Development charges – the rates developers pay the Government to enhance land use – have fallen for the first time in almost 18 months for residential sites earmarked for non-landed homes such as condominiums.
However, these rates shot up for commercial land, places of worship, civic institutions, as well as hotels and hospitals.
Development charges, which can be a significant cost in a redevelopment, are revised after regular half-yearly reviews based on land prices and market deals.
They fell by an average of 2 per cent for non-landed homes, on the back of flagging property sales since the start of the year. The new fees were released by the Urban Redevelopment Authority (URA) yesterday.
They are applied when the value of a site goes up because of a re-zoning or when a taller building can be erected after a change in the site’s plot ratio.
Consultants said they expected the dip in the rates for non-landed residential plots, given the 2.1 per cent slip in the official residential price index in the first half of the year.
Bids for land sold under the Government Land Sales programme have also been conservative, noted Ms Chia Siew Chuin, director of research and advisory at Colliers International, unless the plot is in a popular area.
Moreover, the collective sale market has screeched to a halt this year, she said.
However, the dip in development charges is not expected to boost the acquisition of land significantly, because the risk of shrinking profits from falling property prices is still far greater, noted Mr Nicholas Mak, research head at SLP International.
This was because “the reduction in the development charge rate would only increase the developer’s return on investment of the residential project by 1 per cent, assuming all other factors remain unchanged”.
Non-landed residential plots in Prince Charles Crescent, Alexandra Road, Tanglin Road, Henderson Road, Depot Road and the Telok Blangah area recorded the sharpest dips of 5 per cent.
On the other hand, experts were surprised by the 9 per cent hike in fees for land slated for hotels, hospitals, places of worship and civic institutions – the highest average across all segments.
After all, hotel deals this year have paled in comparison with the “landmark year of transactions” last year, said Dr Chua Yang Liang, head of research Southeast Asia at Jones Lang LaSalle (JLL).
The increase in charges for land for places of worship and civic institutions was also the first hike in five years, JLL noted.
“We believe that the upward revision in both (categories) is for the overall harmonisation of development charge rates with other use groups,” said Dr Chua.
For the commercial sector, charges rose by an average of 2 per cent, with the highest increases in places such as Balestier Road, Thomson Road and the Novena area.
This was largely thanks to the uptick in strata-sales activity at Balestier towers, Dr Chua added. Construction group Low Keng Huat, for instance, had in July forked out about $64 million for 36 units at the mixed-use project in Balestier Road.
The rates were unchanged for landed residential and industrial sites.
Though there were transactions for industrial land in the review period which showed that development charge rates were “trailing behind land prices”, there were also plots of industrial land being sold for less than the land value imputed by the development charge for the area, said Ms Chia.
For instance, the highest bid for a plot in Tuas South Avenue 7 was 22.7 per cent lower than the land value imputed by its development charge.
The new development charges will take effect on Monday.
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