Property Charge Hike May Cool En Bloc Fever

Source : Strait Times July 19, 2007

Tax payable to enhance use of sites to be raised from 50% to 70%

THE Government sprung a surprise on property developers yesterday by dramatically ramping up a tax payable to enhance the use of a site.
The move triggered a selldown of property shares on the Singapore Exchange.

Developers pay the tax - called a development charge - if they want to enhance the value of a site by building a bigger project, for example.

The rise in the land's value was taxed at 50 per cent, but will now be levied at 70 per cent, similar to what it was in 1985. The same rate will also apply to fees paid to rewind a site's lease back to 99 years.

For example, a site that rises in value by $2 million will now be taxed $1.4 million, compared to $1 million previously.

Its broader effect will be to make certain sites more costly, and perhaps take some heat out of a roaring property market that has seen record prices across many housing types.

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Analyst David Lum from Daiwa Institute of Research said the move is 'another piece of evidence that the Government might be a little uncomfortable with the rapid appreciation in certain segments of the market'.

An immediate casualty could be the buoyant en bloc market, which has seen developers pay huge sums for estates over the past 12 months.

And by stemming en bloc sales, which reduce housing stock in the short-term, the hike may even take pressure off rents.

Developers will have to recrunch their numbers now - and hopeful owners might have to lower expectations of a bumper en bloc bonanza.

Sing Holdings said yesterday that with the change, it expects the land cost for acquiring Hillcourt Apartments to rise by about 1.2 per cent - from $1,444 per sq ft of potential gross floor area to $1,461.

'The rate revision will add a few percentage points to the total costs of some developments,' said a Savills Singapore director, Mr Ku Swee Yong, who felt the impact on developers will not be great.

Knight Frank's head of research and consultancy, Mr Nicholas Mak, agreed: 'There was a knee-jerk reaction, but it's not going to derail the property boom.'

Still, property shares took a hit yesterday. Giants such as CapitaLand and City Developments fell by around 2 per cent or more, while the sector index plunged 2.7 per cent.

The rate rise is a double whammy for some firms. Deve- lopment charges are reviewed every six months, with new rates due on Sept 1.

These charges are designed to mirror property values and are almost certain to rise, given the surging market, thus adding more costs to developers over and above yesterday's rise.

Yesterday's change took immediate effect.

It will hit developments that have yet to receive provisional permission to enhance land value, or those granted an extension to their provisional permission from yesterday.

This means developers which have done deals over the past two to three months could be hit, said Credo Real Estate managing director Karamjit Singh.