The Urban Redevelopment Authority (URA) revised its development charge (DC) rates on 28 February 2020. The DC rates for B2 (non-landed) was little changed from six months ago.
The DC rates is a backward-looking instrument. Specifically, the Government looks at past transactions in deciding whether to revise the rates. In this case, they view the land prices for the previous six months ending 28 Feb 2020 to be stable.
What does it mean for consumers like you and me?
Let’s put a few pieces of the puzzle together.
First, we have the 6 July cooling measures where developers have to pay the Government a 5% non-remissible additional buyer stamp duty (ABSD). Developers will have to negate this ABSD which can be in the form of lower land price. It was clear that they did that because DC rates fell 5.5% after the cooling measures.
Secondly, the URA announced changes to the average size of dwelling units and a reduction in bonus balcony which took effect on 17 January 2019. If the average size of dwelling units is bigger and the selling price remains the same, it means an increase in absolute quantum. Alternatively, developers can choose to bid lower for land which will translate into lower selling prices. From the chart below and the land sites which were sold after 17 January 2019, it seems that land prices were stable.
Figure 1: Average Development Charge for B2 (non-landed)
Source: URA, Huttons Research
If land prices were stable and there is little room to manoeuvre for construction costs and profit margins, selling prices are likely to stay at current levels. This means that the property market will remain stable moving forward which is good news for all buyers.
Contact any of our Huttons associates today to find out how you can benefit from this!