Higher DC fees may affect 41 en bloc deals: Analyst

By Loh Chee Kong, TODAY | Posted: 20 July 2007 0712 hrs

As the dust settles on the Government's sudden decision to raise its development charges, analysts say the higher rates could lead to a surge in en bloc transactions — especially in the outlying areas — rather than slow down the frenzy.

In the short-term, developers would be moving quicker into deals where the development charges are either low or need not be paid, said Mr Shaun Poh, head of investment advisory at DTZ Debenham Tie Leung.

Development charges vary according to land use and location and only apply to developments that enhance the value of the land. Hence, the Government's move to raise the rate from 50 per cent to 70 per cent could force developers to "rethink about rushing into sites with 99-year leases" or sites that require changes in plot ratio, said Mr Poh.

He added: "Now, they will put aside those (projects) that require high development charges and concentrate on the sites that require little or no development charges."

The hike took place with immediate effect on Wednesday and will hit developments that have yet to receive provisional permission to enhance land value, or those granted an extension to their provisional permission.

It could affect 41 en bloc deals that have already been struck, said Mr Ku Swee Yong, Savills Singapore's director of marketing and business development.

Based on the typical time frame to process the sales, it is likely that the applications for provisional permission for these deals — announced between January and end-June — have not been submitted, said Mr Ku. But he does not expect the developers to be hit greatly. "The development charges for some of them are also very small. So the increase is no big deal."

CapitaLand handles two of the biggest deals among these — Gillman Heights and Farrer Court — and it expects the hike to result in an increase of between 1 to 3 per cent in its total development costs.

Gillman Heights and Farrer Court were sold for $548 million and $1.3 billion respectively. But residents of Gillman Heights are seeking a better deal with the mediation hearing to resume on Sept 24.

A CapitaLand spokesperson said: "In the case of Gillman Heights and Farrer Court, these are large and branded residential developments for which we have factored in a conservative estimate of the development charges and other such business costs."

And as developers factor in the increased land costs into their purchasing prices, residents who have been holding out for higher prices could now decide against doing so.

Dr S K Phang, a lawyer who specialises in en bloc transactions, said that the pressure would now be on the developers to decrease the amount they pay out.

Said Dr Phang: "The tussle will be between the developers and the sellers because developers would say, 'Look, I can't increase the price of (the redeveloped property) if the market can't pay for it. Therefore, I'm going to decrease the amount I pay you.'"

- TODAY/so