Expect breakeven prices to rise up to 4% amidst thinning margins.
The recent rise in development charge (DC) for residential condominiums by 13.8% could cause breakeven prices to rise by 1-4%, according to DBS.
Majority of en-bloc transactions made in 2017 are already pricing in around a potential 6-18% increase in property prices to break even, based on the previous DC rates.
Out 118 sectors, 116 have increased their rates by 6-29%. Sector 100 posted the largest increase, which covers Tampines Road, Hougang, Punggol, and Sengkang area.
The DC rates will apply to cases which have been granted Provisional Permission (PP) with effect from 1 September 2017.
DBS analysts Rachel Tan and Derek Tan said, "We believe the higher rates would especially impact the later en bloc transactions which have not been granted PP before 1 September 2017, especially those transacted in 2017, thus raising the cost of land acquisition for developers."
Here's more from DBS:
While the number may seem marginal, the impact cannot be disregarded in an environment of thinning margins amidst the nascent recovery in the property market.
As it is, the majority of en-bloc transactions made in 2017, in our estimates, are already pricing in a potential 6-18% increase in property prices to break even, based on the previous DC rates.
With the new DC rates, these could add another 1-3 ppt to the assumed increase in property prices to break even, further eating into these developers' profitability.
We believe that developers for larger en-bloc sites, especially those with more than 1,000 planned new residential units per site, such as Serangoon Ville, Eunosville and Rio Casa, might look to launch projects as early as possible especially given the large quantum of units to be cleared.
At this moment, there are uncertainties to take up where our estimated breakeven prices are at a c. 15% premium to the prevailing property prices in the respective areas.
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