1

PROPERTY TAX

AND STATUTORY VALUATION

2

Executive Summary: Key Findings and Recommendations

Part A: Issue 1 A study of Development Charge (DC) rate is done to gauge its applicability for the period of

1 March 2009 to 28 February 2015. Based on historical and present DC Rates imposed, an

equitable percentage of Residual Implied Freehold Land Value (FHLV) extracted by DC rate

for developers should range from 50% to 70% to incentivise redevelopments. An equitable

percentage of residual implied FHLV extracted by DC rate for the government ranges from

50% to 100%. This is on the basis that developers should not benefit from any public

infrastructural investment.

When DC Implied FHLV is more than Residual Implied FHLV, it is deemed as fair to the

government but unfair to developers. However, it may be reasonable for DC implied FHLV

to show signs of discrepancy from Residual Implied FHLV to control the redevelopments in

Singapore. The six DC Sectors from Map A analysed in this report shows an overall finding

that the DC Rates tend to be unfair for the government, but is still reasonable.

Part A: Issue 2 A policy paper is drafted to decide on the need for further delineation of 3 chosen DC Sectors

in Map B. A threshold percentage difference for delineation was established by comparing

the DC Rates of adjacent sectors. Historical transactions from the Government Land Sales

(GLS) program and the residual value of built up transaction prices were used to determine

the varying land values.

For Sector 98, a deviation of 12% in prices is determined to warrant a delineation. As such,

the sector was delineated into “Simei”, “Tanah Merah” and “Bedok and Tampines”.

However, there was no further micro delineation within divided segment. In

Sector 100, a 12% difference between land values was established as the minimum

percentage that invokes a delineation. A macro delineation was done to divide the sector into

“Punggol” and “Sengkang, Buangkok and Hougang (SBH)”. Thereafter, SBH is proposed to

be delineated further into SBH (i), SBH (ii) and SBH (iii).

For Sector 104, 10% was established as the minimum percentage difference in land value to

carry out delineation. As a result, the sector was delineated into 2 major neighbourhoods,

Bishan and Serangoon. Further micro delineation was done within the two divided segments

to better reflect the varying land values due to the amenities in the area.

Part B The total Gross Development Value (GDV) for the proposed project amounts to

$898,580,000.00 and the Residual Land Valuation is determined to be $369,822,380.00. The

Differential Premium payable to the government for the increment in plot ratio is

$104,025,600.00 while the Upgrading Premium to extend the lease to 99 years is

approximately $38,481,438.00.

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PART A: ISSUE 1 1

1. INTRODUCTION 1

2. DERIVATION OF DC IMPLIED FREEHOLD LAND VALUE 1

3. DERIVATION OF RESIDUAL FREEHOLD LAND VALUE 1

4. DETERMINATION OF FAIRNESS 2

5. DETERMINATION OF REASONABILITY 2

5.1 Factors Affecting Movement of DC Implied FHLVH 2

5.2 Factors Affecting Percentage of Residual FHLV Extracted by DC Rate 2

5.2.1 Urban Form 2

5.2.2 Green Development 3

6. ANALYSIS OF VARIOUS DC SECTORS 3

6.1 Sector 11 3

6.2 Sector 38 4

6.3 Sector 39 5

6.4 Sector 40 6

6.5 Sector 53 7

6.6 Sector 61 8

PART A: ISSUE 2 9

1. INTRODUCTION 9

2. ANALYSIS OF SECTOR 104 9

2.1 Macro Delineation 9

2.2 Micro Delineation: Bishan 12

2.3 Macro Delineation: Serangoon 13

3. ANALYSIS OF SECTOR 98 13

3.1 Macro Delineation: Tanah Merah 13

3.2 Macro Delineation: Simei 15

3.3 Rationale for Non-micro Delineation 17

4. ANALYSIS OF SECTOR 100 17

4.1 Macro Delineation 18

4.2 Micro Delineation: Punggol 19

4.3 Micro Delineation: Sengkang, Buangkok and Hougang 20

PART B

1. HIGHEST AND BEST USE OF THE SITE 21

1.1 Rationale for Mass-market Condominium 21

1.2 Target Market 21

1.2.1 Families with Children 21

1.2.2 HDB Upgraders from Mature Estates 21

1.2.3 Private Investors 21

1.3 Number of Units 22

1.4 Rationale for Unit Types and Distribution 22

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2. FORECASTED SELLING PRICES AND ESTIMATION OF GROSS

DEVELOPMENT VALUE (GDV)

