Land betterment charge rates raised for all key use groups

SINGAPORE, February 29, 2024 –

Ms. Tay Huey Ying, Head of Research and Consultancy, JLL Singapore
郑惠匀, 研究与咨询部主管 (新加坡) commented:

The Singapore Land Authority (SLA) raised the average Land Betterment Charge (LBC) rates applicable for the period 1 March to 31 August 2024 for all the key use groups comprising Landed and Non-landed Residential, Commercial, Industrial and Hotel/ Hospital. The last time this took place was in the March 2014 review.

The LBC rates for the landed residential use groups have been raised by a steep average of 7.8% after being left untouched in the previous review period. This has come as a surprise given landed homes have recorded muted price growth of just 0.9% in 2H23 after rising 7.0% in 1H23, based on URA’s landed home price index. The market cooling measures had weighed down buying demand and softened price growth for landed homes. Based on caveats lodged, the transaction volume for landed homes totalled just 750 units in 2H23.

The increase in LBC rates is likely to be a catch up to the 7.0% price appreciation for landed homes in 1H23.

The LBC rate for the non-landed residential segment registered a mild average rise of 0.1% after being trimmed by an average of 3.2% in the previous rates review exercise.

The LBC rates for 27 sectors were lowered by between 1.1 and 19.2%, whilst those for 37 sectors were raised by between 2.8 and 14.0%. The rates for the remaining 54 sectors were left unchanged.

The downward adjustments took into account the dampening effects of the market cooling measures on the foreign buyers and investors who have a preference for properties in the Core Central Region (CCR) and selected fringe pockets. The steepest downward revisions are in Sector 43 (Tanglin/ Cuscaden) where the LBC rate has been cut by 19.2%, and by 18.8% in Sector 39 (Ardmore/Draycott/Claymore), Sector 42 (Orchard), Sector 44 (One Tree Hill), Sector 45 (Paterson/ Lengkok Angsa) and Sector 67 (Nassim/ Orange Grove/ Ladyhill/ Fernhill).

The downward revision in these sectors is within expectation given the weakened land offer prices developers have been offering during the last six months, particularly for large sites as well as those facing potentially soft buying demand.

One recent case in hand is the failed tender exercise for the Marina Gardens Crescent Government Land Sales site that saw the Urban Redevelopment Authority rejecting the below-reserved price sole bid received when the tender closed in Jan 2024. In Sector 44, the 99-year leasehold Orchard Boulevard GLS site was awarded to the top bidder at a land rate that is 24% lower than the land value implied from the 1 September 2023 rate.

The Chief Valuer had likely also considered the land bids put in for sites which reflected higher land rates compared to the land values implied from the 1 September 2023 rates. The sharpest LBC rate increase of 14.0% in Sector 112 is likely to be driven by the award of the 99-year leasehold Clementi Avenue 1 plot to the highest bidder at a land rate that is 23% above the land value implied from the 1 September 2023 rate.

In Sector 103, the 99-year leasehold Lorong 1 Toa Payoh GLS site was awarded to the top bidder at a land rate that is circa 16% above the land value implied from the 1 September 2023 rate. This likely prompted the rise in LBC rate for the sector by 10.7%.

In Sector 102, a freehold non-landed residential development site at 27 Lorong 32 Geylang was transacted at a land rate (inclusive of estimated LBC) that is approximately 11% lower the land value implied from the 1 September 2023 rate. The LBC rate for the sector was adjusted upwards by 5.2%.

In Sector 115, the 99-year leasehold Champions Way plot was awarded to the highest bidder at a land rate that is 7% above the land value implied from the 1 September 2023 rate. The LBC rate for the sector was raised by 5.3% under this revision.

We do not anticipate the downward LBC rate revisions for the non-landed residential segment in selected sectors and potential cost savings to boost to the residential collective sales market as there are more challenging obstacles in its way. The gap between sellers’ price expectations and developers’ low risk appetite remains a significant hurdle to achieving successful collective sales in the current market. Developers’ land banking strategies and activities will continue to be restrained by the effects of market cooling measures as well as development risks that are compounded by economic headwinds, elevated interest rates, high construction costs and an ample pipeline supply of new homes. In areas where LBC rates have been raised, developers are expected to be more guarded. 

The LBC rates for the Commercial Use Group were raised by an average of 3.8%, steeper than the 0.4% upward adjustment in the previous review. This is likely underpinned by the returning investors’ interest in assets with substantial commercial component.

Weary of sitting on the sidelines and emboldened by the impending US FED rate hike cuts, investors are returning to the market. They are drawn to assets with substantial commercial component by the sound demand and supply fundamentals supporting healthy future rental income stream and/or capital/development gains.

With confidence on the rise, investors are seen picking up pricier assets with substantial commercial component as evidenced by the surge in average deal size to SGD 64 million in the current six-month review period between 1 September 2023 and 29 February 2024, from SGD 37 million in the preceding six-month period.

The LBC rates for 104 out of the 118 sectors were raised by between 2.7 and 9.0%. The sectors that attracted the top increases in LBC rates are largely in Orchard and the CBD and these were likely triggered by the collective sale of Far East Shopping Centre in Sector 42 and Shenton House in Sector 7.

The Chief Valuer raised the industrial LBC rates by an average of 1.7% in the March 2024 review, after holding rates steady in the previous two reviews. Rates for 42 out of the 118 sectors were raised by 2.8% to 5.2%.

Chief Valuer likely considered the performance of the overall industrial property market which saw rents and prices rising for the 13^th consecutive quarter in 4Q23, as well as land transactional evidences in the six months from 1 September 2023 to 29 February 2024.

For example, the 5.0% upward adjustment in rates for Sectors 98 and 103 likely took into account the following deals:

• In Sector 98, the 30-year leasehold Tampines North Drive 4 (Plot 1) site achieved a land rate that is 42% above its implied land value based on the 1 September 2023 LBC rate.
   

• In Sector 103, the freehold Noel Building (50 Playfair Road) site was sold collectively at a land rate that is 203% above the implied land value from the 1 September 2023 LBC rate.

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Source: URA