Tax cut will enhance value

Source : Straits Times - 28 Feb 2009

THE Government has responded to the weakening property market by slashing the charges developers pay when they enhance the value of a site by such things as building a bigger project on the land.The move to cut development charges, or DC as the fees are called, will give developers some relief but the effect will not be significant, given the weak market.

Dramatic reductions were made for non-landed homes - mainly private condominiums - with cuts of up to 30 per cent in prime areas and an average of 15 per cent islandwide.

Rates for this segment were also cut in the previous six-monthly review last September, when they were reduced by an average of 6 per cent. The rates for other property segments were largely unchanged then.

In the latest review, on average, cuts of around 10 per cent were made for development charges in the hotel and hospital sector and about 4 per cent for commercial property projects.

The National Development Ministry sets the rates every March and September, taking into account market values, in consultation with the Chief Valuer. The new rates apply from tomorrow.

While the cuts mean developers will save on developing sites, the impact will be muted.

The savings are not enough to warrant any rush by developers to reinitiate collective sales or change their development plans, said Jones Lang LaSalle’s local director and head of research, South-east Asia, Dr Chua Yang Liang.

The lower DC for commercial sites would also have little impact in the next six months as developers will be concentrating on office and retail projects already under construction rather than acquiring land, said CBRE Research’s executive director, Mr Li Hiaw Ho.

The biggest cuts in the non-landed homes segment are in areas with luxury residential projects that have seen the greatest price correction over the past six months, said Jones Lang LaSalle.

Areas in District 11 and the Marina Bay vicinity have seen prices plunge around 20 per cent, it said.

‘While transactions have been few and far between in the light of the present poor market sentiment, it is widely understood that land values have become depressed and will start to moderate during the course of this year,’ said Mr Li.

The comparatively lower prices for new residential launches in the past six months were probably the main reason for the cuts in DC for non-landed residential use, he said.

In the commercial use segment, the core central business areas of Raffles Place, Marina Bay and Marina Centre saw DC cuts of 15 per cent to 16.7 per cent, said CBRE.

In the Orchard Road and surrounding areas, the DC has fallen by around 15 per cent to 17.6 per cent. However, islandwide, the average cut is only 4 per cent.

Charges for the hotel and hospital use segment have been cut by 7 per cent to 11 per cent. There were no cuts six months ago. The current cut was expected, due to the likely fall in demand for hotel rooms, given the drop in tourism, said Mr Li.

Two property segments have had no changes to their DC - industrial land and landed homes - but they are unlikely to remain untouched for long.

Knight Frank’s director of research and consultancy, Mr Nicholas Mak, said the DC for the landed homes and industrial segments are ‘very likely to come down’ the next round.

Further DC cuts are also expected in the non-landed homes, commercial and hotel sectors, he said.