22

2.1 Comparable 22

2.2 Adjustments 22

2.2.1 Transaction Date 23

2.2.2 Location 23

2.2.3 Market Position 24

3. CONSTRUCTION COST 24

4. MARKETING AND LEGAL COST 24

4.1 Marketing 24

4.2 Legal Cost 24

5. FINANCING COST 24

6. RESIDUAL LAND VALUATION 25

7. DIFFERENTIAL AND UPGRADING PREMIUM 25

REFFERENCES 26

APPENDIX 29

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PART A: ISSUE 1

1. Introduction

Development Charge (DC) is a tax levied when planning permission is granted to carry out

development projects that involved increment in land value. Ideally, an effective and accurate

DC Rates determined by the Chief Assessor will result in equal outcomes of DC Implied

Freehold Land Value (FHLV) and Residual FHLV. However, there is often a discrepancy

between DC Implied FHLV and Residual FHLV which hinder the accuracy of development

charge imposed on developers. These discrepancies are inevitable due to market

uncertainties. This section will analyse whether the DC Rates on B2 (Non-Landed

Residential) Use for various DC Sectors in Map A are fair and reasonable. This is done by

comparing DC Implied FHLV and Residual FHLV of a particular condominium in the

various sectors. Moreover, percentage of Residual FHLV extracted from the DC Rate of

various sectors are also computed.

2. Derivation of DC Implied FHLV

DC Rate is a tax used to extract 70% of increment in freehold land value. Therefore,

3. Derivation of Residual FHLV

1 With reference to Fesselmeyer, Liu & Salvo (2015), the value of a freehold property is approximately 15% to 20% higher

than a 99-years leasehold property. Therefore, a conservative 15% upward adjustment is made in the conversion. 2 According to Navaratnaraja (2014), the average developer’s profit margin for year 2014 ranges from 5% to 10.3%. Thus, a

developer’s profit for the latest period is assumed to be 7.65% 3 Construction cost varies for different residential properties in different DC Sectors, depending on the quality of project.

The construction cost is either obtained from figures published on Rider Levett Bucknall or Building and Construction

Authority (BCA). 4 Efficiency factor for residential property is assumed to be 90% 5 An inherent assumption that the FHLV trend follows the values of Built-up Sales contemporaneously

Refer to Appendix A for an illustration on the derivation of Residual FHLV.

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4. Determination of Fairness

Currently, DC rate charged on developers is used to extract 70% of windfall gain from

increment in land value arising from planning approval to intensify the use of a land.

Historically, from February 1985 to July 2007, the DC Rate only extracted 50% of the

increment in land value instead of 70%. Therefore, the determination of fairness in the

developers’ perspectives for our report is when 50% to 70% of the Residual FHLV is

extracted to account for any windfall gain. A fair DC Rate should not extract less than 50% of

the increment in land value because this will result in huge disparity across different DC

Sectors. Consequently, developers will be more inclined to redevelop lands within sectors

with lower percentage of extraction. In addition, a fair DC Rate should not extract more than

70% of the increment in land value as this diminishes the incentives for developers to

redevelop and heighten the intensity of their lands due to lower profit margin.

According to Tong and Tay (2006), the government should be entitled to extract the entire

increment in land values and the developers should not benefit from public infrastructural

investment. The government is responsible for the financing of any expenditure on public

infrastructure improvements. This allows them to impose a high development charge since no

contribution is given by developers for the increase in land value. Therefore, the

determination of fairness in the government’s perspective is assumed to be when 50% to

100% of the Residual FHLV is extracted to account for increment in land value.

5. Determination of Reasonability

5.1 Factors Affecting Movement of DC Implied FHLV

The process of estimating changes in land value through the use of DC Rate suffers from

shortcomings. One of them includes its lack of responsiveness to the changing scenarios of

land use and density patterns when there is a change in plan, often due to planners suffering

from inadequate resources (Wong, 1996). A reasonable DC Rate should incorporate and

mimic market conditions as accurately as possible. The Residual FHLV vs DC Implied

FHLV graphs will demonstrate this hypothesis as the Residual FHLV is observed to have

lead the DC Implied FHLV by approximately 6 months during increases and declines

throughout the 6 sectors that were analysed. Thus, this indicates that the movement of the DC

Rate is reasonably and carefully calibrated. Sectors which experience deviations from this

trend will be further discussed explicitly in their respective segments on Chapter 6 of the

report.

