The en-bloc euphoria, where property developers compete violently among themselves for collective groups of properties for new developments, led to the Singapore government raising the Development Charge (DC) rates by 13.8%.

116 out 118 sectors in Singapore saw their rates increase by 6.0% to 29%, with Tampines Road/Hougang/Punggol/Sengkang area seeing the largest increase.

Although the revised rates will take effect only for cases granted Provisional Permission (PP) from 1 September 2017, DBS Research expects the cost of land acquisitions for property developers to rise and impact their profitability.

According to DBS Research’s estimates, the DC rate hike will hurt breakeven prices of the recent en-block transaction by 1.0% to 4.0%. In a climate where margins are narrowing, property developers have to raise prices by 6.0% to 18% to break even and the new DC rates just raised it by another 1.0% to 3.0%

Launching early is crucial; en-bloc euphoria will end

With the rising property prices underway, property developers who delay their launches might face a supply glut. Worse, the medium-term risk of having to pay for Additional Buyer’s Stamp Duty (ABSD) further QC extension charges is on the table if the development remains unsold after five years.

In particular, property developers for larger en-bloc sites such as Serangoon Ville, Eunosville and Rio Casa have to launch projects as early as possible. Currently, they must sell the units at about 15% higher than the market rate, which might already pose a challenge.

Above all, DBS Research expects the en-bloc euphoria to end now that the government stepped in. Property developers will tread more carefully and not pay huge premiums just to accumulate supply from now on.

Volumes and prices should recover well

As the Singapore property market slowly picks up after a period of softness, volumes are looking good too. After the recent en-bloc euphoria, DBS Research expects about 9,000 new units to enter the pool, most probably over the next year or so.

Although there is a huge supply on the way, DBS Research’s main focus will be on the time “high-priced government land sites, such as Woodleigh Land Upper Serangoon Road and Toh Tuck Road”, and the larger en-bloc sites “such as Eunosville, Rio Casa, Serangoon Ville and Tampines Court”.

DBS Research looks at UOL Group Limited (SGX: U14) and City Developments Limited (SGX: C09) as the key proxies to the property sector recovery, with target prices of $8.73 and $12.63 respectively.