SINGAPORE - Subdued bids for Government Land Sales (GLS) plots have taken a toll on land betterment charge (LBC) rates for non-landed residential use, which will drop for the next half year, while those for other key use groups – landed residential, commercial and hotels – will grow at a slower pace.

These recent changes reflect the underlying weakness in the Singapore property market, Dr Chua Yang Liang, JLL’s head of research and consultancy for South-east Asia, said. But he pointed to green shoots in the commercial and hospitality sectors, which has seen some growth in underlying land values.

Developers pay an LBC for the right to enhance the use of some sites or to build bigger projects on them.

The latest LBC rates for the Sept 1, 2024, to Feb 28, 2025, period were announced on Aug 30, following a review by the Singapore Land Authority in consultation with the taxman’s chief valuer.

The LBC rates are based on the chief valuer’s assessment of land values and take into consideration recent land sales.

For non-landed residential use, LBC rates will drop 5.4 per cent on average after edging up by an average of 0.1 per cent in the previous revision period from March 1 to Aug 31, 2024.

“Overhanging property cooling measures, a high interest rate environment, and rising geopolitical risks have resulted in a loss in investors’ and developers’ appetite,” Dr Chua said.

“Overall, we estimated an average decline of 13 per cent in land values across the island, weighed down mainly by recent Government Land Sales sites in sectors including Holland Road/Dunearn Road/Sixth Avenue, West Coast Road/Jurong East, Sembawang/Mandai/Woodlands,” he said.

Mr Lee Sze Teck, senior director of data analytics at property firm Huttons Asia, said that the lower LBC rates for non-landed residential use are unlikely to spark an increase in collective sales activity.

“With the residential en bloc market expected to remain quiet, changes to the land betterment charges are largely driven by GLS tenders. While the ramp-up in GLS supply saw more sites sold from March to August 2024, the land bids were within expectations after factoring in the different operating environment,” he said.

Mr Lee added that the land sales market has been relatively subdued due to higher-for-longer interest rates, high construction costs and the modest take-up at new condo launches.

“With the US Federal Reserve expected to cut interest rates, borrowing rates in Singapore should trend lower. If this leads to an improvement in take-up rates at new launches, then developers may need to replenish their land bank earlier.

“Nevertheless, developers are expected to be cautious in bidding, and LBC rates for non-landed residential use should stay stable,” he said.

In comparison, for landed residential use, LBC rates will rise by 2.8 per cent on average, compared with a 7.8 per cent jump in the previous revision period.

This is due to a pick-up in landed property transactions and sizeable deals in the good class bungalow (GCB) market, Mr Lee said.

He pointed to an uncompleted GCB in Tanglin Hill that sold for $93.3 million, or nearly $6,200 per square foot, on a land area of 15,150 square feet – a new record land rate in the GCB market.

Meanwhile, LBC rates for commercial use will rise by 1.5 per cent on average, compared with a 3.8 per cent rise in the previous revision period.

Dr Chua said foreign investors and occupiers remained cost-conscious due to slow global economic growth and rising geopolitical risks.

“Investors have mainly remained home-biased, preferring the better asset yield their home country offers than those in Singapore,” he said.

LBC rates for industrial use will remain unchanged, but those for hotels and hospitals will rise by 0.6 per cent on average, compared with a 0.7 per cent rise in the previous revision period.

LBC rates will also remain unchanged for place of worship/civic and community institution use. Also left unchanged are the rates for the other use groups covering open space/nature reserve, agriculture, and drains/roads/railways.

Mr Tan Hong Boon, JLL’s executive director of capital markets, said: “The impact of the LBC revision on the market would be less significant in the short to immediate term.

“Investors must confront more fundamental issues, such as the geopolitical climate, the rise of regionalisation, the (expected) lowering of the Fed interest rate and the impact on asset valuation.

“The mood is more optimistic than it was six months ago. Still, rising geopolitical risks and the continued trade war between the US and China can cloud the short-term investment horizon,” he added.