Cooling measures is a form of government legislation introduced with the aim of dampening

prices of real estate in the market. The implementation of the 5th and 8th round of cooling

measure in December 2011 and June 2013 have an effect on the movement of the Residual

FHLV. This will be seen in the graphs for various sectors in Chapter 6 of the report. The DC

Implied FHLV is deemed to move in a manner that is reasonable and in line with the market

if it takes into account the changing market sentiments due to cooling measures.

5.2 Factors Affecting Percentage of Residual FHLV Extracted by DC Rate

5.2.1 Urban Form

DC Rate has an environmental impact on the urban form of Singapore. A low DC Rate will

entice developers to substitute Government Land Sales (GLS) for En Bloc Sales and

encourage developers to build denser projects in order to harvest at the profit maximizing

position. A low percentage of extraction by DC Rate which is beyond the range of fairness

for both developers and government can still be reasonable if it implies the intention of the

government to induce developers in rejuvenating the sectors into their maximum potential. In

addition, the DC Rate can be used as a tool to control the spread of cities, the density of the

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built form and the land use mix (Andrejs and Ray, 2000). Therefore, a high percentage of

extraction by DC Rate which is beyond the range of fairness for developers can be

reasonable.

5.2.2 Green Developments

DC Rate also affects the motivation for green developments. High DC Rate imposed on roof-

top gardens will make the LUSH (Landscaping for Urban Spaces and High-Rises) initiative

unattractive to developers (Business Times, 2009) as they would be paying additional taxes to

build unlettable green areas. Therefore, it may be reasonable for the Chief Assessor to

construct a conservative DC Rate with low percentage of extraction to engage developers in

adapting green development, aligned with the goal of transforming Singapore to a City in a

Garden. The LUSH program has since been revised in 2014 to LUSH 2.0, to improve the

benefits of creating green landscapes in developments. One of the benefits includes the

exemption of DC on green spaces for both new developments and redevelopments. As such,

the Chief Assessor is now able to adopt a DC Rate that is more reflective to the market land

value. This is illustrated in the narrowing of the DC Implied FHLV and Residual FHLV

graphs from 2014 onwards in the various DC sectors shown in subsequent section.

6. Analysis of Various DC Sectors

6.1 Sector 11

There is an overall upward trend and an increase of 44.4% in the DC Implied FHLV of Sector

11 from March 2009 to September 2014. The DC Implied FHLV was at its lowest level of

$9,000 on March 2009 and September 2009. In contrast, the highest level of the DC Implied

FHLV was observed on September 2013 and March 2014 at $13,500. The DC Implied FHLV

has remained constant from March 2009 to September 2009, before rising steeply by 44.4%

from September 2009 to September 2011. However, the DC Implied FHLV faced a large

decrease of 7.69% on March 2012. It then plateaued until March 2013 and climbed by 12.5%

on September 2013. The Implied DC FHLV had a brief plateau from September 2013 to

March 2014 and finally, dropped slightly by 3.7% on September 2014.

The DC Implied FHLV is compared with the Residual FHLV in Sector 11. The Residual

FHLV is obtained based on the latest 6-months transactions for condominium units of The

Sail @ Marina Bay. As shown in the graph above, the DC Implied FHLV is consistently

below the Residual FHLV across the 12 periods. This is as expected due to the tendency of

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the Chief Assessor on being conservative in determining DC Rates. The percentage of

Residual FHLV extracted by the DC Rate are lower than 50% from March 2009 to March

2014. This gives unfair outcomes to developers outside sector 11 and the government.

However, the low DC Rates imposed are considered to be reasonable as this sector is

envisioned to be Singapore’s new growth area that encapsulates the essence of a global city -

live, work and play. The planning authorities encourage the development of modern

residential properties that seamlessly integrate with the bustling commercial and

entertainment activities in the sector. As a result, incentives through lower DC Rates may be

given to attract developers on redevelopments. Nevertheless, the DC Rate for the B2 Use in

this sector might not be very relevant currently. This is because residential developments

available in the sector are all relatively new, hence there is no favorable opportunity for any

redevelopment yet.

6.2 Sector 38

As shown in the graph, there is an upward trend for DC Implied FHLV from March 2009 to

September 2014, with a general increase of 33.33%. The lowest DC Implied FHLV at

$10,500 was found in September 2009 while the highest at $15,500 can be spotted in

September 2011. From September 2009 to September 2011, there is a steep increase of

47.62% in the DC Implied FHLV. Subsequently, the DC Implied FHLV declined by 6.45%

in March 2012. The DC Implied FHLV then remained constant for the following four

periods, from September 2012 to March 2014. In September 2014, the DC Implied FHLV

faced a slight decrease of 3.45% to $14,000.

