DC Hike Changes Market Dynamics, Mood

Sources : The Business Times, Fri, Jul 20, 2007

(SINGAPORE) A day after the government effectively raised development charge (DC) rates across-the-board by 40 per cent, there seemed to be a shift in the mood and dynamics of the Singapore property market.

Some worried that Wednesday's surprise move could presage more measures from the government that might impact the market while others were stirred into action as greed gave way to a dose of realism.

Property consultants told BT that owners in estates planning collective sales were busy calling one another yesterday, saying they should stop sitting on the fence and speed up the signing of the collective sale agreement (CSA) before any further measures were announced - instead of waiting for higher and higher prices.

'There's caution, more realism in the air today,' Knight Frank's managing director Tan Tiong Cheng confirmed.

The hike also made some developments more attractive and others less so - depending on how high their DC component was.

DTZ Debenham Tie Leung director Shaun Poh reckons that developers who wish to continue landbanking may focus on sites with little or no DC component.

Some of these sites are in prime areas - such as Rivershire, The Claymore and Watten Estate Condo - and already have high development baselines.

In contrast, developers are likely to adopt a wait-and-see attitude for sites with significant DC components - say 15 per cent or more of total land value. Wednesday's hike is likely to add 6 per cent or more to the land cost of these sites. Those affected are likely to include 99-year leasehold properties such as privatised HUDC estates.

One influential developer told BT that while the measure was unlikely to cool the market, it could add to the cost of doing business. For example, if en bloc sellers in prime locations refused to budge, the move could fuel further hikes in the price of luxury homes on such redeveloped sites. The other question hanging in the air was: What next?

'Basically the question is: Is there going to be another jab from the government?' said Knight Frank's Mr Tan.

The announcement could also make the players more realistic in their expectations.

DTZ's Mr Poh said: 'Hopefully, this announcement will bring some balance to the property market. Owners can't just keep pushing up reserve prices higher and higher all the time.'

Agreeing, a seasoned industry player added that developers, too, may become cautious about buying en bloc sales sites and increasingly turn to the Government Land Sales programme. 'They'll see how buyers respond to new launches in coming weeks,' he added.

The Real Estate Developers Association of Singapore has so far not given any reaction to Wednesday's change.

A City Developments spokesman said: 'Our preliminary finding is that there will be insignificant impact on our existing projects. However, we will take this increase into consideration for future acquisitions.'

And with the 'second whammy' on the way on Sept1, when the government is expected to raise DC rates for specific locations and use groups based on market values, it makes more sense for developers to wait for another six weeks for a clearer picture to emerge before making any decisions on such sites.

DTZ's Mr Poh reckons that in cases where owners controlling the minimum 80 per cent of share values have signed CSAs or where signing is at advanced stages, 'there'll be no rolling back' in terms of lowering prices. Most CSAs give sales committees the power to raise reserve prices, but not to lower them, he explains.

'But for cases where signing of CSAs has not begun, agents will be discussing price strategies with sales committees, especially if the DC component is big and urge owners to be more realistic as developers' potential profit margins will be eroded,' he added.