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A close watch on land prices

23 May, 2017

The recent rise in charges imposed by the Government when developers enhance the use of a property site - such as building a larger project - points to improving sentiment in some real estate sectors.

Interest in buying land among developers and investors is strong. By and large, analysts do not expect the move to have a major impact on the property market, but they note that it shows the Government keeps a close watch on land prices.

In its latest twice-yearly review, the Government upped development charges (DCs) for three groups: commercial, non-landed residential - mainly condominiums, and hotel/hospital uses.

In larger developments, DCs can add millions of dollars to the cost of a project.

DC rates track land value movements in the preceding six months, and the uptick in rates for commercial and condo uses, in particular, was not unexpected.

Investment activity has been brisk, including a mega $2.57 billion deal for a mixed-use site in Central Boulevard, as well as deals for commercial buildings such as 77 Robinson and Capital Square.

The condo segment boasted deals such as the en bloc sale of Raintree Gardens in Potong Pasir for $334.2 million, and a $174.08 million bid for a Perumal Road site - working out to a very bullish $1,000.72 per sq ft per plot ratio.

Some consultants say the rise in the condo DC rate could be seen as an attempt to dampen the collective sale market, which made a modest comeback last year with other deals such as Harbour View Gardens and Shunfu Ville.

Qingjian Realty, which bought the Shunfu Ville estate for $638 million, told The Straits Times that the latest rate hike could translate into millions of dollars in extra costs.

That said, DCs typically do not constitute a large component of the overall collective sale price.

It remains to be seen if the rise will snuff out interest in the en bloc market in the coming months.

Adapted from: The Straits Times, 4 March 2017