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(SINGAPORE) The en bloc market could take a hit when development charge (DC) rates go up on Sept 1, property consultants say. But much will still boil down to supply and demand.

"It (the DC hike) has a dampening effect on the collective sale market.' - Knight Frank executive director Foo Suan Peng

They reckon that DC rates - payable to the state for enhancing a site's use or developing a bigger project on it - could rise as much as 15-20 per cent for non-landed residential use in prime locations like Ardmore Park, Tomlinson Road and Grange Road, where collective sales have set new benchmark prices in the past six months.

'If owners stick to the same minimum land price quantum, the total land price to developers will increase by the quantum of the DC hike,' says Knight Frank executive director Foo Suan Peng. 'This means the unit land cost in terms of per square foot per plot ratio will be increased, without any benefit to owners. It has a dampening effect on the collective sale market.'

But not all en bloc sales will be affected. Collective sale sites with little or no DC component like Derbyshire Mansion and Grange Tower will be spared any blow from DC rate hikes.

There are also sites in locations like Cairnhill and Newton with a high development baseline or where the existing development's gross floor area is high relative to what is allowed under the current Master Plan. Such sites are liable for either no or little DC payment if they were to be redeveloped, says Mr Foo.

But sites with a significant DC component as a percentage of total land value could suffer from a substantial increase in DC rates. An example is Minton Rise, where the reported DC estimate of $84 million works out to about 27 per cent of the total land cost.

'For some of these cases, it may make it harder for owners to achieve, or for developers to pay, reserve prices - because of the higher DC rate,' says CB Richard Ellis executive director Jeremy Lake.

Agreeing, Credo Real Estate managing director Karamjit Singh says: 'There are cases where the DC forms about 20-30 per cent of total land cost. In such a case, if the DC rate goes up by, say, 10 per cent, it could, overnight, wipe out around 2.5-4.3 per cent of owners' land value. This can be quite significant - especially if the collective sale premium is not that fantastic - and reduce owners' incentive to go for an en bloc sale.'

But Jones Lang LaSalle's regional director and head of investments Lui Seng Fatt reckons the market is unlikely to be shocked by any DC rate rise because the last increases six months ago were so steep.

DC rates - which are specified according to land use (such as non-landed residential, landed residential and commercial) and location - are published by the Ministry of National Development in consultation with the Chief Valuer, who takes into account current market value.

The increases that kicked-in on March 1 this year were among the biggest in six years. For non-landed residential use - the group that often applies to collective sale sites - rates in the prime Ardmore/Claymore/ Draycott location went up 19 per cent. Other popular en bloc haunts like River Valley, Leonie Hill/St Thomas, One Tree Hill/Angullia Park and Cairnhill saw smaller increases of 6 to 15 per cent.

Market observers expect another round of substantial hikes for non-landed residential DC rates in prime locations, pointing out that since March 1, en bloc deals in such areas have continued to set benchmark prices that reflect land values significantly higher than those implied by the March 1 DC rates.

Examples include Beverly Mai in Tomlinson Road and Lucky Tower in Grange Road. Their respective transacted prices of $1,184 and $1,134 per square foot per plot ratio inclusive of DC were 68 per cent and 110 per cent above DC-rate implied land values for the area.

Similarly, Habitat One was sold last month at $1,228 psf ppr - 50 per cent higher than the $818 psf ppr DC rate-implied land value for the area.

CBRE predicts that non-landed residential DC rates in Ardmore Park, Grange Road and Tomlinson Rd could go up 5-10 per cent come Sept 1.

Colliers International predicts that rates in places like Ardmore and Angullia Park will rise by 10-15 per cent.

JLL expects a bigger increase of 18-22 per cent in the central areas of the prime districts 9, 10 and 11. But JLL's Mr Lui reckons that availability of sites is a more important factor than any DC rate rise - alluding to the large supply of en bloc sites now weighing down the market.

He believes that developers will still be willing to buy in prime locations like Draycott, Orange Grove, and to some extent Newton, regardless of a DC rate rise. But they may not be so willing to shoulder the burden of a higher DC in less choice areas - particularly for huge sites like former HUDC estates.

In such cases, owners may have to bite the bullet and cut their reserve prices. 'It boils down to the scarcity value of the site and how much demand there is for it,' Mr Lui says.