REAL PROPERTY OWNERSHIP
AND FINANCING IN SINGAPORE
INTRODUCTION
Real estate investment has always been strong in Singapore in the past 40-50 years, and despite
Singapore’s economy wavering in recent times, property remains an important form of security in
granting credit facilities in Singapore.
In obtaining land as security, it is important to ascertain that (1) the title is good; and (2) the owner does
not suffer from any legal incapacity, which may impair the ownership of the property.
On the examination of title, we will cover the following:
(1) what are the types of private property and tenure;
(2) the different systems of registration; and
(3) the various encumbrances and notifications on title.
Next, we will outline the procedures and the common issues that arise in conveyancing transactions,
namely:
(1) the capacity of the parties;
(2) the searches and requisitions usually needed (due diligence); and
(3) the various taxes and stamp duties levied on real property transactions.
Last, we will cover:
(1) the various financing sources; and
(2) securities.
An important background to note is that Singapore traces its roots from the days when it was a British
colony. Our laws were originally based on the English common law system. To date, our laws are still
very much similar to UK law and that of the other former British Colonies / Commonwealth countries,
like Australia and New Zealand.
On issues of banking law, land law and property law, special reliance is placed on local precedents;
namely Singapore courts’ interpretation of statutes, local legislations, and case law.
English case law and common law principles of equity are also persuasive authorities. Some English
statutes are imported via our Application of English Law Act.
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EXAMINATION OF TITLE
TYPES OF PRIVATE PROPERTY
Private property in Singapore generally falls into two big groups – residential or non-residential (e.g.
commercial / industrial).
RESIDENTIAL PROPERTY
This includes landed property and property comprised in a strata lot for residential purposes which
include high-rise apartments, townhouses and walk-up flats.
NON-RESIDENTIAL PROPERTY
This is property used for anything other than a residential purpose and includes commercial property
(e.g. for office use) and industrial property (e.g. for factories and warehouses).
TENURE OF LAND
Property can either be comprised in:
(1) an estate in fee simple (i.e. freehold); or
(2) an estate in perpetuity; or
(3) a leasehold estate (which can be of any tenure e.g. 30, 60, 99, 999 years)
A. ESTATE IN FEE SIMPLE
Simply, freehold land. This is the largest segment of time under the common law where an individual
can hold land for. It is an estate that can last forever so long as the grantee had heirs or the grantee
could in his lifetime alienate his entire interest in the land to another.
Out of this estate, lesser estates could be carved, for example a life estate.
B. ESTATE IN PERPETUITY
This is a statutory estate created under the State Lands Act, Cap 314.
It is a grant of land to an individual by the State in perpetuity subject to terms and conditions agreed
upon between the parties or imposed by the statute. It does not belong to the feudal groups of estates
in land and is thus not a freehold land. Lesser estates of freehold cannot therefore be carved out of this
land.
The essential difference between an estate in fee simple / freehold and an estate in perpetuity is that
the former is dependent on the existence of heirs whilst the latter is not.
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C. LEASEHOLD ESTATE / INTEREST
The leasehold estate is an interest in land arising largely out of contract. It is not part of the feudal group
of freehold estates. A leasehold estate can be granted for any duration of time – 9999 years, 999 years,
99 or 30 years. As such, a life estate cannot be created out of a leasehold regardless of how long the
lease may be granted for.
The property must have a minimum leasehold period of at least 60 years remaining at the date of the
application for use of CPF monies before CPF monies is allowed for the purchase of the property.
TWO TYPES OF SYSTEMS OF REGISTRATION SYSTEMS FOR LANDS IN SINGAPORE
COMMON LAW / UNREGISTERED LAND
The common law only requires that an interest in land be created, transferred or assigned by deed in
the English language for it to be recognised in the eyes of the law. Interests in the land were evidenced
by title deeds which identified the persons involved in the particular deed (e.g. owners,
mortgagor/mortgagee, lessor/lessee) and their interest in the land (e.g. freehold title, leasehold tenure
of 999 years).
The weakness of the common law system is that an unscrupulous owner of a piece of land could create,
transfer or assign the same interest in his land many times over to different transferees. The various
transferees would end up in a tussle later to decide whose interest in the land had priority.
