Cautious property investment sentiment keeps Land Betterment Charge rates largely unchanged
Ms. Tay Huey Ying, Head of Research and Consultancy, Singapore
SINGAPORE, 28 February 2023 – The Singapore Land Authority (SLA) applied a soft touch to the changes in the Land Betterment Charge (LBC) rates applicable for the period 1 March to 31 August 2023. This is a sharp contrast to the steep rises seen in the last review, and is keeping with the cautious investors’ sentiment arising from interest rates hikes and mounting economic uncertainties.
The average increase in the LBC rates for the landed residential group moderated to a marginal 0.4% following the 11-year high of 10.2% applied in the previous review exercise. This is in character with the stabilizing price growth observed for landed homes alongside slowing sales activity. The caveats lodged for landed homes in the current six-month review period ending February 2023 fell by nearly 50% from that recorded for the preceding review period, while the URA’s price index for landed homes inched up by just 0.6% q-o-q in 4Q22, compared to a quarterly average of 2.3% in 2Q and 3Q22.
Following the sharp 12.9% hike in LBC rates in September 2022, coupled with the slow land sales market and developers’ measured land bids in the ensuing six months, the gaps between transacted and the land price imputed from the LBC rates had narrowed considerably from up to 48% prior to 23 September 2022, to up to 16% thereafter. In light that land prices are foreseen to stay soft given mounting risks and acquisition costs, we foresee this gap to close further over the course of the next six months. It is, therefore, sensible of the Singapore Land Authority to finetune the LBC rates for the non-landed residential use group by a modest 2 to 5% for 13 sectors and leaving the rates for the remaining 105 sectors unchanged.
Sector 97 attracted the largest hike of 5%. This could be underpinned by the Bagnall Court collective sales deal that was transacted at a land rate (not accounting for the utilisation of bonus GFA) estimated to be 16% above its land value implied from the 23 September 2022 rate.
The finetunings of the LBC rates by an upward adjustment of 4.4% for Sector 113 and 2.5% for Sector 109 were likely prompted by the award of the Bukit Timah Link GLS site at a land rate that is 4% lower than the land value implied from the 23 September 2022 rate for the former, and the Hillview Rise GLS site at a land rate that is 1% higher than the land value implied from the 23 September 2022 rate for the latter.
The LBC rates for the Commercial use group have been left unchanged following the 5.4% increase in the last adjustment. This reflects the current subdued mood in the office investment sales market where asset repricing pressure is intensifying amid negative yield spread as a result of sharp interest rate hikes. On the retail front, while investors’ confidence in the medium-term growth prospects of the sector has seen some rebound in recent months, the near-term outlook remained mired in risks including a slowing economy, continued inflationary pressure and retail spending leakage from the pick-up in outbound travel by Singapore residents.
The Chief Valuer kept the industrial LBC rates unchanged in the March 2023 review, after raising rates by an average of 2.2% in March 2022 and 2.3% in September 2022.
Although JTC’s statistics showed Singapore’s industrial property rents and prices grew for the ninth consecutive quarter in 4Q22 to post the highest annual growths in 10 years, the Chief Valuer had likely considered the weaker manufacturing sector performance in 2H22, which is expected to extend into 2023. Notably, manufacturing output growth slowed to 1.1% y-o-y in 3Q22 and contracted by 2.6% y-o-y in 4Q22, ending nine consecutive prior quarters of expansion.
In addition, the latest LBC review could have considered the tepid interest seen for industrial GLS (IGLS) plots during the period from 23 September 2022 to 28 February 2023.
The 30-year leasehold iGLS site at Woodlands Industrial Park E7/E8 was sold for SGD 9.1 million or SGD 44 per sq ft per plot ratio (ppr) to its sole bidder in October 2022, while the 20-year leasehold iGLS site at 25 Gul Drive attracted three bids and a top bid of SGD 2.56 million or SGD 35 per sq ft ppr when its tender closed in January 2023.
Over the same review period, the Tampines North Drive 5 (Plot 11a) failed to attract any bidders when its tender closed in October 2022, while JTC did not award the parcel at Jalan Papan (Plot 5) as the sole bid of SGD 2.78 million fell below its reserve price.
JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. JLL shapes the future of real estate for a better world by using the most advanced technology to create rewarding opportunities, amazing spaces and sustainable real estate solutions for our clients, our people and our communities. JLL is a Fortune 500 company with annual revenue of $20.9 billion, operations in over 80 countries and a global workforce of more than 103,000 as of December 31, 2022. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit jll.com.