The Residual FHLV in Sector 38 is derived from the latest 6-months transactions for

condominium units of Belmond Green. As seen from the graph, the Residual FHLV was

higher than DC Implied FHLV only from March 2009 to March 2010 and September 2013.

Other than these periods, the Residual FHLV was generally lower than the DC Implied

FHLV. From March 2010 to September 2013, the gradual increase in the Residual FHLV due

to the healthy property market has caused the narrowing of difference between the two land

values. This results in only a slight discrepancy of 0.39% in September 2013. A sharp

increase in the Residual FHLV can be spotted in September 2011, with an increase of 4.68%

from the previous period. This upward skew was mainly due to one anomalous transaction

made in November 2011, whereby the unit was transacted at $19,444 psm, 6.28% higher as

compared to the normal transaction price of similar units in the same window of time. In

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March 2012, the drop in Residual FHLV was largely due to a transaction made at a

historically low price of $15,556 psm which was 15% lower than the usual transaction price.

From the graph, it can also be observed that the percentage of Residual FHLV extracted by

DC Rate are mostly above 70% across the 12 periods. The higher percentage extracted is

considered to be reasonable as this may be an indicative of the government’s effort to control

the extent to which the sector is being developed. In Sector 38, numerous en bloc sales had

been materialised, with at least nine en bloc sales since 2006. In order to control the urban

density and development pace of the fully-developed sector, the extraction percentage of

above 70% by the DC Rate is reasonable.

The percentage of Residual FHLV extracted by DC Rate was increasing gradually from

September 2009 to September 2011 and was decreasing from September 2011 onwards. The

unusual hike in the percentage of Residual FHLV extracted by DC Rate in September 2011

was mainly due to the en bloc acquisition sale of Balmoral Condominium in Sector 38 which

raised the Chief Assessor’s expectation of property market outlook. The en bloc acquisition

sale was made in June 2011, at a unit land rate of $16,641.01 psm, which is the highest in the

past four years. The record unit land rate has boosted Chief Assessor’s expectation as the

price paid was said to be much higher than market’s anticipation. Therefore, it was

reasonable to set a higher DC Rate. This is in line with the case study done by Wong Kok

Wai (1996) which suggested that development charge rates are strongly influenced by any

sale of land parcels within the sector.

6.3 Sector 39

From March 2009 to September 2014, the DC Implied FHLV in Sector 39 showed an overall

upward trend and increase of 25%. The DC Implied FHLV was at its lowest in March 2009 at

$14,000 and highest in September 2011 at $19,000. The DC Implied FHLV gained 35.71%

from September 2009 to September 2011 to reach a peak of $19,000. Thereafter, it declined

by 5.26% in March 2012 and stabilised till September 2014 where it decreased slightly by

2.78%.

The Residual FHLV shown in the graph was derived from the transacted sales prices of

Ardmore Park, a condominium in Sector 39. As seen from the graph, the DC Implied FHLV

is constantly below the Residual FHLV throughout the 12 periods. One anomaly in the

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Residual FHLV was found in March 2012 to September 2013 where it faced a sharp increase.

This can be explained as the built up sales transactions during this period were of units on

high floor levels. Thus, the units were transacted at a premium, resulting in the graph being

skewed upwards. Furthermore, Swire Properties acquisition of Hampton Court via an en bloc

sale in January 2013 could have re-invigorated interest in the area and thus, causing prices to

rise.

Following the slew of en bloc sales on Ardmore Point, Anderson 18, The Ardmore and Pin

Tjoe Court in 2006 and 2007, the general trend of Percentage of Residual FHLV Extracted by

DC Rate from 2009 onwards is one that is increasing. The reason for this trend is most likely

to control the extent of the redevelopments in this area.

6.4 Sector 40

Generally, from March 2009 to September 2014, the DC Implied FHLV of Sector 40 has

increased by 34.78%. It was highest in September 2011 at $17,000 and lowest in March 2009

at $11,500. There were 2 periods whereby the DC Implied FHLV remained constant, March

2009 to March 2010 and March 2012 to March 2014. A sharp increase of 47.83% in the DC

Implied FHLV was observed from March 2010 to September 2011. Subsequently, it began to

fall in the following time periods. From September 2011 to March 2012, it decreased by

5.88%. Another slight decline of 3.13% was found on September 2014.