A system of registration was thus developed for the common law system of land under the Registration
of Deeds Act (Cap 269, 1989 Ed) (“RODA”) to prevent this dishonest practice. However, Registration
is not compulsory and does not validate an invalid creation, transfer or assignment of an interest in the
land. Registration merely confers priority over an unregistered but registrable interest and can be used
as evidence of title in a court of law.
If a title search indicates that a property is registered under the RODA, the lawyer will investigate title
for the preceding 15 years, as in the case of a qualified title under the Torrens system where the
caution has not been lapsed or cancelled.
TORRENS SYSTEM/ REGISTERED LAND
Under the Torrens system, the land-register records all the interests pertaining to a parcel of land. Unlike
registration for common law land, registration is compulsory for all land under the Land Titles Act, Cap
157 (“LTA”) to pass any interest in the land.
The land-register is conclusive evidence as to a person’s interest in the land. Unless otherwise provided
in the LTA, any unregistered interest will not be recognised in a court of law. Conversely, once an
interest is recorded on the register, it gives the registered proprietor an indefeasible title which cannot
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be defeated except by another interest registered before his or by one of the overriding interests set
out in the LTA
This system solves to a large extent the problems of undisclosed transfers of interests in land for land
under the common law system.
The government is in the process of gradually converting all land in Singapore to the registered system
and the particulars of such land can be obtained electronically via INLIS.
There is another piece of legislation known as the Land Titles (Strata) Act (“LTSA”) which governs
land with strata or subdivided title such as apartments or condominiums.
VARIOUS NOTIFICATIONS ON THE TITLE
A. CAUTION
A caution is notified on the Certificate of Title of the land if the Registrar is of the opinion that an
unqualified title cannot be issued. The caution warns all persons that the title is subject to all interests
subsisting at the time of the conversion of the land to LTA.
Qualified titles are usually issued for land which has recently been converted from RODA to LTA.
A qualified title can become unqualified if:
(1) either the caution lapses under section 25 of the LTA ; or
(2) if the registered proprietor applies to have the caution cancelled.
A purchaser may also apply to lapse the caution in his favour on the expiration of 5 years from the date
of the last conveyance which was cancelled by the Registrar upon the creation of the qualified folio.
Where there is no subsequent purchaser, the registered proprietor may apply to have the caution
cancelled if he satisfies the Registrar that he can deduce a title of at least 12 years from the date of his
application free from any outstanding interests which are not already notified on the register.
B. ENCUMBRANCES
A title search may reveal that the land is subject to other existing interests. An example would be an
existing mortgage favouring another financial institution.
It is then pertinent to question the priority of your interest vis-a vis the other prior interests over
the same lot of land. In the event that the mortgagor fails to pay his debt, proceeds from the property
will be paid according to the priority of the interests in the property.
In the above example, the existing mortgagee will be paid first and only where there are remaining
monies would a later mortgagee receive payment. Even then, the later mortgagee may only be paid a
part of the mortgage sum owed to them.
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When CPF monies are used in the purchase of a property, CPF Board acquires a charge over
the property in question. This charge ranks as a first charge over the property but from 1 September
2002, even though CPF Board has a first charge over the property, the mortgagee will have priority
over any sale proceeds of the property.
C. CAVEATS
Function of a Caveat
A caveat evidencing an interest in land may also have been lodged against the relevant certificate of
title. It mainly functions to prevent the registration of a subsequent interest which is adverse to the
interest of the caveator without first giving him a chance to prove the existence of his prior interest.
Further, it also serves to give notice to the world of the existence of the unregistered interest. Priority is
given to the interest first caveated over subsequent interests as date of priority runs from the date the
caveat was lodged.
Automatic Lapsing of Caveat after 5 years
A caveat will automatically lapse on the expiration of 5 years from the date of the lodgement unless it
is extended. Section 122 of the LTA provides for an extension of a caveat for a further period of 5 years
from the date of the lodgement of the extension. The extension will lapse at the expiry of 5 years from
the date of its lodgement unless it has been withdrawn, cancelled or the interest has become a
registered interest.
Extensions to Caveats
There is no limit of the number of extensions that can be made but it must be noted that the extension
must be lodged before the expiration of the original caveat to retain its priority from the date of the
lodgement of the original caveat.
D. RESTRICTIVE COVENANTS
A restrictive covenant is a restriction on the owner exercising his rights over the land. The covenant
must therefore be negative in substance.
