Land acquisition: market rates proposed

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Published February 13, 2007

Land acquisition: market rates proposed

Proposed amendments to Act also change basis of govt compensation to take into account permitted use and potential value under Master Plan


By KALPANA RASHIWALA


(SINGAPORE) In a change seen by some as welcome if long overdue, the government proposes to peg compensation to market value for land acquired from yesterday.


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Under amendments to the Land Acquisition Act tabled in Parliament yesterday by Deputy Prime Minister and Law Minister Prof S Jayakumar, compensation will be pegged solely to market value at the date of acquisition.

In contrast, the Act now pegs statutory compensation to the lower of the market value of a property on a) Jan 1, 1995, or b) the day a property is gazetted for acquisition.

Importantly, the basis of compensation will also change, to take into account permitted use and potential value under the Master Plan, subject to planning requirements and restrictive covenants - such as restrictions on title or tenure, for example.

In contrast, compensation is now based on the lower of existing use or development baseline, taking into account the Master Plan zoning.

Development baseline refers to the entitlement rights of land in terms of use and plot ratio which an owner has paid for. The new basis of compensation is comparable to market practice, since the sale of a property in the open market takes into account these same considerations.

The change seeks to ensure that compensation reflects the market value of acquired property.

Owners who disagree with the market value used by the government to determine compensation may still appeal to the Appeals Board.

Property players generally welcomed the new moves. 'The change is long overdue, especially in the context of fast-rising property values over the past 24 months,' said Credo Real Estate managing director Karamjit Singh.

'Anything to do with the Land Acquisition Act was a potential horror story with dreadful consequences as it has been wide enough to leave its victims thoroughly at the losing end. The changes will bring relief to owners who may be affected by the development of new MRT stations and other infrastructure works to be announced,' Mr Singh said.

Players generally do not see the changes having any direct or immediate impact on the real estate market.

'However, in specific instances, where, say, landed properties or part of a site is required for road widening even before they are redeveloped, the changes pegging compensation to current market values will no longer depress prices of such properties,' Mr Singh said.

The proposed amendments are the first fundamental change to the Act, which was enacted in 1966 to facilitate the development of Singapore in its early years after independence. Some observers say the Act was weighted towards the wider public interest as opposed to individual land owners' interest. The proposed changes reflect a shift towards individual interest.

Putting things in perspective, DTZ Debenham Tie Leung executive director Ong Choon Fah said: 'The pace of acquisition has slowed considerably in recent years compared with the earlier years after Singapore's independence, when the government had to acquire land for economic development, such as building Jurong Industrial Estate, some HDB estates, Changi airport. Therefore, the government can afford to acquire land at market rates going forward.

'In the earlier years, it would not have been possible for a young nation to have paid everyone market rate for land acquisition,' said Mrs Ong, noting that the government has nonetheless tried, especially in recent years, to alleviate hardship caused to owners whose land was acquired by giving them ex-gratia payments on top of the statutory compensation spelt out in the Land Acquisition Act.

Ex-gratia payments, which are made outside of the Act, are goodwill payments on compassionate grounds to help owners hit badly by acquisition and facing huge financial hardship. This is determined on a case-by-case basis, and factors taken into account include whether an owner occupies the property and how many other properties he owns.

The proposed changes to the statutory compensation do not affect ex-gratia payments, which the Government will continue to make on compassionate grounds.

Top Print Edition Stories
Published February 13, 2007

CHANGES TO LAND ACQUISITION ACT
Arcane rules on land compensation to go

By KALPANA RASHIWALA


(SINGAPORE) Besides pegging compensation for land acquisition to market value, the Ministry of Law wants to abolish some arcane provisions in the current Land Acquisition Act.

These seek to reduce compensation of acquired land that is devastated or affected, directly or indirectly by fire or any act of God, as well as acquired land used as a burial ground.

