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Land Tax
July 18, 2007

Property shares down as rate goes up
Singapore has raised its land development charge rate to 70% from 50% effective July 18, a move which is expected to cool a redevelopment frenzy in the city state, Reuters reported.

The news hurt Singapore property stocks with the sector index , which was flat prior to the announcement, ending the day down 2.68% at 1592.41. A 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.

Property analysts say the move would calm a market which has seen private home prices soar to their highest levels in nearly a decade and made overnight millionaires of many homeowners.

"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 hike is the latest government effort to slow escalating property values in Singapore.

Recently more state land has been put up for sale and, on Monday, the government released its most comprehensive data on residential property transaction prices in a move to debunk talk about exaggerated prices for home sales.

The hike in the 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 bought entire developments in collective sales and paid record prices to homeowners living in prime Singapore districts to tear their homes down and rebuild denser and more expensive apartments on the land site.

Such residential redevelopment deals hit S$10 billion (US$6.6 billion) in the first half of 2007, more than the total S$7.8 billion recorded for the whole of last year, according to data from Jones Lang LaSalle.

"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 developers could eventually pass on the increased cost to home buyers.

Analysts said it was not clear how much the latest government measure would cap rising property prices where even some flats in public housing schemes are fetching record sums. The revised rate would apply to development applications where provisional permission is issued on or after July 18, the URA statement said. Reuters

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