Examples of Restrictive Covenants:
▪
not more than one dwelling house should be built on the servient land
▪
not to carry on business on the servient land
▪
not to build houses of more than four storeys on the servient land
For the restrictive covenant to run with the land, it must:
1. be made for and benefit the land of the covenantee; and
2. be intended to bind the covenantor’s land and not merely the covenantor himself.
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If these conditions are met, the restrictive covenant will run with the land and will be enforced against
all successors in title with the exception of the bona fide purchaser for value of the legal estate without
notice.
Restrictive Covenants entered as Notices
The LTA provides for restrictive covenants to be entered as notifications on the land-register against
the title of the land over which the burden runs. It is important for a financial institution to know the ambit
of the restrictive covenant especially in a case where you are financing a construction loan. A mortgagee
would be concerned about restrictive covenants which may provide that no mortgage is to be created
over the property without the consent of the covenantee or which prohibits the erection of more
than one dwelling house when the mortgagor proposes to erect a pair of semi-detached houses
and wants a loan to finance his construction loan on security of the property.
Restrictive Covenants Prescribed by Legislation
However, there are certain restrictive covenants prescribed by the legislation which are found within the
Sale and Purchase Agreement which would have to be approved by the Controller of Housing. An
example would be the standard Sale and Purchase Agreement contained in Form 4 in the Schedule of
the Housing Developers Rules which applies to landed property under construction. These are
common covenants which do not affect the mortgagee’s interest or the chargee’s security.
Discharge / Expiry / Extinguishment of Restrictive Covenants
A restrictive covenant can be discharged by agreement or by unity of ownership of the affected
pieces of land. For land under the LTA, the covenant expires 20 years from the date of entry of the
notification unless it is discharged earlier or is extended by the proprietor of the dominant land. The
court also has the power to extinguish or vary a restriction either totally or partially.
CONVEYANCING PROCEDURE AND ISSUES
CAPACITY
COMPANIES
A company is a legal entity with capacity to hold, sell or purchase real property. Before a
company can acquire restricted residential property (e.g. vacant land or all units in a residential
development), it will have to comply with the requirements of the Residential Property Act (Cap.
274, 2009 Rev Ed).
INFANTS
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Land which an infant is seized of or entitled to shall come under settled estate. The management of
the land would be the trustees appointed by the settlement or by the court. The guardian of the
infant shall not sell, mortgage or otherwise deal with the land except by the consent of the court.
PERSONS WITH MENTAL DISORDER / INCAPACITY
Persons with such disability may act through a committee of person and of the estate. Any sale,
mortgage or charge of land owner by such persons can only go proceed with an order of court.
INSOLVENT PERSONS
Under the Bankruptcy Act, the Official Assignee as a trustee in bankruptcy has the power to carry on
business of the bankrupt and has the power to sell the property if it belongs to the bankrupt’s estate.
PERSONAL REPRESENTATIVE
An order of court will be required to sanction the disposal of any of the real property of the deceased’s
estate within 6 years of demise, unless there is an express or implied power of sale or trust for sale in
the will of the deceased person.
PARTNERSHIPS
A partnership cannot hold property – a partnership is not a legal person even though it is registered as
a business under a name. Only individuals who form the partnership can hold the interest as individuals.
Where the property is intended as partnership property, the individuals as legal owners hold the property
in trust for themselves as partners. If the legal title is in the joint names of the individuals, they hold
in trust for themselves as tenants in common. Where any land is partnership property, it will be
treated as personal or movable property as between the partners (see Section 22 of the Partnership
Act for more details).
SOCIETIES
As an unincorporated association, a society cannot hold land in its registered name unless it is done
through trustees (Singapore Shui Hing Co (Pte) Ltd v Singapore Sing Hua Puey Chin Association
[1975–1977] SLR 452, [1976] 1 MLJ 217 also reported in [1974 – 1976] SLR(R) 602). There should be
at least two trustees or, if only one, then it should be a trust corporation. However, there should not be
more than four trustees (Trustees Act, section 36(1)).
RESTRICTION ON FOREIGN OWNERSHIP
RESIDENTIAL PROPERTIES
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In general, Singapore is open to foreign ownership of properties. However, because of its special
situation as a city-state, the government has had to restrict foreign ownership of residential properties
of detached, semi-detached and terrace houses which are usually in local parlance termed as “landed
properties”.
