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They might look innocuous, but bay windows and planter boxes have become a hot topic of discussion between property developers and the Government.

The talks centre on a controversial decision by the Urban Redevelopment Authority (URA) to include the area of such design features in gross floor area (GFA) calculations.

Bay window and planter boxes, which often make up about 5 per cent of a condo’s saleable area, used to be exempt from GFA calculations. But buyers paid developers for this area as it was provided with the unit.

The URA caught the industry by surprise on July 7 when it stated that the revised guidelines would take effect from Oct 7. It was reported at the time that the move would close a ‘loophole’ that developers had been exploiting.

Planter boxes were originally introduced to provide greenery and visual relief to high-rise condos.

However, the URA said feedback and its own investigations found extensive unauthorised conversions of planter boxes into balcony space or extensions of the living room - which defeated the original purpose.

This also led to the buildings being less energy efficient, said the URA.

But developers said yesterday it was a ‘misconception’ that they were profiting from it.

UOL Group chief operating officer Liam Wee Sin told The Straits Times that contrary to general perception, developers did not ‘have it free’.

‘There’s a reason why it’s there in the first place,’ he said. ‘It costs money to construct these features, and it is not given to us free.’

It is part of the ‘residual land value’ and developers factor this when bidding for a site, he said.

A Lianhe Zaobao report quoted market sources who suggested the change might lead developers to pay less for land.

It cited the sale of a site next to Tanah Merah MRT station that was awarded recently at $282 per sq ft per plot ratio (psf ppr). This was 11 per cent less than the $318.50 psf ppr attained by a neighbouring site before the GFA change was announced.

The president of the Real Estate Developers’ Association of Singapore (Redas), Mr Simon Cheong, said he could not comment further because talks were ‘in process’.

Mr Cheong, who was speaking at Redas’ annual Mid-Autumn Festival celebration, said that developers were cautious in their short-term outlook due to high construction costs.

‘Hopefully in 12 months’ time, we’ll be in a better state than now,’ he said.

He cited Singapore’s low interest rates and upcoming events such as the Formula One race and Youth Olympics for his bullish outlook.

On the price of real estate, he said that ‘if it drops, it will not be much more’.

The replacement cost of apartments, including cost of construction, is very close to selling prices already, he added.

Mass market home prices are dependent on local demand and ‘this is subjective to how the economy is’.

Source : Straits Times - 13 Sept 2008

Little impact seen as only a handful of applicants incur cost in past year

The government will waive the building premium when a lease extension is granted with immediate effect. But as tantalising as this may sound, the impact is likely to be minimal.

Fewer than 30 developments have sought lease extensions in the past year, says the Ministry of Law. And only a ‘handful’ have incurred the building premium.

The building premium is based on the value the Chief Valuer puts on a building sitting on the land with an expiring lease and is payable if a lease extension is sought.

It is separate from the land premium, which is based on the value the Chief Valuer puts on the land the building sits on.

There is no change to the land premium.

The building premium does not apply if a building is demolished. Only the land premium - as in most collective sale deals - applies.

In a statement released yesterday, the government said it decided on the building premium waiver because ‘this will encourage lessees to continue to invest in the upkeep and improvement of the property’.

DTZ senior research director Chua Chor Hoon said: ‘This is good news for lessees. It seems illogical that one has to pay a building premium for a building one built on the site. It’s like a double charge. This will reduce the cost of extending a lease.’

But the building premium is thought to be only a fraction of the land premium - more often referred to as the differential premium.

Knight Frank director (research and consultancy) Nicholas Mak said: ‘The building premium makes up a small part of the taxes compared with development charges or the differential premium.’

And according to him: ‘If the amount waived is too small, it may not encourage building owners to upkeep or improve their property.’

As such, Mr Mak believes the properties most likely to be affected are industrial units on short leases and leasehold conservation properties because they cannot be torn down.

The waiver was actually introduced in 1997, when it only applied to the extension of short-term industrial and institutional leases. It will now apply to the extension of leases on all types of property.

But the impact on other types of property is expected to be limited, says Cushman and Wakefield managing director Donald Han: ‘I don’t think there will be a lot of residential properties affected by this, except for those on short-term lease tenure like at Riffle Range, which has some 30-years left of its lease remaining.’

The extension of a lease is also not a given, he noted: ‘I think government may consider extending leases on short term basis, but this must be in line with socio-economic and overall planning considerations.’

