Why is Singapore raising land betterment charges for non-profit usage?

THE government has raised land betterment charge (LBC) rates on average by 0.1 per cent to nearly 3 per cent for commercial, residential, industrial and hotel use groups for the next six months.

However, LBC rates for the place of worship and civic and community institution use group have been increased by about 6 per cent on average.

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

The rates are stated according to use groups across 118 geographical sectors in Singapore.

For the place of worship and civic and community institution use group, LBC rates have gone up in all 118 sectors, by between 3.6 per cent and 6.2 per cent, JLL’s analysis showed.

Knight Frank Singapore research head Leonard Tay noted that this is the first time in more than 10 years – since September 2014 – since any adjustment was made for this use group.

“In a time when costs have increased across the board in all facets of the economy and daily life, was there a need to contribute further tax increases, especially for non-profit usage?” he said.

When contacted, the Inland Revenue Authority of Singapore said that LBC rates were previously maintained given the low volume of transactions for this use group.

“The rates this round are adjusted to consider the growth in Singapore’s land value over time,” it added.

LBC rates are announced twice a year, on Mar 1 and Sep 1, following a review by the Singapore Land Authority (SLA), in consultation with the taxman’s chief valuer (CV). The LBC rates are based on the CV’s assessment of land values and take into consideration recent land sales.

The latest LBC rates announced on Friday (Feb 28) are for the Mar 1 to Aug 31 period.

LBC rates for commercial use are up 0.6 per cent on average for the next six months, following the 1.5 per cent rise in the previous revision. Rates have gone up in 22 out of 118 sectors, by between 2 per cent and 6.3 per cent .

“The most significant gains of 4.2 to 6.3 per cent are in the Orchard area (Sectors 41 to 43), presumably inspired by the sale of the half stake in Ion Orchard,” said JLL’s head of research and consultancy for South-east Asia, Chua Yang Liang.

Ion Orchard is part of Sector 42, which posted the 6.3 per cent rise in the LBC rate for commercial use.

Knight Frank’s Tay said strata office deals in Tong Building along Orchard Road may also have contributed to the rate rise for the sector. He also noted that Sector 41, which saw a 5.3 per cent LBC rate rise, includes Concorde Hotel and Shopping Mall, where there was a collective sale in November 2024.

The authorities have also increased LBC rates by an average of 2.9 per cent for landed residential use and 0.3 per cent for non-landed residential use.

For the landed residential segment, rates were increased for all 118 sectors by between 2.6 per cent and 3.7 per cent. Some observers noted this is supported by transacted prices in Good Class Bungalow Areas.

CBRE’s head of research for South-east Asia, Tricia Song, said that the 0.3 per cent rise on average for LBC rates for non-landed residential use reflects stabilisation, after the 5.4 per cent cut on average in the previous revision, which took effect on Sep 1, 2024.

In the latest revision, nine of 118 sectors saw increases ranging from 2.6 per cent to 4.4 per cent, with no changes for the remaining 109 sectors. “Apart from the return of collective sales with the transaction of Thomson View Condominium, revisions for non-landed residential use largely tracked performance at state land tenders,” she added.

For the hotel/hospital use group, LBC rates have gone up by 0.6 per cent on average, matching the rise in the previous revision. Rates were upped in 13 sectors by between 3.8 per cent and 8.8 per cent. The 8.8 per cent rate rise was posted for Sectors 93 and 94. Market watchers said this could be due to the sale of Katong Plaza, in Sector 94. Permission has been granted for its redevelopment into a hotel.

According to JLL’s analysis, Katong Plaza’s transacted price of S$1,809 per square foot per plot ratio is 32 per cent higher than the implied land value based on the Sep 1, 2024 LBC rate for hotel use.

Tay of Knight Frank noted investor interest from both institutional and private wealth in the living sectors including hospitality. “This is due to the steadily increasing number of tourist arrivals to Singapore, accompanied by more meetings, incentives, conventions and exhibitions events alongside entertainment events by international acts,” he added.

The rates for industrial use have notched up 0.1 per cent on average after being left unchanged in the previous round. In the latest round, rates went up in six sectors by 2 to 3 per cent.

JLL said that, on the whole, the latest LBC rates would not have any significant impact on the market trend nor shift developers’ and investors’ confidence in the overall property investment market. The LBC reflects the underlying land valuation.

Its executive director of capital markets, Tan Hong Boon, said: “While the collective sale market has seen some recent successes, these recent LBC adjustments will not move the needle much. Overall, developers remain cautious given the high cost of redevelopment and policy risks.”