Foreigners who wish to purchase any of the types of restricted properties may apply for approval to
purchase such property from the Residential Property Advisory Committee which is managed by the
Land Dealings (Approval) Unit.
The relevant law governing foreign ownership of land in Singapore is the Residential Property Act (Cap.
274, 2009 Rev Ed)(“RPA”). A foreign person will be required to seek approval for the purchase of the
following residential properties :a) vacant residential land;
b) landed houses with land titles;
c) landed houses with strata titles in a non-condominium development such as strata terrace
houses; and
d) shop-houses which are not strata subdivided and are erected on land other than land which
has been declared to be non-residential property.
Under the RPA, the definition of a “foreign person” includes:
a) non-citizens of Singapore;
b) Permanent Residents;
c) foreign companies; and
d)
societies.
It is noteworthy that under this definition, a foreign company or a society (1) incorporated outside
Singapore or (2) though incorporated in Singapore, has directors or members who are not Singapore
citizens would also be considered a foreign person for the purposes of this definition.
With effect from 19 July 2005, a foreign person will no longer need to seek prior approval to buy an
apartment unit in a building of less than 6 storeys in a non- condominium development (prior to this,
approval was required for such purchase by a foreign person).
COMMERCIAL PROPERTIES
There are no restrictions on the ownership of commercial and industrial properties in Singapore.
SEARCHES AND REQUISITION
All legal requisition replies sent by the mortgagor’s solicitors to the following government departments
must also be satisfactory before any such drawdown of the loan including the following:-
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S/N
1
Government Authority
Chief Planner, Urban Redevelopment Authority
Purpose
(a)
(“URA”)
to ensure correct usage of the
property and its zoning;
to ensure that the property is not
2
Building and Construction Authority (“BCA”)
under investigation for any
structural defects or unauthorised
structure
3
4
5
Land Transport Authority (“LTA”), Rapid Transit
to ensure that the property is not
System
affected by MRT lines
Water Reclamation (Network) Department, Public
to ensure the sanitary facilities are
Utilities Board (“PUB”)
properly sited
Environment Health Department, National
Environment Agency (“NEA”)
to ensure that the property is not a
health hazard to the surrounding (eg.
the breeding of mosquitoes)
to ensure that all property taxes are
6
Comptroller of Property Tax, Inland Revenue
discharged to-date (note that unpaid
Authority of Singapore (“IRAS”)
property tax constitutes a first
charge on the property)
to ensure that no road charges are
7
Street Works, Land Transport Authority
payable and to check if the road is
public and open to vehicular access
to determine whether the property is
8
Road Line Plan
affected by any road reserves or road
lines
9
10
Central Building Planning Unit, National
to determine whether the property is
Environment Agency
affected by any drainage reserves
(b)
Certificate issued by the Management Corporation
to ensure that all maintenance
pursuant to Section 47(1)(c) of the Building
fees and other contributions are
Maintenance and Strata Management Act
discharged to-date.
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(“BMSMA”) (Cap. 30C, 2008 Rev Ed) (where
applicable)
Legal requisition replies on average will take about 2 weeks to be returned.
On the day of the release of loan monies by the bank / financial institution, the searches for title,
bankruptcy, company and winding up searches (where applicable) are conducted one more time to
ensure that no transaction adverse to the bank’s / financial institution’s interest has transpired since
the first of such searches were conducted.
When the searches are confirmed to be in order, the loan moneys will then be released to the
mortgagor’s solicitors towards part payment of the purchase price of the property provided the
difference between the purchase price and the loan has been duly paid with cash and/or CPF funds.
SALE CONTRACT
“SUBJECT TO CONTRACT”
Where the words “subject to contract” appear, they negative the existence of a contract. It is a
conditional agreement and there will be no contract on the exercise of the option until a formal contract
is signed. An agreement for the sale and purchase of land which is made ‘subject to contract’ is a
conditional agreement. It is not binding until the contract contemplated therein is signed by the parties
and exchanged.
Distinction must be made with those contracts containing terms that are condition precedent to
the performance of the obligation under the contract (such as ‘subject to the removal of existing caveats’
or subject to approval from the Land Dealings (Approval) Unit’), which differs from that of condition
precedents to the formation of the contract itself.