Source : Business Times - 2 Sept 2008

Building premium waiver will boost upkeep of ageing property

A LEVY that property owners had to pay the Government when they extended a lease on state land has been axed.

The so-called ‘building premium’ is being waived with immediate effect, said the Law Ministry yesterday.

The move gets rid of a potential hindrance to owners keen to upkeep, improve or redevelop an ageing property nearing the end of its lease.

It will help owners of industrial land, which tends to have shorter leases, and conservation properties but will have little effect on residential sites.

The Government has been charging both a land premium and a building premium when extending a lease.

‘The charging of these premiums was based on the common law principle that both land and buildings would revert to the landlord at the end of the lease,’ said a statement from the Law Ministry.

In the past, the Chief Valuer, who decides the premiums, had computed the building premium, if applicable, into the land premium. This made it unclear how much of the building premium makes up the land premium.

It is understood that only owners of a handful of sites, including industrial properties and conservation shophouses, have had to pay the building premium upon lease extension.

In general, the Government’s policy is still to allow leases to expire without extension because it needs to reallocate land to meet fast-changing socio-economic needs. It will consider lease extensions only on a case-by-case basis.

Industrial properties are likely to benefit more from the levy waiver. Residential en bloc sites are not affected. Under redevelopment, the estate sold en bloc is torn down so no building charge is payable even if the site’s 99-year lease is extended.

There is no building premium payable when leases are renewed on vacant land.

Yesterday’s move is not entirely new. In 1997, the Government waived the building premium for short-term or 30-year-old industrial and institutional leases on the recommendation of the Committee on Singapore’s Competitiveness, said the Law Ministry.

The latest waiver applies to all types of land, including longer industrial leases and residential properties.

It said the decision was made to encourage ‘lessees to continue to invest in the upkeep and improvement of the property’ when a lease extension is granted.

Previously, if an owner was granted a lease extension, he could opt not to redevelop the property if there was only a few years left on the lease.

He would be able to avoid paying a building premium if he let the lease run out and redeveloped the property only when the new lease started.

The waiver will give the owner no reason to hold back on redevelopment plans.

The waiver will please some owners of conservation shophouses, said Knight Frank’s director of research and consultancy, Mr Nicholas Mak.

Rising construction costs could make it worthwhile for some owners to upkeep their buildings instead of tearing them down for redevelopment, he said.

Overall, waiving the building premium is expected to affect only a small group of owners, market watchers say.

‘It’s about urban renewal but in Singapore, the strategy is to demolish and rebuild,’ said Mr Mak. Also, market watchers say most buildings are not built to last forever, particularly those on leasehold sites.

‘Properties generally become obsolete after 30 years,’ he said. ‘Factories, for instance, may become obsolete within a shorter period because of changing technology and changing manufacturers’ needs.’

The question of lease renewal will be a big issue nearer to 2070, when most of the leases on Singapore’s 99-year leasehold land will expire, Mr Mak added.
Waiver aimed at lessees of state land

What is a building premium?

It is a charge payable by an owner when he extends the lease on state land.

The amount is determined by the chief valuer but not disclosed as it is computed into the land premium.

The premium is calculated based on the building’s condition. Lessees tended to let properties run down until the leases expire in the hope of paying less when they extend their lease.
Why waive it?

It is to encourage lessees to continue to invest in the upkeep and improvement of a property when a lease extension is granted so they will not let the site run down.

If a building premium is payable, lessees will not be motivated to upkeep, improve or redevelop a property.

It is not meant as an incentive but rather removes a factor that may have discouraged improvement work.
What’s the impact?

The waiver is expected to have minimal impact as few people will be affected, although lessees of long-term industrial land are among those likely to benefit.

In general, the Government will allow leases to expire without extension. It will consider lease extensions on a case-by-case basis. For instance, it may allow extensions for conservation properties to give as incentive for lessees to carry out major conservation works.

Source : Straits Times - 2 Sept 2008

IN AN apparent move to make Singapore more competitive for investors and businesses, the Government is doing away with the building premium it charges when state leases are granted extensions. The waiver will take place with immediate effect, the Singapore LandAuthority (SLA) said yesterday.