The DC Implied FHLV is compared with the Residual FHLV in sector 40. The Residual

FHLV is obtained based on the latest 6-month transaction for condominium units of VIDA

Condominium. Based on the graph above, it can be observed that the Residual FHLV was

higher than the DC Implied FHLV from March 2009 to March 2013. Thereafter, from

September 2013 to September 2014, the Residual FHLV became slightly lower than the DC

Implied FHLV. This is because of the Total Debt Servicing Ratio introduced in June 2013

which reduced the transaction volumes in new and resale market. The impact of the cooling

measures was more significant in Sector 40 as it belongs to the prime district where many

luxury market condominiums are found. With the weak market sentiments and large supply

available, massive price discounts were conducted to assist in demand recovery. This market

trend is shown through the gradual decline in Residual FHLV.

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Furthermore, with the exception of September 2009 and March 2010, the percentages of

Residual FHLV extracted by the DC Rate are higher than 50%. This gives a fair outcome to

developers outside Sector 40 and the government. The percentage extracted by the DC Rates

are above 70% from September 2013 onwards. The general increase in percentage of

Residual FHLV extracted by the DC Rates shows that the government might be controlling

over the extent to which the sector is being developed. This is because in 2007, there was

rejuvenation efforts by the government to inject new vitality into the sector and its

surroundings (Tay, 2007). The government rejuvenation efforts were completed in April

2009. These public infrastructural investments enhanced land values in the sector. Thus, it is

reasonable to increase the percentage extracted by DC Rates to reduce excessive windfall

enjoyed by developers.

6.5 Sector 53

From March 2009 to September 2014, Sector 53 experienced an overall rise of 62.5% in DC

Implied FHLV. The lowest point at $5,714.29 was found on March 2009 while the peak at

$9,285.71 was found on September 2013. The DC Implied FHLV rose sharply by 50% from

March 2009 to September 2011 and plateaued until March 2013. From March 2013 to

September 2014, DC FHLV climbed once again by 8.33% and remained constant until

September 2014.

Transacted sales price of units in City Square Residence condominium are used to derive the

Residual FHLV in Sector 53 as it was the only condominium with transactions throughout the

12 periods. Based on the figure above, from September 2012 to September 2013, the drop in

Residual FHLV was not reflected in the DC Implied FHLV. This anomaly was due to the en

bloc sale of Serangoon Plaza which was sold 169% above the DC Implied FHLV in

November 2013. It is highly probable that the positive sentiments generated from the en bloc

sale was perceived to have offset the declining Residual FHLV by the Chief Assessor. Thus,

he decided to hold the DC Implied FHLV constant in March 2014 and September 2014.

The percentage of Residual FHLV extracted by DC Rate is decreasing gradually over the

time period. This can be justified by the growing number of foreign immigrants in Sector 53.

Residents living in Little India presume the presence of foreign workers as a disamenity

(Straits Times, 2012). Singapore planners are not able practice racial segregation planning

policies to rectify the disamenities since spatial injustice will be apparent to the public.

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Therefore, it is reasonable for the Chief Assessor to set a low DC rate to account for this

market sentiment, encouraging further redevelopment efforts.

6.6 Sector 61

From March 2009 to September 2014, the DC Implied FHLV in Sector 61 showed an upward

trend and increase of 11.58%. The DC Implied FHLV was at its lowest in September 2009 at

$8,000 and highest in September 2011 at $11,500. After the 15.79% dip in September 2009,

the DC Implied FHLV increased by 43.75% from September 2009 to September 2011 to

reach the peak. Thereafter, it declined slightly by 15.00% in March 2012 and stabilised until

September 2014 where slight decrease of 3.64% was observed again.

The DC Implied FHLV is compared with the Residual FHLV in Sector 61. The Residual

FHLV is obtained based on the latest 6-months transactions for condominium units of Park

Infinia @ Wee Nam. With reference to the graph above, the DC Implied FHLV is constantly

below the Residual FHLV throughout the 12 periods. DC Implied FHLV was constant from

March 2012 to March 2014. This could be because the DC rate in the previous periods from

September 2009 to September 2011 had been revised upwards too abruptly (Choo, 2000).

Therefore, there is a need to moderate the DC rate to boost redevelopment potential of the

sector.