The effect of a condition precedent to the performance of the obligations under the contract is that while
there is a binding contract, its performance is postponed until the fulfilment of the specified condition,
provided that all reasonable steps had been taken to achieve its fulfilment. In an option, where the term
provides that the purchaser is obliged to obtain the necessary in-principle approvals but the approvals
are in fact not necessary, the condition as to the necessary approvals never operate at all and has no
application to the option and as such, there is no failure of the fulfilment of the condition for approval.
GENERAL SALE AND PURCHASE AGREEMENT
In general, the Vendor and Purchaser may wish to conclude the contract once moneys are paid by the
Purchaser to the Vendor. In such a case, a Sale & Purchase Agreement is entered into between the
parties. Unlike in an Option to Purchase situation, the Purchaser does not have the luxury of waiting
for a period of time before he commits to the purchase. This implies that the parties are locked in from
the beginning.
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The government authorities have prescribed agreements to be issued by licensed developers of
residential properties and developers for commercial properties under the following Rules to protect
end-user interests:(a) Housing Developers Rules
-
Agreements for flats/condominium units; and
-
Agreements for houses
(b) Sale of Commercial Properties Rules
-
Agreements for commercial properties
A residential developer has to be licensed if there are more than 4 units in the housing project. The
standard agreements must be utilised by developers of both residential and commercial properties if
there are more than 4 units in the projects.
TAX AND STAMP DUTY ON REAL PROPERTY
STAMP DUTY
BUYER’S STAMP DUTY
Buyer’s Stamp Duty (“BSD”) is payable on the purchase of all real property in Singapore.
Current Applicable Rates (as of 20 February 2018)
On 19 February 2018, there was a revision to the BSD rates, and the new rates that will apply from 20
February 2018 are as reproduced below. This means that the Buyer’s Stamp Duty formula for
residential properties purchased or valued above S$1,000,000 is “4% of the purchase price or market
value less S$15,400.00".
Old Rates
For ease of comparison, the previous BSD rates that applied before 20 February 2018 are reproduced
below as follows. This meant that the stamp duty formula for properties valued at S$360,000.00 or
above is “3% of the purchase price less S$5,400”.
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ADDITIONAL BUYER’S STAMP DUTY
The Additional Buyer’s Stamp Duty (“ABSD”) was introduced on 7 December 2011, to be paid by certain
groups of people who acquire residential properties on or after 8 December 2011. Revised ABSD rates
were announced on 11 January 2013 for the purchase of property on or after 12 January 2013.
Whether ABSD is payable and the rate of ABSD depends on the profile of the buyer – whether the
buyer is an individual or non-individual, his residency status and the count of residential properties
owned by him.
The ABSD rates are to be applied on the actual price paid or the market value of the property, whichever
is higher, and it is to be paid on top of the BSD.
SELLER’S STAMP DUTY
Residential Properties
The Government re-introduced the Seller’s Stamp Duty (“SSD”) on short term transactions for
residential properties in February 2010 to curb short term speculative behaviour in the residential
property market. SSD is payable by sellers on residential property purchased on or after 20 February
2010 and sold within a certain duration.
In March 2017, the government relaxed the SSD, by cutting the rate by four percentage points for each
tier. For those selling properties in the first year, they would pay 12% rather than the previous 16%.
properties sold in the third year will be subject to SSD of 4 per cent. Further, instead of the previous 4
years, home owners would only have to wait for 3 years to avoid paying SSD. The government’s
decision to revise the SSD was made as property sales dipped significantly since the measure was first
introduced.
Industrial Properties
SSD for industrial properties was also imposed on 11 Jan 2013 for industrial properties which are
acquired on and after 12 Jan 2013 and disposed of within three years.
WITHHOLDING TAX
For non-Singapore citizens who are not tax resident in Singapore and who have been assessed as
“property traders”, withholding tax of 15% of the entire sale price will have to be paid.
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GOODS AND SERVICES TAX (GST)
GST was implemented on 1 April 1994. It is a tax on the supply of goods and services made in
Singapore by a taxable person in the course or furtherance of any business carried on by him, and
the importation of goods into Singapore. The grant, assignment or surrender of any interest in or right
over land is treated as a supply of goods.