In general, the Government’s policy is to allow leases to expire without extension, but it does consider renewals on a case-by-case basis, said the SLA. While the SLA said the change was “to remove the disincentive for lessees to upkeep or upgrade their buildings”,industry analysts said it would help lower business costs.

Dr Chua Yang Liang, head of research from Jones Lang LaSalle, said: “In terms of short-term industrial leases, by removing the building premiums, it is removing a cost element from the business perspective. The underlying motive could be one to make Singapore a more competitive place for investors.”

He added: “It appears to target the industrial sector because of the nature of their tenures right now, which are about 15 to 30 years, depending on their industry status.”

Industry experts also pondered the purpose for a building premium as it appears to be a little-used fee.

“According to our research, there is no formula available to calculate building premiums. Compared to differential premiums, which could add a substantial amount to costs, we do not know how big a proportion these premiums will add to the cost in development,” said Mr Nicholas Mak, director of research from property consultancy Knight Frank.

“We may not see a substantial impact because the premium is not levied frequently. It could just be a streamlining of processes by the authorities.”

This is not the first time for such a move. In 1997, the Government waived the premium for short-term industrial and institutional leases to lower costs for businesses.

Source : Today - 2 Sept 2008

Bigger cuts in store if stronger evidence of falling property values emerges

Despite weaker property sentiment, the government has opted to leave development charge (DC) rates largely unchanged, except for an average 6.3 per cent cut for non-landed residential use.

There may not be sufficient evidence of declines in property values yet, market watchers said, but the rates could be cut at the next revision if stronger evidence emerges to show values are falling.

DC rates, which may be payable for enhancing the use of some sites, are revised twice yearly, on March 1 and Sept 1, by the Ministry of National Development in consultation with the Chief Valuer.

DC rates are stated across 118 geographical sectors. MND announced changes to boundaries affecting eight geographical sectors in three vicinities - the Race Course Road area (following the realignment of Race Course Road after the completion of Farrer Park MRT Station), Jurong Lakeside area (where there are plans under draft Master Plan 2008) and Pulau Brani (which has been moved out of the geographical sector that includes Sentosa).

Jones Lang LaSalle’s analysis shows that a site redesignated from one sector to another in the Jurong Lakeside area could see increases in DC rates of 35 per cent for landed residential use, 39 per cent for hotel use and 38 per cent for industrial use based on Sept 1, 2008 rates.

As for the minimal changes in DC rates for most use groups, CB Richard Ellis executive director Li Hiaw Ho said this was in line with the slow pace of public and private land transactions seen this year.

Knight Frank managing director Tan Tiong Cheng said: ‘For the commercial (office, retail) sector, we do not have direct evidence to show land values have dropped. For residential, the collective sales market has quietened but there has been evidence at recent state land tenders to show a decline in land values.’

That could account for the chops in DC rates for non-landed residential use.

Jones Lang LaSalle head of research (Southeast Asia) Chua Yang Liang too pointed to several cases of 99-year condo sites being sold at state land tenders recently at prices below their March 1, 2008 DC rate-implied land values.

DC rates for non-landed residential use were trimmed in 116 of the 118 locations. The cuts ranged from 3.8 per cent (in the Pasir Ris/Loyang and Punggol areas) to 10.8 per cent in the Balestier area. Recent transacted prices for non-landed projects like The Marque, Vutton and Pavilion 11 might have been the reason for the DC cut. The rate for Sentosa was trimmed 10.5 per cent, perhaps based on prices achieved recently at condos like Marina Collection and Turquoise at Sentosa Cove.

Two adjacent geographical sectors covering Ang Mo Kio/Bishan and Braddell/Potong Pasir, saw respective cuts of 10 per cent and 9.4 per cent. The cuts could be due to a 99-year condo site at Lorong 2/3 Toa Payoh near Braddell MRT Station being sold in April at 23 per cent below the price paid for a condo site next to Ang Mo Kio Hub in September last year.

DC rates for landed residential, commercial and hotel uses were completely untouched across the 118 geographical sectors. For industrial use, the rate was increased 11.1 per cent in the Paya Lebar/Eunos area but unchanged in the other 117 locations.

CBRE’s Mr Li said the latest DC rate revisions were ‘pretty much an academic exercise as there aren’t many en bloc sales or redevelopments of sites going on which would involve DC payments’.

‘Nobody is getting excited; there’s little practical effect.’

Source : Business Times - 30 Aug 2008