Record Rise In Development Fee Could Slow Collective Sales

Source : The Straits Times, 1 Sept 2007

PROPERTY developers will now have to pay a much bigger fee if they want to buy and redevelop a site to enhance its use, such as in a collective sale.

The charges they must pay were raised sharply by the Government yesterday, in what is believed to be the steepest round of hikes ever.

The record increases - which come into effect today - are likely to put a dampener on the collective sale frenzy, property consultants said.

The main impact of higher development charges is that they make it more costly for developers to acquire sites for redevelopment.

Although the half-yearly revision of these development charges is a routine affair, the extent that they rose by yesterday caught market watchers by surprise.

The charges even doubled in some areas, which consultants said has never happened before.

These rises come on top of an unexpected round of hikes in July, which pushed up all development charges by 40 per cent across the board.

Development charges, which can amount to millions of dollars, are based on recent land and property values.

They are revised in March and September every year to keep them up to date with current market values.

Their dramatic rise yesterday was mostly due to the unusually steep climb in property and land prices over the last six months, and particularly because of the record- breaking run of collective sales recently.

The charges are divided by sector - including commercial, hotel and residential - and into 118 locations.

The biggest rises this time round were for non-landed residential sites in the Spottiswoode/Cantonment area, the River Valley/Kay Poh Road/Kellock Road area, and the Newton/Surrey/Lincoln roads area.

Charges in these areas rose by between 108 per cent and 112 per cent, an unprecedented jump.

They may have been boosted by recent deals such as the collective sale of Lincoln Lodge in Newton, which set a benchmark for the area.

In general, charges for non-landed residential land rose by up to 85 per cent in the downtown area, up to 100 per cent in Orchard and 89 per cent in Sentosa.

Islandwide, they rose by 58 per cent on average - the highest increase among the different sectors. Up to last week, consultants were predicting an average rise of 25 per cent at most.

Charges for commercial land, which includes shops and offices, went up by 42 per cent on average.

The largest hikes were for land in the Telok Ayer/Amoy Street area and the Anson Road area. Charges in these locations grew by 105 per cent.

In other sectors, the average hike for hospital and hotel land was 23 per cent, and 11 per cent for landed residential sites. Industrial land saw charges go up by 2 per cent on average.

Given the July rises, some consultants were surprised that yesterday’s hikes were so high.

The ‘double whammy’ of rises in July and yesterday, coming at a time when global credit is tightening, could dampen the collective sale market, said Ms Tay Huey Ying, director for research and consultancy at Colliers International.

The hikes are ‘likely to lead to more cautious bidding by developers and more realistic price expectations by sellers’, she said.

At the same time, Ms Tay added, the supply of collective sale sites could also take a beating as upcoming changes in legislation make it more difficult for estates to go en bloc.

But most developers have already acquired significant land banks and are likely to have locked in lower development charges, noted Mr Nicholas Mak, director of research and consultancy at Knight Frank. He added that another result of the hikes could be a shift in collective sale activity to the suburban areas.

‘The rates are significantly steeper now for prime areas, so suburban areas such as Bedok and Buona Vista may look more attractive to developers,’ said Mr Mak.