Presently, the following are subject to GST:(1) sale and lease of non-residential properties and land including ‘local shopping’ zoned land;
(2) provision of professional real estate and construction services such as valuation, property
management, quantity surveying, architectural design and project management;
(3) sale of building materials;
(4) monthly service charges, including sinking funds levied by the Management Corporation
for maintaining the residential development, if the Management Corporation is a taxable
person;
(5) rental of furniture and furnishings in a lease of a residential property;
(6) in the lease of a service apartment, the services provided and the lease of the furniture
and furnishings, if the landlord is a taxable person; and
(7) services provided by a real estate agency regardless of whether the property transacted is
residential or commercial.
The value of a supply will be such amount that, with the addition of the GST chargeable, is equal to the
consideration. GST is a liability of the person making the supply and a vendor is liable to the Comptroller
of GST regardless of whether he collects the GST from the purchaser. If there is no provision in the
contract of sale for the purchaser to pay the vendor’s liability of GST, the price quoted by the vendor for
the sale is all inclusive and it includes the GST.
Where the contract is silent on the payment of GST and the contract is subject to the Law Society’s
Conditions of Sale 1999 or 2012, the liability to pay GST is on the purchaser.
In Ma Ong Kee and anor v Kaiyo Reptile Products Pte Ltd (2011) SGHC 188, a dispute arose as to
the liability to pay GST. The Option was subject to the Law Society’s Conditions of Sale 1999, where
Condition 7.3.1 provided that “the purchaser (whether of freehold or leasehold property) shall pay all
GST, if any, which may be payable in respect of the sale price of the property under the Goods and
Services Tax Act (Cap 117A) on completion or earlier as required by the Comptroller.” The High Court
held, inter alia, that the purpose of condition 7.3.1 was to incorporate two points:
-
First, to stipulate that the purchaser was to pay GST; and
-
Second, to stipulate that payment of GST should be paid on completion or earlier.
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Subsequent to the case, under the Law Society’s Conditions of Sale 2012, Condition 7.2 provides that
“where the Vendor is accountable for GST on the purchase price, the Purchaser shall pay all GST if
any is imposed by law and payable in respect of the sale of a Property under the Goods and Services
Tax Act (Cap. 117A)”. The wording of Condition 7.2 is clearer in stipulating that the liability to pay for
GST is on the purchaser.
Presently, GST is at 7% of the consideration (accurate as of 19 February). Based on the Budget 2018
(as announced by Finance Minister, Mr Heng Swee Keat on 19 February) the government plans to raise
the GST by 2 percentage points to 9 per cent sometime from 2021 to 2025.
MANNER OF HOLDING OF PROPERTY
Where a property is being purchased in more than one name, it may be held as joint-tenants or tenantsin-common, the difference being as follows:-
JOINT-TENANTS
If A and B are joint-tenants of a property, then upon the death of A, A’s interest in the property will
automatically vest in B. Even if A had left a will, A’s interest in the property will not be distributed in
accordance with A’s will. In other words, the survivor of the two will be entitled to the entire property.
This is the right of survivorship.
TENANTS-IN-COMMON IN EQUAL (OR OTHER SPECIFIED) SHARES
If A and B hold the property as tenants-in-common in equal shares (i.e. A will have half share interest
and B will have half share interest in the property) then upon the death of A, A’s half share interest
in the property will be distributed in accordance with A’s will or if A has died without leaving a will, his
interest will be distributed in accordance with the Intestate Succession Act (Cap. 146). This Act provides
for the mode of distribution of the estate of persons dying without a will. The shares in the property held
by tenants-in-common need not be equal and can be for instance, 25%/75% or 30%/70%.
FINANCING SOURCES
PROPERTY FINANCE FROM FINANCIAL INSTITUTIONS
Purchasers of real properties can obtain financing for their purchases from:
-
CPF Board
-
Financial institutions like banks and finance companies
-
Co-operatives like NTUC Income
-
Staff loans from the various employers with such schemes.
Banks and finance companies will not be able to grant an unsecured loan to the customer if the amount
exceeds S$5,000.00 (Finance Companies Act, Section 23(1)(f)(i)).
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The activities and operations of financial institutions granting banking/credit facilities for property
financing are closely monitored and regulated by the Monetary Authority of Singapore (“MAS”) which
acts in a supervisory capacity and also as a banker and financial advisor to the government.
MAS NOTICE 632
The loan amount which a customer may obtain from a financial institution is usually granted based on
a percentage of the prevailing market value of the property offered as security.