The overall trend for the percentage of Residual FHLV extracted by DC Rate vary across the

12 time periods. The 2.28% decrease from March 2014 to September 2014 can be justified by

the publication of Novena Masterplan 2013, which provides for many future development

plans for commercial, transportation and healthcare facilities (URA, 2013). The Government

might have lowered the DC rate from September 2013 concurrently with the release of

Masterplan 2013 to encourage developers in rejuvenating the residential properties. This is to

ensure that the residential properties are able to complement the upcoming new developments

in the sector.

9

PART A: ISSUE 2

1. Introduction

This strategy paper seeks to determine the possible need to further delineate the sectors in

Map B into more geographical sectors in order to better reflect the varying land values across

locations within the sector.

“Development Charge (DC) on the ‘appropriate geographical sector’, in relation to any

land, means the geographical sector set out in the plans in the Second Schedule within which

the land falls. DC is imposed on landowners or developers who benefit from a Written

Permission, making the approved development economically favorable, should contribute to

the state part of the benefit derived.” - Planning Act Section 40 (1)

The purpose of DC is for distributional equity and the state is justified to extract a part of the

windfall. Landowners or developers enjoys a windfall when the value of the property

increases not out of his own doing, but because of external forces. Such extrinsic forces

include general economic and population growth, spillover effects from a neighbour’s

positive use of land, favourable governmental projects and regulations. Therefore, the DC

Sectors should be delineated based on the external forces affecting different sub-segments of

the sector.

2. Analysis of Sector 104

Sector 104 is located in the Central and North-East Region of Singapore. It comprises mainly

of two large residential neighbourhoods, namely Bishan and Serangoon. Both

neighbourhoods are mature estates that generally have good amenities and high accessibility.

Delineation of the sector will be approached from a macro perspective before delving further

into micro analysis. In determining whether a new sector should be carved out or delineated,

a percentage difference of 10% and above in land value is set as the threshold for delineation.

The value of 10% was derived from analysing the average percentage difference in DC Rates

between Sector 104 and adjacent sectors.

2.1 Macro Delineation

Figure 1 shows Government Land Sales

transactions in Bishan and Serangoon. There are

only 2 transactions found in year 2011 and

2012. As shown, the land price for Bartley

Residence in Serangoon was 28.61% lower than

Sky Habitat in Bishan in 2011. Subsequently in

2012, a lower land price of 40.61% for Kovan

Regency in Serangoon compared to Sky Vue in

Bishan was observed. Based on empirical

evidences gathered during these 2 time periods,

the average land value in Serangoon is 34.55%

lower than Bishan. This reflects a significant

difference in the land values of the 2 areas,

hence the need to further delineate Sector 104.

Figure 1: Government Land Sales of Sector 104

10

To further augment the findings of the GLS prices,

the residual leasehold land values of several

condominiums in Bishan and Serangoon transacted

in 2013 were derived. Due to the lack of empirical

evidence on built-up properties with similar

qualities in Sector 104, direct comparison on the

transaction prices of built up properties could

result in inaccuracy. Therefore, the residual

approach is undertaken to minimise inaccuracy as

other variables affecting transaction price such as

tenure, quality, profit margin and efficiency factor

can be controlled. This ensures fair comparisons of

land values across condominiums in different

locations. With reference to Fesselmeyer, Liu &

Salvo (2015), a freehold property commands

approximately 15% to 20% premium than a 99-

year leasehold property. Therefore, transacted

prices of freehold condominiums such as E

Maison, R Maison and Jade Residences were

imposed to a downward adjustment of 15% to

ensure that these condominiums were compared on

a leasehold basis. According to Navaratnaraja

(2014), the average developer’s profit margin for year 2012, 2013 and 2014 are between

14.4% to 22.2%, 15.6% to 22.5% and 5% to 10.3% respectively. Thus, Sky Habitat, Kovan

Regency and Bartley Residence which were launched in 2012 are imposed to a profit margin

of 18.3%. Similarly, Sky Vue, E Maison, R Maison and Jade Residences which were

launched in 2013 are imposed to a profit margin of 19.05% - 22.5%. The construction cost

for each condominium was estimated from the publication data of Rider Levett Bucknall and

Building and Construction Authority (BCA). Good quality condominiums such as Sky

Habitat, Jade Residences, E Maison and R Maison adopted a construction cost of $4,000 per

sq m per GFA into the residual model. On the contrary, medium quality condominiums like

Sky Vue, Kovan Residences and Bartley Residences adopted a more conservative

construction cost of $3,000 per sq m per GFA. In addition, an efficiency factor of 90% is

used for each condominium. These inputs result in an average residual land value of

$8,489.30 per sq m of GFA for condominiums in Bishan and $ 6,513.63 per sq m of GFA in

Serangoon. This translates to an average higher land price of 23.31% in Bishan compared to

Serangoon. Thus, the residual approach conducted using built up condominiums supports the

findings in the GLS price study that there should be a delineation in Sector 104 between

Bishan and Serangoon due to the large land price differences in these areas.

