In 2022, the Singapore Land Authority (SLA) revised the Land Betterment Charge (LBC) rates for certain property types.
To those of you who are scratching your heads, wondering what on earth the LBC Act is, you’re not alone. If you’re wondering what the LBC rates are and how they affect property prices, read on.
What Is the LBC?
The LBC Act, which took effect on 1 August 2022, enables the Government to consolidate charges for the enhancement of land value under the SLA. The LBC is a payable tax borne by developers when enhancing or building a development (i.e. redeveloping en bloc sites, adding alterations to an existing building, etc.).
In other words, a number of previously separate charges (the previous Development Charge, Temporary Development Levy and Differential Premium) now fall under the umbrella term of LBC and will be collected by the SLA.
When land value increases (for instance, due to it being developed), LBC will be payable to the SLA on the increase in value. The idea is that those who have benefitted from the increase in land value (i.e. the developers or owners of the land) should be taxed for the privilege.
The LBC rates are reviewed and revised every six months. The exact rates payable depend on the sector of Singapore in which the property is located, as well as the property type. It is charged on a per square metre basis.
How Much Is the LBC Hike?
LBC rates from the period 23 September 2022 to 28 February 2023 have been amended.
LBC rates for the following types of property will be raised:
- Non-landed residential
- Landed residential
- Commercial
- Industrial
The details pertaining to the LBC rate hikes vary according to the sector in which the property is located in Singapore and the property type. Here are the average rates of increase across sectors:
Non-landed residential
12.9%
116 out of 118
Landed residential
10.2%
116 out of 118
Commercial
5.4%
116 out of 118
Industrial
2.3%
94 out of 118
Will the LBC Revision Affect Property Prices?
The hike in LBC means that the total cost of developing land is going to rise since developers are going to have to pay a higher tax on the increase in the value of the land.
What kinds of activities could potentially lead to an increase in land value? Key examples include enhancing an existing development (such as by building a new annexe) and redeveloping existing land to build a bigger property (such as in the case of an en bloc sale).
While the effects of LBC on property prices have yet to be seen, it is possible that the following will play out:
1. Fewer En Bloc Sales
Developers will have to bear the brunt of the LBC. This is likely to cause them to be more circumspect when acquiring land through en bloc sales. As a result, we could see fewer en bloc sales in the near future.
2. Higher Cost of Land
LBC hikes could potentially discourage developers from engaging in further additions and improvements to existing properties or acquiring land in en bloc sales.
A decreased willingness to work on their current land holdings could push developers to acquire new land, such as through Government Land Sales (GLS) exercises. An increase in developers bidding for GLS parcels could raise bid prices and cause costs to be passed on to homebuyers in the form of increased property prices.
3. Higher Private Home Prices
Developers who incur LBC through en bloc projects or enhancing existing projects could try to pass some of the costs of the LBC on to homebuyers. Hence, we could see higher new private home prices moving forward.
Ultimately, the effect of the LBC is difficult to predict as the extent to which developers’ optimism will be reined in by the higher LBC is still uncertain. In addition, many of the factors such as the volume of en bloc sales and demand for land through GLS are interlinked.
It is important to note that the increased cost of development is but one factor affecting property prices. Actual home prices will also be affected by factors like demand and supply at the time of purchase. Homebuyers and homeowners should hence be aware that while the LBC charge could very well raise home prices, the extent of this hike is difficult to predict and may or may not be significant.
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