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Less than two months after last rise, rate for prime areas up by two-fold

IT was hardly the best of weeks for the property market. First came the contagion of the United States sub-prime crisis. Then, sweeping changes to the collective sale legislation were announced, boding a slow-down in the en bloc frenzy.

On Friday, developers got hit by another whammy — in its six-monthly revision, the Urban Redevelopment Authority (URA) raised the development charges (DC) for prime residential and business areas by two-fold. This, less than two months after the levy went up from 50 to 70 per cent of the appreciation in land value.

On average, the rates for commercial use were raised by 42 per cent, while those for non-landed residential use went up by 58 per cent.

While the DC rates — which vary according to land use and location — were expected to rise as construction costs surged, analysts were caught off-guard by the scale of the increases.

Compared to rates before the previous scheduled revision in March, the DC for non-landed residential use has gone up by 121 per cent, said Knight Frank’s research director Nicholas Mak. “This is like the first time in a decade that the DC rate has gone up by so much within six months.”

Recent en bloc deals such as AirView Towers and Lincoln Lodge — which were sold for $202 million and $243 million respectively — would have jacked up the latest DC rates, he said.

CBRE Research’s executive director Li Hiaw Ho added: “It is clear that going forward, the Government will cream off a bigger portion of the enhanced value.”

The steepest rise in rates came in the Central Business District and prime residential areas. For instance, the charge for commercial use in Maxwell Road will rise from $3,080 to $6,300 per square metre (psm).

For non-landed residential usage, the biggest increases are in areas such as Sixth Avenue and Sentosa, with the DC up from $2,940 to $5,950 psm and from $6,300 to $11,900 psm respectively.

By comparison, the growth in charges for various land usages in outlying areas is in the range of a few hundred dollars per square metre.

On its own, the rise in the DC would be a “small consideration” for developers in the en bloc market, as such revisions would be factored into their costs spreadsheet, said Mr Ku Swee Yong, Savills Singapore’s marketing and research development director.

In addition, many en bloc transactions — such as those involving older sites that have achieved the maximum build-up — do not incur development charges, he added.

Even so, coupled with the proposed legislative changes, Cushman and Wakefield’s managing director Donald Han expects the en bloc frenzy, which has subsided markedly in recent weeks, to slow further.

“The market is taking its cue from the US sub-prime crisis and developers are factoring it into their pricing, making sure they do not overpay,” he said. “Moving forward — say, in six months’ time — we probably will not see such a sharp increase in the DC rates.”

Chesterton International research director Colin Tan noted that the DC increases coincided with cooling property sentiments. But he expects the market to pick up, probably by next March, given the buzz leading up to September’s inaugural Singapore Formula 1 race and the opening of both Integrated Resorts by 2010.

While the DC rates for hotel use increased by 23 per cent on average, CBRE Research’s Mr Li felt developers would not be put off, given the “buoyant tourism market and continued strong demand for limited hotel rooms”.

Overall, Mr Ku was not worried that rising land costs might deter big-time investors. “The small retail investors might worry over the increased DC. But developers would have factored this in. And most banks and multinational companies (MNCs) decide to come to Singapore based on the revenue potential, not the costs,” he said.

Source : Weekend Today - 1 Sept 2007