Maximum Loan Quantum
The maximum loan quantum is as follows:(i) LTV% x V (where the balance shall include the Cash%); or
(ii) [(100%-Cash%) x V] – CPF, whichever is lower, where:“LTV” is the loan-to-value ratio;
“Cash%” is the amount to be paid in cash;
“V” is the adjusted purchase price or current market valuation of a residential property; and
“adjusted purchase price” means the purchase price after the deduction of the amount of any
discount, rebate or any other benefit offered by the vendor or any other party (including the payment of
legal or stamp fees for the purchase), having the effect of reducing the true purchase price.
Loan-to-value Ratio Tightened
Through several rounds of cooling measures, MAS has tightened the LTV limit for borrowers. Currently,
the LTV limit is determined in relation to several factors like the tenure of facility, whether the borrower
is an individual or non-individual, the age of the borrower (for individuals) and whether the borrower has
other outstanding housing loans.
The minimum cash down payment is also determined by factors such as the tenure, the age of the
borrower and the number of outstanding housing loans.
Mandatory Limit on tenure of Credit / Re-financing Facilities
Further, MAS imposed a mandatory limit on the tenure of credit and re-financing facilities – the tenure
of the facility cannot exceed 35 years.
Interest-Only Loans
Banks and financial institutions are now not allowed to grant Interest-Only Loans (“IOL”) for all credit
facilities taken for the purchase of residential property. IOLs are also prohibited for loans which are
otherwise secured by residential properties and which are granted to borrowers who are individuals or
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special purpose vehicles which are set up purely to invest in residential properties. However, IOLs are
allowed in the following situations:
(1) Where the facility is a refinancing facility which is the consequence of a credit facility
that is restructured because of a deterioration in the financial position of the borrower
resulting in the inability of the borrower to meet the original repayment schedule;
(2) bridging loans (which are to be repaid within 6 months); and
(3) any credit facility granted by a bank to a borrower who is a property developer to
purchase residential property for development.
One outstanding feature of the Singapore financial market is that there are no foreign exchange
controls imposed on the remittance and repatriation of funds in and out of Singapore.
SECURITIES
MORTGAGE
INDENTURE OF MORTGAGE
Section 53 of the Conveyancing and Law of Property Act (“CLPA”) requires a common law mortgage,
known as an Indenture of Mortgage, to be executed by deed in the English language. It takes effect as
a conveyance of the legal title to the estate subject to the equity of redemption.
Being a mortgage over common law land, registration is not required for validity but gives the mortgagee
priority, which is determined by the date of registration, over unregistered competing deeds.
LAND TITLES MORTGAGE (REGISTERED LAND - COMPLETED PROPERTY)
Section 68 of the LTA provides that registered land may be mortgaged by an instrument of mortgage in
the prescribed form registered with the Registrar of Titles. As this mortgage is over registered land, it
is the act of registration that creates the mortgage.
A land titles mortgage does not transfer an interest in land but only takes effect as a security.
MORTGAGE-IN-ESCROW (REGISTERED LAND - UNCOMPLETED PROPERTY)
This is essentially a mortgage over uncompleted properties. It is a mortgage in the prescribed form
under the LTA executed by the mortgagor but with the particulars of the unit left blank. A caveat
evidencing the mortgage is lodged against the relevant certificate of title. When a separate title for the
unit is issued, the particulars of the unit are completed and the completed/perfected mortgage is then
registered with the Registrar of Titles.
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While the mortgage remains only a mortgage-in-escrow, the mortgagor will usually enter into a Deed of
Assignment with the Finance Company as an interim security for its loan. It would contain provisions
governing the rights and interests of the parties including the following:
-
a covenant by the mortgagor to repay the loan;
-
a clause allowing the Finance Company to release the loan in instalments sufficient to
meet payments of the purchase price as they fall due under the Sale and Purchase Agreement;
and
-
a clause where the mortgagor assigns all the rights under the Sale and Purchase Agreement
and all the mortgagor’s title and interest in the unit to the mortgagee.
This Notice of Assignment must be given to the Developer.
Under the current stamp duty charges, principal security for land is stamped for S$4 for every S$1,000
or part thereof but subject to a maximum duty of S$500. Such duty would apply to the Indenture of
Mortgage, Mortgagee and Deed of Assignment favouring the Mortgagee.
ROLE OF CAVEATS
Function
The main function of a caveat is to prevent the registration of a subsequent interest which is adverse to
the interest of the caveator without first giving him a chance to prove the existence of his prior interest.
