Highest DC rate hike for residential properties unlikely to dampen en bloc fever

Is property Enbloc good or bad news?

The Government has raised the development charge (DC) rates for the period 1 March 2018 to 31 August 2018. The hike comes amidst the en bloc fever and the bullish bids by land developers. The Ministry of National Development (MND) announced that the DC rates for Use Group B2 {Residential, (non-landed)} have increased by 22.8% on average.

The increase is the highest in a decade, but it is still unclear if this move will dampen the enthusiasm for en bloc. This is another setback for land developers, on top of the increase in the top marginal Buyer’s Stamp Duty (BSD) rate announced in Budget 2018.

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MND said that it consulted with the Chief Valuer in increasing the rates for non-landed residential developments for a vast majority of areas across the island, ranging from 12 per cent to 38 per cent. The largest increase seemed to apply to sectors where land developers have lodged high bids for sites released under the government land sales (GLS) programme.

Research director at Cushman & Wakefield, Christine Li, however suggested that the new measures will not dampen the current en bloc sales fever as developers have built up a huge war chest of capital over the past few years. Developers though may “moderate their bids for sites which have a low development baseline and are accordingly subjected to high development charges, in order to maximise their gross floor area under the Master Plan,” Ms Li explained.

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ZACD Group’s Nicholas Mak said that “the en bloc sale market is gradually turning into a buyer’s market” and that “developers are more likely to lower their bids, especially for developments that are seeking buyers through private treaty.”

Mak added that Collective sale sites sold in February may not be spared from the DC rate increase. “If developers have not locked in DC rates, they could be looking at forking out an additional $1.04 million and $3.81 million in DC for City Towers and Brookvale Park respectively.”

DC rates for commercial properties in 41 of 118 sectors were also raised by 4 per cent to 16 per cent for each sector, or 2.7 per cent on average. The new rates will apply to cases which are granted Provisional Permission (PP) or 2nd and subsequent extensions to the PP on or after the effective date.

If there is any disagreement over the DC payable for any development proposal calculated based on the rates under the respective Use Groups, developers and owners can opt for a case-by-case valuation by the Chief Valuer, as provided for in the Planning Act.

Here is how an En bloc sales process works in Singapore.

En Bloc Sales Process Singapore – A Definitive Step-by-step Guide

Written by Ravi Chandran

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