S’pore raises land development tax
Posted on | July 19, 2007
By REUTERS
SINGAPORE: Singapore said yesterday it has raised its land development charge rate to 70 per cent from 50 per cent effective July 18, a move which is expected to cool a redevelopment frenzy in the city state.
The news hurt Singapore property stocks, which were flat prior to the announcement but had dipped 2.6 per cent to 1593.75 by 0810 GMT.
“This seems to be an effort to pour some cold water on what has been perceived as an overheating market,” said Action Economics analyst David Cohen.
The development charge is levied on developers when there is an increase in the value of land due to government re-zoning of a site for higher-value use or to increase its plot ratio.
Singapore’s Urban Redevelopment Authority (URA) said the 70 per cent rate was cut to 50 per cent in 1985 to help developers in a declining real estate market.
“With the current buoyant property market, the converse is true,” the URA said in its statement yesterday, adding gains from the Government tax could be used to pay for improvements in road, rail and utility in the newly-zoned areas.
Property analysts say the move would calm a market which has seen private home prices soar to their highest levels in nearly a decade.
Earlier this month, Singapore senior statesman Lee Kuan Yew said the country had to check the spike in home and office rents to ensure that it remained competitive against regional rivals such as Hong Kong.
The hike in development charge would make it harder for property firms such as CapitaLand and City Developments to break even when they acquire existing housing estates for redevelopment, analysts said.
Spurred by a rise in real estate prices, property firms have paid record prices to homeowners living in prime Singapore districts to tear their homes down and rebuild denser and more expensive apartments on the site.
“On face value, this will impact the ability of developers to pay higher prices to the existing owners,” said Chua Yang Liang, research head of Jones Lang LaSalle Singapore.
“This will impact redevelopment transactions though it remains to be seen by how much,” Chua said, adding that developers could eventually pass on their increased cost to home buyers.
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