SINGAPORE - Land betterment charge (LBC) rates for key use groups – residential, commercial, industrial and hotels – for the next half year have all been raised for the first time since a September 2011 review.
Developers pay an LBC for the right to enhance the use of some sites or to build bigger projects on them.
The latest LBC rates for the March 1 to Aug 31 period were announced on Feb 29, following a review by the Singapore Land Authority in consultation with the taxman’s chief valuer. The LBC rates are based on the chief valuer’s assessment of land values and take into consideration recent land sales.
For landed residential use, LBC rates have jumped by 7.8 per cent on average, due largely to demand for this property segment, which saw an 8 per cent jump in home prices for the whole of 2023, said Mr Leonard Tay, Knight Frank Singapore’s head of research.
“Newly developed landed homes by boutique developers, while costly due to elevated material and construction costs, continue to appeal to buyers,” he said.
Ms Tay Huey Ying, JLL’s head of research and consultancy, found the rate increase to be a “surprise as landed homes saw price growth of just 0.9 per cent in the second half of 2023 after jumping 7 per cent in the first half”.
She pointed to the latest round of property curbs dampening demand, prices and transaction volumes for landed homes in the second half of 2023.
In comparison, rates for non-landed residential use rose 0.1 per cent on average after being cut by an average of 3.2 per cent for the previous revision period from Sept 1, 2023 to Feb 29, 2024, according to JLL.
Mogul.sg’s chief research officer Nicholas Mak said the discrepancy is due to the assessed land values of landed homes rising faster than those of non-landed residential properties, partly as a result of conservative bids in some state land tenders.
Knight Frank’s Mr Tay noted that the increases in LBC rates for non-landed properties were in areas such as Clementi, where a government land sale (GLS) site in Clementi Avenue 1 was awarded at $1,250 per sq ft per plot ratio (psf ppr), and Toa Payoh, where a plot in Lorong 1 was awarded at $1,360 psf ppr. Both parcels were awarded in November 2023.
In the Orchard Road area, some sectors saw steep declines due in part to the award of the Orchard Boulevard GLS site in February 2024 at a land rate of $1,617 psf ppr, “which is 24 per cent lower than the land value implied from the Sept 1, 2023 rate”, JLL’s Ms Tay noted.
Analysts also attributed these LBC rate declines to the cooling measures taking a toll on foreign buyers and investors, who tend to be attracted to prime district properties.
The substantial drop in LBC rates in several Orchard Road sectors is, however, unlikely to revitalise residential collective sales in this area, given the punitive Additional Buyer’s Stamp Duty rates for foreign buyers, which stands at 60 per cent, Mr Tay said.
In addition to the gulf between sellers’ price expectations and developers’ low risk appetites, “the increases in LBC rates in several sectors in the fringe and suburban areas ranging between 2.8 per cent and 14 per cent would make the en bloc sale market even more challenging”, he added.
JLL’s Ms Tay expects developers will be more guarded in their land banking, especially in areas where LBC rates have been raised.
“Developers’ land banking will continue to be restrained by the cooling measures and development risks that are compounded by economic headwinds, elevated interest rates, high construction costs and an ample pipeline supply of new homes,” she added.
Meanwhile, LBC rates for industrial use grew 1.7 per cent. Those for hotels and hospitals use inched up 0.7 per cent on average, with the rate increases largely in the CBD and Orchard areas, where hotels have benefited from demand from leisure and business travellers, said Ms Tricia Song, CBRE’s head of research for Singapore and South-east Asia.
LBC rates will remain unchanged for place of worship/civic and community institution use. Also left untouched are the rates for the other use groups covering open space/nature reserve, agriculture, and drains/roads/railways.
LBC rates for commercial use increased by 3.8 per cent on average, up from a 0.4 per cent rise in the previous revision, which could dampen sentiment for commercial collective sales in the near term, Ms Song said.
Investors picked up pricier assets with a substantial commercial component “as evidenced by a surge in average deal size to $64 million in the period between Sept 1, 2023 and Feb 29, 2024, from $37 million in the preceding six-month period”, JLL’s Ms Tay said.
The sectors that attracted top increases in LBC rates were largely in Orchard Road and the Central Business District, and were likely due to the commercial collective sales of Far East Shopping Centre for $910 million in September 2023 and Shenton House for $538 million in November 2023.
