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New development charges to affect en bloc deals

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The new DC rates are expected to lead to higher breakeven prices for developers.

DBS expects the recent hike in development charge (DC) rates for condominiums to affect developers’ profitability as breakeven prices may increase by up to four percent, reported Singapore Business Review.

It noted that while most of this year’s en bloc transactions already priced in a potential six to 18 percent hike in property prices to break even, the new DC rates could add another one to three percentage point to the assumed increase in prices to break even.

SEE ALSO: Development charges for non-landed housing up 13.8%

This comes as 116 of the 118 sectors have raised their rates by six to 29 percent, with Sector 100, which includes Hougang, Tampines Road, Sengkang and Punggol area, registering the biggest increase.

The new DC rates would apply to cases that have been given provisional permission (PP) from 1 September.

“We believe the higher rates would especially impact the later en bloc transactions which have not been granted PP before 1 September 2017, especially those transacted in 2017, thus raising the cost of land acquisition for developers,” said DBS analysts Rachel Tan and Derek Tan.

“We believe that developers for larger en bloc sites, especially those with more than 1,000 planned new residential units per site, such as Serangoon Ville, Eunosville and Rio Casa, might look to launch projects as early as possible, especially given the large quantum of units to be cleared.

“At this moment, there are uncertainties to take up where our estimated breakeven prices are at a c. 15 percent premium to the prevailing property prices in the respective areas.”

 

Romesh Navaratnarajah, Senior Editor at PropertyGuru, edited this story. To contact him about this or other stories, email romesh@propertyguru.com.sg