Figure 2: Built Up Sales for Sector 104

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Figure 3: Proposed Delineation for Sector 104

One of the reasons resulting in the significant difference in land values for Bishan and

Serangoon is height control. The majority of developments in Serangoon area are bound by

height restrictions due to the proximity to Paya Lebar Airbase. On the other hand,

developments in Bishan area are only restricted by the height limit from the assigned plot

ratio. A height restriction reduces the land value as it makes the development more difficult

and challenging for the developer to design. As a result, the developer may have to engage

more costly and experienced architectural firms to navigate around the restrictions. Thus,

these additional cost in time and money may result in developers administering a discount to

land bound by height restrictions. Moreover, residential units located at a higher floor level

tend to command a higher price premium as compared to lower floor units. Hence, an

imposed height restriction effectively prevents a developer from reaping higher profit

margins through the construction of taller condominium towers. This results in the lack of

incentives for developers to bid a higher price for lands situated in Serangoon.

In addition, Bishan is able to secure a higher land value due to its superior location of being

in closer proximity with the Central Area and Central Business District (CBD) than

Serangoon. As a result, Bishan is able to offer more convenience and prestige to its residents

than Serangoon. This fact is further illustrated in the Urban Redevelopment Authority (URA)

master plan whereby Bishan and Serangoon fall under different regions. Bishan is classified

under the Central Region whereas Serangoon is classified under North-east Region. In

addition, Bishan and Serangoon are also categorised differently in the URA Private

Residential Property Index which segments the residential market into 3 categories of Core

Central Region (CCR), Rest of Central Region (RCR) and Outside Central Region (OCR).

Bishan falls under RCR while Serangoon falls under OCR.

Furthermore, while both Bishan’s MRT station and Serangoon’s MRT stations are connected

to the Circle Line, Bishan MRT station runs through the North South Line whereas all the

MRT stations in Serangoon are only connected to the North East Line. Therefore, Bishan’s

MRT station is much more accessible as the North South Line is directly connected to Raffles

Place and Orchard, two popular places people commute to for work and leisure. As a result,

Bishan’s land value exhibit’s a higher price premium compared to Serangoon.

12

2.2 Micro Delineation: Bishan

A significant difference in land values for

residential properties located within 1 km

radius of Bishan MRT and the rest of Bishan

area can be observed. As shown in figure 6,

Sky Vue and Sky Habitat represent built-up

properties in the circled area while Clover

by the Park represent one in the rest of

Bishan area. The residual land value for

Clover by the Park is 13.41% and 12.56%

lower compared to Sky Vue and Sky Habitat

respectively. The circled area in figure 4 is a

region concentrated with several amenities

that contributes positively to residential land

values. These amenities include Bishan

MRT, Bishan Bus Interchange, Junction 8

Shopping Centre, Bishan Public Library and

Bishan Community Centre. In contrast, the

rest of Bishan area outside this circle is

generally surrounded only by

neighbourhood parks. With reference to Liu,

Yeow & Zhu (2006), residential land values

are most strongly affected by accessibility to

public transport and least affected by accessibility to parks. Amenities such as shopping

centre, schools and community centres rank in between public transport and parks. Thus, it is

reasonable that the circled area has a significantly higher land value than the rest of Bishan

area. The significantly stronger combined influence by a cluster of positive amenities in the

circled area has outweighed the minor influence by the park, which is the only amenity

provided in the rest of Bishan area. In addition, according to Navaratnarajah (2011), values of

residential properties located within 1 km radius from MRT is significantly 10% to 15%

Figure 6: Built Up Sales for Bishan

Figure 4: Proposed Deleneation for Bishan Figure 5: Proposed Delineation for Serangoon

13

higher. Therefore, a delineation within 1 km radius of Bishan MRT and the rest of Bishan

area is proposed and shown in figure 4.

