Land betterment charge rates raised on average by 12.9% for non-landed residential use; 10.2% for landed residential use

THE government has announced significant hikes in land betterment charge (LBC) rates for non-landed residential, landed residential, commercial and industrial use groups from the previous rates, reflecting the generally robust performance of the local property market in the past 6-7 months.

The biggest hike was for non-landed residential use, for which the LBC rates for the period Sep 23, 2022 to Feb 28, 2023, have been raised by an average of 12.9 per cent, compared with a 0.3 per cent increase during the previous revision that took effect on Mar 1, 2022.

The latest rate hike was the sharpest since the 22.8 per cent spike in March 2018, noted JLL. “This comes as a surprise given developers have generally been rather measured in their land bids in light of intensifying headwinds such as soaring interest rates and slowing economic growth,” said JLL’s head of research and consultancy for Singapore, Tay Huey Ying.

However, Huttons Asia’s senior director of research, Lee Sze Teck, noted that collective sale activities have picked up strongly in the past 6 months.

The Singapore Land Authority (SLA) also raised LBC rates for landed residential use by an average of 10.2 per cent – the steepest in 11 years. “This is likely to have been underpinned by the relentless rise in the prices of landed homes. The URA’s landed property price index rose 7.3 per cent in H1 2022, faster than the 6.6 per cent increase in H2 2021,” said Tay.

For commercial use, LBC rates have been increased by 5.4 per cent on average, while for industrial use, the increase is 2.3 per cent on average.

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Tay said the rise in the commercial use LBC rate likely stemmed from the steady recovery seen for the office and retail leasing markets on the back of the return of employees to the offices and the re-opening of the economy and international borders. “On the investment sales front, there was a flurry of activity involving commercial properties (office, retail, shophouses and mixed assets with significant office/retail components) during the LBC review period with 122 deals sealed, up from 85 in the 6 months prior,” she added. Major transactions include the S$1.26 billion deal involving 79 Robinson Road, the close to S$1 billion Income at Raffles deal and the sale of a 49 per cent interest in the joint-venture entity undertaking the redevelopment of Comcentre for S$798.70 million.

Developers pay a LBC, which has replaced the development charge or DC, for the right to enhance the use of some sites or to build bigger projects on them.

LBC rates remained unchanged for the other use groups that cover hotel/hospital, place of worship/civic and community institution, open space/nature reserve, agriculture, and drains/roads/railways.

The latest LBC rate revision was announced on Thursday (Sep 22) following a review by the SLA, in consultation with the chief valuer.

The LBC rates are based on the CV’s assessment of land values and take into consideration recent land sales. They are stated according to use groups across 118 geographical sectors in Singapore.

For non-landed residential use, LBC rates were raised in 116 geographical sectors by between 6 per cent and 20 per cent, with the remaining 2 sectors seeing no change. The biggest increase of 20 per cent applies to Sector 113 (which includes Jurong West Avenue 2, Choa Chu Kang Road, Upper Bukit Timah Road, and the Bukit Batok and Bukit Panjang areas). “The chief valuer could have taken cue from the Lakeside Apartments collective sale site which changed hands during the LBC review period at an estimated 48 per cent above the land value implied from the March 2022 rate,” said Tay. Two other non-landed residential development sites (Dairy Farm Walk government land sale and Park View Mansions collective sale site) in Sector 113 changed hands during the review period at a lower transacted-imputed land price gap of between 16 per cent and 24 per cent.

For landed residential use, LBC rates were increased in 116 sectors by between 9 per cent and 14 per cent, with no changes in the remaining 2 sectors. The biggest increase of 14 per cent is for Sector 67 (which includes Nassim Road, Cluny Road and Lady Hill Road).

For commercial use, LBC rates were raised in 116 sectors by 3-8 per cent, with no changes in the remaining 2 sectors. Large sections of the Central Business District, Clarke Quay, Robertson Quay, Orchard area, as well as places like Thomson Road and Mount Faber/Keppel Bay saw rates rising by about 8 per cent.

For industrial use, LBC rates have been raised in 94 sectors by 2-5 per cent, with no changes in the remaining 24 sectors. The biggest rise of 5 per cent applies to:

Sector 98 (which includes Bedok, Simei and Changi South area);

Sector 108 (which includes the Margaret Drive, Tanglin Road, Commonwealth Avenue and Holland Avenue);

Sector 114 (including Boon Lay, Jurong West, Choa Chu Kang and Lim Chu Kang area).

JLL’s Tay commented that in arriving at the latest LBC rates for industrial use, the chief valuer had likely taken into consideration the performance of the overall industrial property market amid the upward inflationary pressure and rising interest rates. JTC’s all-industrial rental index rose 2.5 per cent in H1 2022, strengthening from the 0.9 per cent gain in H2 2021. Similarly, JTC’s all-industrial property price index rose 3.6 per cent in H1 2022, accelerating from 1.6 per cent in H2 2021. “The pandemic-resilient industrial property sector and uptrend in industrial rents bolstered investors interest, leading to some S$1.46 billion worth of industrial investment properties transacted during the review period. This is higher than the S$853.98 million worth of industrial asset transactions in the six months prior,” said Tay.

Just like the former DC rate system, the LBC rates will be revised twice a year in consultation with the taxman’s chief valuer.

The Land Betterment Charge Act entered into force on Aug 1, 2022, and allows for the consolidation of charges for the enhancement of land value under SLA. The new LBC regime replaces the DC, Temporary Development Levy, and Differential Premium regimes. The DC Table of Rates are correspondingly replaced with the LBC Table of Rates, which will continue to be revised on a half-yearly basis.

Hutton’s Lee commented that the rise in non-landed residential LBC rates follows SLA’s recent upward revision for the rate charged for sale of remnant land. “Currently it is based on 50 per cent of the full land value. From Sep 1, 2022, for all residential, commercial and industrial land where the sale would result in gross floor area (GFA) transfer, the rate is doubled to 100 per cent. The state is creaming off 100 per cent of the land value. This will affect those collective sale sites which are proposing the acquisition of remnant land to increase the gross floor area.” There are also changes to how GFA is computed. For example, air-conditioner ledges will be considered part of gross floor area come Jun 1, 2023.

“Taken together, the costs to developers will rise considerably and eat into the margins of developers. Developers may reassess potential bids for collective sale sites. This may affect the success rate of some collective sites,” said Lee.