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Property stocks sink on news of higher DC charges

Higher development costs likely to cool en bloc fever

PROPERTY stocks fell yesterday after Friday’s news that the government will increase development charge (DC) charges as much as 112 per cent.

Analysts said the revised DC rates will push up costs and also discourage developers from paying ever-increasing prices for collective sale sites.

The Singapore Property Equities Index – a weighted index of all stocks in the Singapore Exchange’s property sector – lost 9.2 points or 0.6 per cent to end at 1,447.6 points yesterday.

The fall was led by Singapore Land which slid 40 cents or 4.0 per cent to close at $9.50.

Guocoland fell 14 cents or 2.9 per cent to end at $4.62 and City Developments lost 10 cents or 0.7 per cent to close at $14.80.

Other property stocks that slipped include Allgreen Properties, Ascott Group, Wing Tai, Wheelock Properties, MCL Land, UOL Group, Ho Bee and SC Global.

The government announced what is possibly the sharpest hike in DC rates, payable for enhancing the use of some sites or building bigger projects on them.

On average, the DC rate for non-landed residential use was raised 58 per cent.

While the move is not expected to derail the rise in housing prices, analysts reckon it will affect developers because the overall cost of redeveloping sites will go up.

‘We estimate the revised DC rates could increase average redevelopment costs by 3-4 per cent from July 2007 levels,’ said CIMB analyst Donald Chua.

This in turn means that developers will be less willing to fork out record dollars for sites.

‘For future en bloc purchases the sentiment is likely to be negative as break-even cost is likely to be higher,’ said OCBC Investment Research analyst Winston Liew. ‘We do not anticipate any more benchmark prices to be reached.’

CIMB’s Mr Chua said developers will be more selective with land-banking, especially in the prime districts, where surging property prices could cause even greater cost pressure. As a substitute, government land sale sites could now attract more interest, he said.

Phillip Securities Research said the DC hikes could affect home prices. It expects they will continue to increase, but at a slower pace from now on compared with the first half of 2007.

‘First, the rises in DC rates are likely to slow en bloc sales and reduce the demand for replacement homes,’ the firm said in a research note. ‘Second, both local and foreign investors are likely to be more cautious when they select homes after the recent steep price increases.’

Also, the credit tightening in US and the economic slowdown there will affect sentiment among buyers here, who may have lost money in global equity and bond markets, Phillip added.

 

Source: Business Times 4 Sept 07

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