework where they will pay for the extension of time beyond the original completion framework.

Sir, I would like to commend the Ministry for introducing such a measure as this will deter foreign property developers from hoarding some units for speculation. Singapore’s property market underwent several speculative bubbles and the Government’s latest cooling measures are meant to prevent overheating in the property market.

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Sir, I would like to seek a clarification at this point. Will this new measure also apply to local property developers? If the intention of this new measure is to address the issue of speculative bubbles in the property market, this new measure should equally apply to both foreign and local property developers because the latter is also capable of playing the property market.

On this note, I support the Bill.

4.54 pm

Mr Hri Kumar Nair: I rise in support of the Bill.

Property is a sensitive, sometimes emotional, subject among Singaporeans, primarily because of how much it costs, how it can create enormous wealth and how ownership is tied to social mobility and personal success. This has been brought into sharp focus by the current buoyant market, where billionaires are made in months, simply by flipping properties. Some say it makes a mockery of hard work but there it is.

Land in Singapore is also scarce resource and, therefore, a prime target for speculation and investment both by Singaporeans and foreigners. The RPA has, therefore, served an important role in imposing restrictions against foreigners and permanent residents from owning land and other property in Singapore. They will have to demonstrate that they have or will contribute substantially to our country before they can enjoy some of the privileges Singaporeans have. I say "some" because even if they receive approval to buy a restricted property, that approval comes with conditions on selling or against renting.

Mr Hri Kumar Nair: This Bill seeks to enhance those restrictions and ensure that any privileges

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given are less likely to be abused. In that regard, I support it. I do have a few points of clarification for the Minister which I shall come to later.

I would first like to start by asking whether we are doing enough to protect ourselves from foreigners who seek to profit at our expense. The RPA protects essentially landed properties, while the HDB Act protects public flats. Everything in between is fair game. But we should be equally concerned with that segment of the market as that will define social mobility for a good proportion of the middle class.

I am not advocating the same protection for this segment. We should not interfere too much in the private market. But there is merit in discouraging speculation in this segment of the property market by foreigners. As I have said previously in this House, I have no issues with genuine investors or home owners. They are important to the growth of the market. It is the "flippers" that concern me.

I understand that the majority of private property purchasers are by Singaporeans and PRs, and "flippers" may represent a small class. But that is not the point. Property prices can be driven by sentiment and the activities of a few at the fringes can have an impact. Even if foreigners do not significantly affect prices, how do we benefit from foreigners who flip properties for their own gain?

I, therefore, ask the Government to consider imposing some form of a tax, like the capital gains tax, on foreigners who sell their properties within a short time after purchase. We also need to address option flipping. Buying and selling options is a pure speculative activity. It adds absolutely no value, other than to artificially drive up prices. I, therefore, suggest that we make options purchased

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by foreigners non-transferable, or impose a tax on profits gained on the sale of options.

As I have indicated, the measures should not be targeted at genuine investors or home owners; so those who buy with those intentions should not have any concern. But there should be no sympathy for foreigners who protest that they cannot make a quick profit.

On the Bill, I support the enactment of the new section 3(a), which obliges those who have lost or given up their citizenship or permanent residency to dispose of their restricted property in Singapore. There is no reason why they should not be treated like any other foreign person and it is good that this loop hole is closed.

I have, however, two issues for the Minister to clarify. First, where an owner of restricted property passes away, bequeathing it to a non-citizen, the Bill requires the legal personal representative to dispose of the property within five years from the death of the deceased person. This is shortened from the current 10 years. Nonetheless, I believe five years is still a tad too generous. He should sell expeditiously. Our probate procedures have been greatly simplified. There is also no longer any estate duty to pay. If he requires more time on account of any complications here or in any foreign probate proceedings, he can apply to the Controller giving good reasons.

Second, the Bill introduces a new section 4(a), which allows the Court to make a confiscation order where a defendant is convicted of an offence under section 4(6). Now, section 4(6) offence is one where a foreign person has improperly acquired an interest in a development and fails to comply with a Controller’s notice to sell it off. However, a notice to sell can only be issued after the person is convicted under section

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4(3). That deals with the offence of improperly acquiring the interest in the first place.

