Govt's move to raise development charge will slow en bloc sales

By Daryl Loo, Channel NewsAsia | Posted: 18 July 2007 1942 hrs

SINGAPORE : The Ministry of National Development has announced that development charge rates will be revised from the current 50 percent of the appreciation in land value to 70 percent.

The revised rates take effect immediately and apply to development applications where provisional permission is issued on or after July 18.

The Ministry said the development charge was lowered from 70 percent to 50 percent in 1985 to avoid eroding the share of value enhancement that accrued to developers in a declining market.

But with the current buoyant property market, the government has decided to reinstate the development charge to its original rate at 70 percent.

Property analysts said the immediate impact of the move will be to slow down the ongoing frenzy in en bloc sales, as it gets more expensive for developers to buy land for redevelopment.

It is also seen as helping to stem the sharp rise in home rentals, as fewer apartments will be lost to the wrecking ball.

The surprise hike in development charges is seen as having an impact on developers' appetite for collective sales.

Following the hike, at a site in Cairnhill Circle for example, the development charge for condominium use will go up from $5,000 per square metre to $7,000.

Thus, if a developer plans to increase the gross floor area of the site by 1,000 square metres for more new apartments, it will need to pay $2 million more than previously.

Said Nicholas Mak, Consultancy & Research Director at Knight Frank, "It's basically an increase in taxation to the developers. It also depends on the developer's outlook for the market. If developers are very bullish, and expect home prices to continue to rise in the future, they may be prepared to fork out more for that piece of land. But in this case, more will go to the government.

"But if the developer is not prepared to do that, then some of them may walk away from those collective sales."

The same increase will also apply to differential premium, which is what a developer pays to top up the years remaining on a leasehold site back to 99 years.

Analysts said this will also stem the demand for leasehold en bloc sites, such as privatised HUDC estates.

The last change to the development charge took place in 1985 - when it was cut to 50% from 70%, amid a recession.

But now, the property market is seen as buoyant after several years of sluggishness.

"One possibility is that they do want to slow down the depletion in the properties for lease to expatriates. Another possibility is that the government may feel that the market is very buoyant, and it's time to increase taxes," explained Mak.

Minister Mentor Lee Kuan Yew had warned earlier this month that rising property prices and rents have to be kept in check to help Singapore maintain its competitive edge. - CNA /ls