July 20, 2007

Developers unfazed by rise in property fee

Experts raise concern that Govt may take further steps to cool real estate boom

By Fiona Chan, Property Reporter

SOME IMPACT: Farrer Court (above) and Gillman Heights, both bought by CapitaLand, will be among the sites affected by the heftier development fees. -- PHOTOS: ST FILE PHOTO, CAPITALAND

PROPERTY players have shrugged off the sharp increases in development charges that came out of the blue on Wednesday.

They say the impact of the hikes will be minimal, as development charges - which developers pay to enhance a site's use - comprise only a small proportion of total development costs.

However, experts fear the move foreshadows further steps by the Government to cool the sizzling property market, which they say could result in a market correction.

The anxiety stems from the Government's unexpected move to raise development charges on Wednesday by 40 per cent.

These fees are payable if developers want to intensify the use of a site, for instance, by building a bigger project. However, fees paid to top up a site's lease back to 99 years will not be affected.

Wednesday's announcement caught the market off-guard and prompted a knee-jerk selldown of property stocks.

But major developers were unfazed yesterday. Keppel Land said its land bank has already been fully paid for and so will not be affected by the changes.

City Developments said the hikes would have an 'insignificant impact' on its existing projects.

'However, we will take this increase into consideration for future acquisitions,' a spokesman added.

Even CapitaLand took the changes in its stride, even though its recent buys of Gillman Heights off Alexandra Road and Farrer Court in Farrer Road will be among those hardest hit by the hikes.

'These are large and branded residential developments for which we have factored in a conservative estimate of the development charge and other such business costs,' CapitaLand said.

It added that it expected the hikes to raise total development costs by between 1 per cent and 3 per cent for these two estates.

Farrer Court, the largest collective sale in Singapore, will see its development charge rise by about $110 million, or 6 per cent of the land price, said Credo Real Estate, which marketed the site.

But Credo executive director Tan Hong Boon noted that this increase was unusually high and that development charges actually do not apply to many estates.

These include Grangeford Apartments in Leonie Hill, whose residents are in collective sale talks, and Pacific Mansion in River Valley, which is seeking a record price in a tender that closes next Thursday.

'Yes, the hikes will affect some potential collective sale sites, and owners may have to expect lower prices,' said Mr Tan.

He cited an example. 'If owners wanted $100 million for an estate that comes with a $20 million development charge, then the developer would be prepared to pay $120 million. But now, the charge will rise to $28 million, so owners should expect to get only $92 million instead of $100 million.'

However, Mr Tan estimated that there is 'still $7 billion to $10 billion worth of properties that have collective sale potential'.

He and other property consultants are more worried about the motivation behind the hikes than their actual impact.

'A lot of people wonder if it's the start of the Government trying to impose some order into the market,' said Mr Lui Seng Fatt, regional director and head of investments at Jones Lang LaSalle.

'They're waiting to see what's coming next.'

Another consultant said: 'The actual change itself is not hugely significant.

'Then the question is, why introduce it at all? It's a wake-up call, maybe, that the Government can take action.'

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