For instance, the current law allows the government to buy land affected by fire at one third of its market value. This clause was intended to penalise land owners who resorted to arson to get rid of rent-controlled tenants. The clause is no longer relevant with the repeal of the Control of Rent Act in April 2001. In future any land, whether devastated by fire, explosion, thunderbolt, earthquake, storm, flood or any act of God, will, if acquired, be assessed no differently from other acquired land.

The burial ground provision applies only to active burial grounds under private ownership. As all private burial grounds have been issued closure orders and burials in these places have been discontinued, this provision can be repealed.

MinLaw also proposes to remove other provisions affecting compensation. One is the 'two-year rule' that disregards the value of improvements made by an owner to property within two years prior to acquisition, if these are made in anticipation of acquisition. Another is the 'seven-year rule' that disregards any increase in value attributable to infrastructure works in the surrounding area done by the government within seven years prior to acquisition.

The two rules will be removed as the Chief Valuer no longer invokes them. It is not possible to adequately prove that improvements were made to homes in anticipation of an acquisition. Nor is it possible to isolate and quantify the value enhancement attributable to infrastructure works.

Feb 13, 2007

Govt to pay market rate for land acquired

Another proposal: To consider a property's potential value when giving compensation

By Lynn Lee & Joyce Teo


IN A significant departure from a decades-old practice, the Government intends to pay the prevailing market rate when it acquires land.

This is a shift away from using pre-determined levels, which owners often argued were below market rates and had been a cause of unhappiness in the past.

Apart from paying market rates, the Government will also take into account a property's potential value, which in some cases could reflect its en bloc potential.

These were among the proposals to amend the Land Acquisition Act, representing what industry watchers noted was the most significant change to the Act since it came about in 1966.

The changes were outlined in legislation tabled by Deputy Prime Minister and Law Minister S. Jayakumar in Parliament yesterday.

Among other things now, improvements that an owner has made - and its higher value because of improvements by the Government in the surrounding area - could also be taken into account in the compensation awarded.

The changes are expected to be debated in the House next month. Once passed, they will apply to land acquired from yesterday.

The proposals are part of a continual review to bring the value of compensation closer to the date when a property is acquired.

Property consultants saw the move as a boon for owners whose properties are acquired for public purposes, which could include further development of the MRT and road networks.

They said it would also ease the sort of unhappiness felt in the past, when owners said compensation was short of prevailing market rates.

This was because compensation had thus far been based on the land's value at a given date in the past. It was also based on what the land could be used for, and the total floor area of buildings that could be built on it.

The current pre-determined date is Jan 1, 1995, or the day it was gazetted for acquisition, whichever is lower.

But when the proposed change kicks in, compensation will be at the market value determined at the date that the property is acquired.

This will be done by the Government's chief valuer, or private valuers.

Mrs Ong Choon Fah, of DTZ Debenham Tie Leung, noted that the Act was instrumental in the transformation of Singapore, from getting land for HDB estates, industrial estates, community and other public works projects.

But not everyone was happy with the Government's compensation.

'Now that we've reached a certain stage of development, it is possible to pay them the market rate,' said Mrs Ong, the property consultancy's executive director.

Mr Li Hiaw Ho, of property consultancy CB Richard Ellis, noted that in some areas, land prices have already surpassed the 1995 level.

In an acquisition case two years ago, owners at the five-storey Hock Kee House in Paya Lebar were upset at the compensation offer, which totalled around $20 million.

The Government acquired the building, near the construction of the Circle Line MRT, and planned to demolish it as it was deemed unsafe.

The 35 owners eventually moved out, but not before some appealed for more money, which they received from the Singapore Land Authority.

While the proposed changes means owners stand to gain, analysts said it is unlikely to affect overall land and property prices unless the Government starts actively acquiring land for public purposes.

Even with the changes, owners who disagree with the compensation can appeal against it, as is now the case.

The Government will also continue to offer additional payments in certain instances, if it sees that the acquisition causes genuine financial hardship to the owner.

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