In the circumstances, the confiscation order will not apply to a person who has improperly acquired an interest, but complies with a notice to sell. I would like to ask the Minister whether such a person would be entitled to keep any profit he makes, or any other benefit he receives, although he has violated the RPA. If so, what is the rationale for this and should the confiscation provisions not apply generally to give the Courts the power to seize any benefits enjoyed on account of any breach of the RPA? The offender could benefit significantly as there may be a lengthy period between the time he improperly acquires the interest and when the notice to sell lapses.

4.59 pm

Assoc. Prof. Paulin Tay Straughan: Home ownership is a highly desired aspiration for a large proportion of Singaporeans. The discourse on property prices in the past year is testimony to this. I see this Bill as the latest response of the Government to address the concerns on rising property prices in land-scarce Singapore. The amendments detailed impose stricter rules for foreign owners of restricted residential property.

These changes will further differentiate citizens from non-citizens with regard to rights of ownership of restricted residential property.

Together with the series of measures announced by the Government over the past year (which include HDB ownership and balloting of places for primary school registration), we see the privileges of being a Singapore citizen enhanced.

Mr Deputy Speaker, on this Bill specifically, I have two queries. First, can

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the Minister comment on the expected effects of this Bill on the property market? To help us better understand the potential implications of this Bill on property prices, may I ask the Minister for some details of ownership patterns: What is the proportion of restricted residential property that is owned by foreigners? What proportion of these is owner-occupied? And what is the average length of ownership – that is, are foreign owners likely to hold on to purchases for an extended period of time as long-term investments or are they are more likely to be flippers?

Second, if one intent of this Bill is to stabilise property prices, will the Minister consider extending regulation of foreign ownership to other private properties like condominiums and high-rise private apartments?

The primary aim of residential property should be to promote home ownership. We believe that an increase in homeownership among citizens will contribute to the growth of engaged stakeholders.

While HDB has been very successful in growing the proportion of homeowners among Singaporeans, we also note that as our society matures, more Singaporeans aspire to own private properties.

Given that private properties – both landed and high-rise – are valued commodities in land-scarce Singapore, will the Minister consider restricting foreign ownership of condominiums and high-rise apartments, especially those purchased purely for investment and not residential needs? This may place the coveted ownership of private property within the reach of many more Singaporeans.

Mr Shanmugam: Sir, I thank the Members for their support of the Bill and for speaking up. The points range from

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persuading Singaporeans not to give up their citizenship to flippers of condominiums to whether the aims of this Bill are to prevent the overheating of the market and to what we can do about condominiums and foreign ownership. The Act deals with restricted properties which by definition are landed properties. The aims of the Bill are very narrow and most of these topics are neither within the purview of my Ministry nor within this Bill, but I will try and deal with some of them.

Mdm Ho Geok Choo asked if the Government would be prepared to engage Singaporeans on the brink of giving up their citizenship to persuade them not to do so. As I said, this question raises questions which are well outside the ambit and purposes of this Bill but, I think, as the Home Affairs Minister, I can say this to her that when a Singaporean seeks to renounce his or her citizenship either at ICA or at our overseas missions, the Government will engage the citizen and try and find out that person's reason for wanting to do so. We also take the opportunity to advise the citizen to take some time to reconsider their decision. But, at the end of the day, we have to recognise that a person's decision to renounce his or her citizenship is usually not taken lightly and the Government will respect that decision however much we would like the person to remain our citizen.

Coming back to the Bill, what we are doing is to establish clear principles on when the right to hold a restricted property ceases amongst others for individuals who lose or give up their Singapore citizenship. The amendments were not designed as measures to discourage Singaporeans from giving up their citizenship.

The Member has also asked if we can exercise flexibility in applying the compulsory disposal rule for foreign

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beneficiaries of inherited properties and for ex-Singapore citizens. If the MP is asking whether we can selectively waive the disposal requirement for these two groups of foreigners, the short answer is no. There is no reason for us to treat them specially and differently from other foreigners. If, however, they meet the criteria to be granted approval to own restricted properties in their own right, they will be allowed to keep the properties.

