Development charges rise sharply for non-landed homes amid en bloc fever

SINGAPORE — Development charges for non-landed residential projects for the next six months will go up by an average of 22.8 per cent – the highest in over a decade – and some analysts expect the hike to cool the en bloc fever.

Developers are facing a double whammy, having been affected by last week’s Budget announcement of an increase in the top marginal Buyer’s Stamp Duty (BSD) rate.

On Wednesday (Feb 28), the Ministry of National Development issued the new development charge (DC) rates following a half-yearly review in consultation with the Chief Valuer.

The rates for non-landed residential developments will increase for a vast majority of areas across the island, ranging from 12 per cent to 38 per cent. The average hike of 22.8 per cent is the highest since September 2007 when DC rates rose by 57.8 per cent. The latest increases come on the back of a 13.8-per-cent average spike between September last year and this month.

The DC rates rose the highest in areas where developers have lodged high bids for sites released under the government land sales (GLS) programme, property analysts noted.

For example, the development charges rose sharpest in sector 19 which includes River Valley Road, Kim Seng Road and Jiak Kim Street. Notable recent transactions in the area include the government’s sale of the former Zouk site at Jiak Kim Street which received a top bid of S$955.4 million.

The latest round of DC rate increases for non-landed residential properties is likely to “shake” the collective sales market, said Mr Alan Cheong, a senior director at property research and consultancy Savills.

“The reason behind the revisions are due to the record transactions done recently. We have to watch the deals going forward,” said Mr Cheong, who noted the impact of the two consecutive rounds of significant DC rates hike on developers.

ZACD group executive director Nicholas Mak agreed it would slightly dampen the en bloc sale fever. “As expected, the government increased the DC rates for non-landed residential development in view of the bullish land prices paid by developers in the last six months,” he said.

Mr Mak noted that most developers which have yet to lock in the DC rates for acquired land parcels will be affected. An example is City Towers, a 17-storey freehold development along Bukit Timah Road which was sold for S$401.9 million in an en bloc sale earlier this month. Its buyer will see its development charges go up by 29.6 per cent, from S$3.5 million to about S$4.5 million, Mr Mak said.

The increase in DC rates comes shortly after the Government raised the top marginal BSD on February 19, he noted. “It is a bit of a double whammy but it is not so critical (to the extent) that developers will walk away from the deals. One way developers can pay less (development) charges is to lower their offer price to buy the land from the enbloc sales owners,” he said.

He added: “As a result, the escalation in land prices could slow down.”

The experts noted that the impact could be greater on 99-year leasehold sites which have been put up for en bloc sale, given that developers would need to fork out more money to top up the leases. “As a result, some developers would offer lower prices to acquire the older 99-year leasehold properties,” Mr Mak said.

However, Cushman & Wakefield head of Singapore research Christine Li disagreed that the collective sale market could be adversely affected. “We are of the view that the impact… is unlikely to dampen the current collective sales fever given the huge war chest of capital (developers) have built up over the past years,” she said. She expects the total value of land acquisitions this year to reach S$16 billion, slightly higher than last year’s S$15.9 billion.