19 JULY 2010

Question No. 85
Question by: Dr Fatimah Lateef

Dr Fatimah Lateef: To ask the Minister for National Development given that developers have to pay both developmental and rental charges for state owned land marked for redevelopment and that these charges increase each time there is an intensification in the plot ratio, what can be done to better regulate and control the costs to the industry.

Answer

1      Differential Premium (DP) or Development Charge (DC) is levied when there is intensification in land use beyond the approved baseline use and intensity for the site.  It is fundamentally a tax on the gains of the developers due to land value enhancement from more intensive use of the land.  If there is no land value enhancement, the developers are not taxed.

2      Currently, DP or DC rate is pegged at 70% of the enhancement in land value.  The DP or DC collected allows the State to provide the necessary infrastructure and services (e.g. roads, drainage and sewerage) without which the developer cannot materialize the higher development intensity in the area.  The balance of the gain from the land value enhancement is retained by the land-owner and provides an incentive for him to undertake the development work.

3     In calibrating the DC rate, there is a need to balance between providing an equitable share of the land value enhancement for the State to fund the necessary infrastructure and services, and at the same time providing a reasonable incentive for land-owners and developers to undertake development works. We believe that the current 70% DC rate is reasonable in the current market conditions.

4      The key to moderating costs to the industry is to enhance construction productivity, and not by reducing the DC and shifting the costs of infrastructure and services to support land intensification somewhere else.

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