Mr Hri Kumar commented that the five-year timeframe for foreign beneficiaries to dispose of their interests in restricted property is too generous. Our view is that a reduction from 10 years to five years is reasonable given that Court procedures may be involved. Having said that, we will monitor the situation to see if further adjustments to the timeframe are needed.

Mdm Ho has asked if the extension charge framework will be extended to local property developers. The restricted property extension framework is only imposed on foreign developers who are granted approval to acquire private land to develop residential units for sale. This framework is aligned with the extension premium scheme already in place under the Government Land Sales (GLS) programme. The GLS extension premium scheme is imposed on all developers, both local and foreign who develop State land.

Mr Hri Kumar has asked if we should not give the Courts the power to seize the benefits enjoyed by a foreign person who has, without approval, acquired all the units in the development, thereby acquiring an interest in the restricted property. It may be difficult for the Courts to quantify the benefits that a foreign person has enjoyed when he does this. Hence, this has not been provided for in the Bill but we will certainly consider the Member's suggestion as we go forward to see whether it can be refined further.

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When the foreign person subsequently fails to comply with the notice to divest, we have empowered the courts to seize the units which the Controller has specified to be divested.

Assoc. Prof. Straughan has asked about the impact of the Bill on the property market and I think Mdm Ho complimented us on trying to make sure that the property market does not get overheated. I do not think I will accept that particular compliment. As I said, this Bill does not have such grand aims. We have to understand the Bill does not change the conditions under which foreigners can buy restricted properties. It simply enhances the penalty provisions of the Restricted Property Act (RPA) so that the penalties remain enough of a deterrent against potential abusers of the RPA.

Second, restricted properties comprising mainly landed residential properties form only 6% of the total housing stock in Singapore and only 3.6% of that 6% of the restricted properties are owned by foreigners. We have been very strict. So, only 6% of the properties can be termed landed residential properties. And if you take that figure of 6%, foreign ownership does not exceed 3.6%; so it is very small. As such, it would be surprising if the amendments to the RPA should have a significant impact on the property market.

Assoc. Prof. Straughan also has asked about the length of ownership of restricted properties. Under the RPA, foreigners who are given approval to purchase restricted properties can buy only one restricted property and this must be for owner-occupation. Further, they are not allowed to sell the property within the first three years to deter purchase for speculative purposes. After the three years, the approved purchasers can continue to hold on to their property for

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as long as they need it for their ownership and occupation.

Mr Hri Kumar is suggesting that the Government consider measures such as capital gains tax and a tax on sale of options to curb speculative activity by foreigners in non-landed private properties. Assoc. Prof. Straughan has raised a related suggestion that is similar to the RPA, ie, we restrict foreign ownership of non-landed private property such as condominiums and other high-rise apartments in order to stabilise property prices. I have said the aim of the RPA is to ensure ownership of landed properties by foreigners is carefully controlled.

Issues relating to private property prices, speculation and properties are well outside the purview of this Bill. They are really best addressed to the Ministry of National Development (MND) and the Ministry of Finance (MOF). Likewise, controlling the purchase of non-landed properties by foreigners is also outside the purview of this Bill. Members may, however, know that several Ministers had previously pointed out that it is quite a bad idea to try and restrict foreigners from owning non-landed properties in Singapore. There are many possible consequences and most of them are bad for Singapore. If demand drops signficantly, all existing homeowners, many of them Singaporeans, will suffer serious asset devaluation. And our position as an international, vibrant, attractive city as a magnet for capital and talent will also suffer. That will have negative consequences for the economy. We should be mindful, therefore, that if you make a move like preventing foreign ownership of condominiums, we will have to deal with such trade-offs. Are we prepared for those trade-offs? Indeed, any debate on this topic must also take into account what will happen if such controls are imposed.

Mr Speaker, Sir, coming back to restricted properties, the Government has

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been very careful about non-Singaporeans owning landed properties in Singapore and the conditions under which they can own such properties. That is why the figure today of foreign ownership of landed properties in Singapore is less than 4%. Let me reassure Members that we will continue to keep that approach.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. – [Mr Shanmugam].

Bill considered in Committee; reported without amendment; read a Third time and passed.