In addition to this, the caveat also serves to give notice to the world of the existence of the unregistered
interest. It gives priority to the interest caveated over subsequent interests as date of priority runs from
the date the caveat was lodged.
A caveat will automatically lapse on the expiration of 5 years from the date of the lodgement unless it
is extended. The LTA provides for an extension of a caveat for a further period of 5 years from the date
of the lodgement of the extension. The extension will lapse at the expiry of 5 years from the date of its
lodgement unless it has been withdrawn, cancelled or the interest has become a registered interest.
There is no limit of the number of extensions that can be made but it must be noted that the extension
must be lodged before the expiration of the original caveat to retain its priority from the date of the
lodgement of the original caveat.
MORTGAGE BY A COMPANY
The functions of the company are mainly performed by the directors or the members, whose decisions
are expressed in the resolutions of the board or passed in a general meeting of the company
respectively. It is prudent to obtain the relevant empowering resolution or certified copy prior to the
disbursement of the loan. The memorandum and articles of association will define the respective
functions and divide the powers between them (See Companies Act (Cap 50, 2006 Rev Ed) Article
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73 to 78 of Table A). The management of the business of most companies is typically left to the
board of directors and the powers are vested under the articles of association.
Usually, the board is given the power to exercise all the powers of the company other than
those that the Companies Act or memorandum or articles reserved to the members. The board is
also usually vested with the power to borrow money to acquire property (Companies Act Article 74 of
Table A).
Prior Disclosure of Interest
There is no rule that the directors may not deal with the company on a contract which he has
an interest. However, this is subject to the disclosure of that interest to the board of directors; otherwise
he will be subject to a fine or imprisonment. This is to protect the company against any breach of
directors’ duty or conflict of interest in entering into such transactions.
In exercising their discretion, the directors must consider if it is exercised in the interest of the company.
Their overall motive must be to advance the interest of the company. Further, pursuant to the Act, the
transaction must be commercially justifiable. The test is whether an honest and intelligent man, in the
position of the director, taking an objective view could reasonably have concluded that the transactions
were in the interest of the company. The directors may take a long term view of the business and the
fact that their decisions turn out to be a mistake does not mean that they are in breach of their duty.
Charge must be Registered within 30 days of Creation
If financing is granted to the company (including a foreign company registered in Singapore) for the
purchase of the property and it is secured by the property, a charge must be registered with the
Registry of Companies within 30 days of creation (Companies Act s 131(3)(e)). However, note the
requirement of registration under the provisions of other written laws such as the LTA and the RODA;
otherwise, it will be void against the liquidator and any creditor of the company.
A company is a legal person and has the capacity to hold, sell or purchase land in its own name and
the validity of the transaction is not affected by any provision within the company’s memorandum of
association (Companies Act s25(1)), which protects third parties who deal with a company,
notwithstanding that the transaction is not within the objects set or in the company’s memorandum. The
previous limitation by the doctrine of ultra vires is no longer applicable.
A party to the transaction is not bound to enquire as to the capacity of the company or the authority of
the directors (Companies Act s 25(2)). In favour of a person dealing with a company in good faith, the
power of the board of directors to bind the company is deemed to be free of any limitation under the
company’s constitution (Companies Act s 160(3)).
A company may acquire or hold immovable property as if it were an individual person, provided that
if the property is residential it will be subject to compliance of the Residential Property Act.
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RELATED ISSUES
BANKRUPTCY
The mortgagee’s
rights
as a secured
creditor
will not
be affected by any bankruptcy order
(Bankruptcy Act, section 76(3)). However, section 76(4) provides that the mortgagee cannot charge
interest after the bankruptcy order if he does not realise the security within 6 months from the bankruptcy
order. A 6 months’ extension may be obtained.
CPF
Under section 10 of the Central Provident Fund (Approved Housing Scheme) Regulations, CPF Board's
consent is required for the creation of mortgages as well as the sale of a mortgaged property if there is
a CPF charge on the property.
CONCLUSION
This write-up covers in broad strokes the key issues regarding real property ownership and financing in
Singapore, as tailored to suit the perspective of a bank.
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Norman Ho – Deputy Head of Corporate Real Estate
Bank of China Seminar (28 Feb) - Real Property Ownership & Financing in Singapore
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