Singapore Just Introduced Tougher Penalties For Developers Behind Poorly Built Condo Projects

The government is adding teeth to the framework used to regulate developers and the build quality of new residential developments.

In a joint circular published by MND, URA, and BCA on May 22, developers can now be banned from acquiring future Government Land Sales (GLS) sites, as well as suspended sales on unlaunched future projects.

This adds to the current framework which includes a banding system for developers and builders, which was rolled out back in May 2023. This added more checks on developers to ensure their developments met higher-quality building standards.

Here’s how the regulatory framework is changing.

Developers can now be disqualified from future GLS tenders

This is under the new Land Sales Disqualification Framework. This is a major regulatory penalty that applies to developers who fail in the following criteria:

• Deliver projects with severe regulatory non-compliances affecting safety
• Repeatedly deliver projects with major defects and demonstrate what the authorities describe as “recalcitrant behaviour”

The penalty is that these developers will be disqualified from participating in GLS tenders for residential parcels, for up to five years. The exclusion includes sites with any kind of residential component, including mixed-use, residential with commercial at first storey, hotels with residences, and white sites

In effect, this means an errant developer would have to turn to the private enbloc market to replenish its land bank, if it wants to keep developing new projects.

As we explained in this previous article, most major developers in Singapore prefer GLS sites as they’re more straightforward to get awarded, and are relatively quicker to launch for sale. 

In contrast, some collective sale deals can incur objections from a minority of owners, which can stall the handover and sale completion. Most developers want to avoid this type of lengthy negotiation process.

In addition, en-bloc sales can be much more challenging under certain market conditions. For example, as private residential prices climbed after the Covid-19 pandemic, there was a notable decline in en-bloc sales. This was because some owners realised the sale proceeds they would get from selling their properties enbloc, would not fund the now-higher cost of a replacement home. 

That said, smaller market capitalised developers who tend to focus on boutique developments, typically lack the capital to realistically compete in the tender for most residential GLS sites.

As a result, this regulatory move is likely to have a greater impact on major property developers.

Developers can also face restrictions on future project sales.

The next major penalty is a new Sales Suspension Framework. Under this framework, developers with severe safety-related non-compliances and/or major defects associated with their developments may face the following:

• Be placed on a general sales suspension list for up to five years
• Face “no-sale licence conditions” imposed on future unlaunched projects

Some readers may recall previous cases such as Normanton Park, where a no-sale licence was previously imposed. The main restriction, in previous cases, was that units in a particular project could not be sold until receiving the Temporary Occupation Permit (TOP).

This generated a financial pressure on the developer because of Additional Buyers Stamp Duty (ABSD) deadlines, which did not pause despite the no-sale license. A developer must complete and sell all units in a project within five years, to obtain full ABSD remission.

The new penalties will affect a developer’s future pipeline, and not just one existing project. A developer may now face restrictions on selling units in future unlaunched projects. This can also happen in tandem with Land Sales Disqualification, as above.

The rules can extend beyond the developer entity itself.

This new framework doesn’t just apply to the developer itself as a corporate entity. The government has specified that the penalties will also extend to the following:

• Directors
• Substantial shareholders
• Directors of substantial shareholders
• Related companies with overlapping directors/shareholders

This also prevents scenarios where a developer restructures or launches a new corporate vehicle, to sidestep the restrictions.

What counts as “major defects”?

The joint circular from MND, URA, and BCA provides the following examples as defects:

• Cracked or broken windowpanes
• Cracked tiles or stone finishes
• Broken shower screens or mirrors
• Missing architectural accessories
• Other defects significantly affecting liveability or functionality

In assessing the project, authorities will determine:

• The scale and severity of defects
• Whether safety or liveability is affected
• How quickly rectifications are carried out
• Whether the developer has repeated offences
• Any aggravating or extenuating circumstances

In our view, this list suggests a degree of discretion. The framework is unlikely to punish isolated or minor defects alone, and it seems targeted at consistent or widescale patterns of bad behaviour.

Errant developers will receive early warning, be given opportunities to rectify any issues, and can make representations before penalties are imposed.

What could this mean for the property market?

Most major developers already comply with prevailing building standards, and situations involving no-sale licenses have been rare. This seems to be more in the way of reinforcing existing policies, rather than some kind of targeted crackdown. There was no specifically cited incident by the government that brought on these changes.

Developers will be extra cautious and monitor their contractors more closely. This will favour homebuyers, even if it may result in a slightly slower or more conservative approach.

What wasn’t covered in the circular however, was the exact manner in which the new penalties will be reflected in the developer’s banding. Presumably, developers subjected to Land Sales Disqualification or Sales Suspension measures could also face relegation to lower bands, but the authorities have not provided details on this for now.