Land betterment charge rates fell for non-landed residential use group

SINGAPORE, August 30, 2024 –

Dr Chua Yang Liang, Head of Research and Consultancy, Southeast Asia

蔡炎亮博士, 研究与咨询部主管 (东南亚) commented:

Overview

The latest Land Betterment Charge (LBC) for the period 1 Sep 2024 to 28 Feb 2025 released by the Singapore Land Authority saw Non-Landed Residential (B2) recording the most impact - 98% of sectors islandwide, followed by Landed Residential (B1) at 97%, and Commercial (A) with 44%.

Key sectors and their magnitudes of change are tabulated. Four use groups (Commercial A, Landed Residential B1,Non-Landed Residential B2, and Hotel C) exhibited increments of between -15.8% and 5.6%, with the broadest change.

(-15.8% to -1.8%) recorded by the Non-Landed Residential (B2) use group, and the most minor variation in the Landed Residential (B1) use group (2.5% to 3.3%).

These recent changes reflect the underlying weakness in the Singapore property market but with some green shoots in the commercial and hospitality sectors, where we have seen some growth in the underlying land values.

The recent opening of seven stations under stage four of the Thomson-East Coast Line further cemented the state's infrastructure investment. These sunk costs have resulted in improved connectivity and, consequentially, some enhancement in land values in Sectors 49, 50, 91, 94, and 96 (i.e. Marina East, Tanjong Rhu, Mountbatten/Meyer/ Broadrick, Marine Parade/Amber Road/Brooke Road, and East Coast Park/Bayshore). However, other than the general increase in landed residential rates in these sectors (49,50,91, 94 and 96), the increase in other use groups was not exceptional. This mediocre increase could be due to the dilution of the effect, given the geographical size of these sectors.

“Similar to previous revisions, the effect of this latest change should not adversely impact the overall market activities since this Land Betterment tax affects mainly developments with increased development intensity and land values.

The expected US rate cut in September, announced earlier this week, while not reflected in this latest round of updates, should lift the fog of uncertainty clouding the investment markets in and around Asia.

We can expect stronger investor interest going forward. As the transaction continues, we anticipate there could be upside revisions at the next LBC rates review,” opines Dr Chua.

 A more detailed analysis of the significant changes and our views are provided below.

Landed B1

The average 2.8% increase is within our expectations, with over 97% of the sectors registering some increase. Based on our analysis of recent property transactions, our estimates suggest that land values, particularly for landed homes in Sector 68 (Botanic Garden/ Gallop Road/ Tyersall), have seen increases of over 20%.

Admittedly, there were some contractions in values, but they were limited to a handful of sites in Sectors 66 and 108 (White House Park/ Margoliouth, Holland/ Dunearn Road/ Sixth Ave).

Non-Landed B2

On the non-landed front, the story is less sanguine. Overhanging property cooling measures, a high interest rate environment, and rising global geopolitical risks have resulted in a loss in investors'/developers' appetite for this market. Overall, we estimated an average decline of 13% in land values across the island, weighed down mainly by recent government land sales sites in Sectors 108, 112 and 115 (Holland Rd/ Dunearn Rd/ Sixth Ave, West Coast Road/Jurong East, Sembawang/ Mandai/ Woodlands). The overall average decline of 5.4% for this group is, therefore, of no surprise. Over 98% of sectors registered some decline, with the most significant decline recorded in Sector 108.

Commercial A

On the commercial (use Group A) segment, the same global economic tardiness and rising geopolitical risks have pushed global foreign investors and occupiers to remain cost-conscious. As we have previously alluded to in our market analysis, occupiers are less confident and have controlled costs through renewal with smaller footprints, if not relocate to cheaper locations. Investors have mainly remained home-biased, preferring the better asset yield the home country offers than those in Singapore.

In our observation, no reliable transactions for development purposes warrant any significant changes to the commercial land values, aside from a couple of deals done, such as Income at Prinsep, Mapletree Anson, and 20 Habour Drive. We are not surprised by the average 1.5% increase provided by the Chief Valuer.

Industrial D

Echoing the weak external demand is developers' confidence in our industrial sector. Unsurprisingly, two government land sales sites were closed with no bidders. With limited transactional evidence (although a couple of deals were announced only in the last few days), we did not expect any revision. We are unsurprised that the Chief Valuer has kept the industrial rates stable.

Key Takeaway

The key takeaway from our analysis is that these adjustments would not have any significance on the market trend nor affect developers' and investors' confidence in the overall property market.

The LBC reflects the underlying land valuation. “The impact of the LBC revision on the market would be less significant in the short to immediate term”, opines Mr Tan Hong Boon, Executive Director, Capital Markets, JLL.

“Investors must confront more outstanding fundamental issues, such as the geopolitical climate, the rise of regionalisation, the lowering of the Fed rate and the impact on asset valuation going forward.

The mood is certainly more optimistic than it was six months ago. Still, the rising geopolitical risks and the continual trade war between the US and China will cloud the short-term investment horizon,” Mr Tan further adds.