2.3 Micro Delineation: Serangoon

As mentioned above, the distance and

concentration of various amenities such

as MRT stations and shopping centres

affects the residual land value of

residential properties. In the Serangoon

area, a significant difference is observed

in the residual land values of Sunglade,

The Scala, Kovan Regency, Bartley

Residences and Terrasse. Terrasse is

located in the northern region of sector

104, and is surrounded by various landed

houses. However, the only amenity

found in that area is The Serangoon

Community Center. On the other hand,

Sunglade, The Scala, Kovan Regency

and Bartley Residences are either

located near to MRT stations or

shopping centres. Based on the figure 7,

the residual land values of Terrasse is on

average 28.16% lower than the latter four

condominiums. Therefore, there is a need

to delineate the area around Terrasse as the land values in that area do not experience the

positive benefits of having amenities nearby. The delineation of Serangoon is illustrated in

figure 5.

Figure 7: Built Up Sales for Serangoon

14

3. Analysis of Sector 98

Sector 98 covers a large geographical area which comprises of four major areas - Tanah

Merah, Bedok, Tampines and Simei. These areas are mature estates with high concentration

of public housings. Through comparing the DC Rates with the neighbouring sectors around

Sector 98, a difference ranging from 12% to 32% was obtained. Hence, 12% is taken as the

legitimate percentage difference in land value for the delineation of areas in Sector 98.

3.1 Macro delineation: Tanah Merah

Figure 8 shows the GLS transactions located in the

four major areas in Sector 98. The land value in

Tanah Merah was the highest compared to the rest

of the areas, with 22.64%, 37.74% and 38.67%

higher than the land value of Simei, Tampines and

Bedok respectively. Therefore, there is a need to

delineate Tanah Merah from Sector 98 since the

percentage differences observed are significantly

higher than the threshold percentage difference for

delineation, 12%.

The proposed delineation can be further

supported with the built up sales transacted in

2013. It is preferable to only compare among

properties with similar quality in order to

establish a set of reliable data and mitigate

inaccuracy. Therefore, the condominiums

selected for the analysis were all launched within

the same window of time and are of similar

quality. With reference to figure 9, the average

transacted price for Urban Vista in Tanah Merah

was the highest among all the condominiums in

the four estates. The average transacted prices of

My Manhattan in Simei, Waterview in Tampines

and Archipelago in Bedok are 20.11%, 30.92%,

38.14% lower than Urban Vista in Tanah Merah

respectively. This translates to a lower average

transaction price of 29.72% for built up

properties situated outside Tanah Merah. This

shows significant land value difference between

“Bedok, Tampines and Simei” (BTS) and Tanah

Merah. The results from GLS and built up sales

are therefore congruent to justify the need for

delineation between Tanah Merah and BTS.

Figure 8: Government Land Sales for Sector 98

Figure 9: Built Up Sales for Sector 98

15

A possible reason for the higher land

value in Tanah Merah could be due to

the desirability of the neighbourhood.

Generally, there is a stronger

preference to reside in a

neighbourhood with a well-refined

community for better social cohesion.

Tanah Merah is surrounded mostly by

private landed residential properties.

As such, the neighbourhood is often

associated with positive externalities

due to the high income and education

level of the residents. Moreover,

according to the conformity principle,

the value of the property can also be

influenced when the property is in

harmony with the surroundings. Since

the condominiums located in Tanah Merah are vested nearby the private landed residential

properties, this might give rise to a higher value.

In addition, the price difference between BTS and Tanah Merah could be justified by the

difference in the MRT service. Unlike BTS, Tanah Merah benefits from both East West Line

and Changi Airport Branch Line. The increase in convenience to travel to Singapore Changi

Airport has resulted in Tanah Merah enjoying a price premium compared to BTS. Thus, the

proposed delineation is shown in figure 10.

3.2 Macro Delineation: Simei With reference to Figure 11, the land values in

Tampines and Bedok are found to be 19.51%

and 20.73% lower than Simei respectively.

This translates to a lower average land values

of 20.12% for Tampines and Bedok. This

percentage supports the delineation of Simei

from Tampines and Bedok as it exceeds the

threshold percentage of 12%.

Figure 10: Proposed Delineation for Sector 98

Figure 11: Government Land Sales for BTS

16

To further justify the need to delineate Simei

from Sector 98, the differences between Simei,

Tampines and Bedok’s built up land values are

analysed. Figure 12 shows that built up sales

price of Waterview in Tampines and Archipelago

in Bedok are 30.01% and 13.18% lower than My

Manhattan in Simei respectively. This shows a

significant lower average in land value of 21.54%

for Bedok and Tampines as compared to Simei.

The comparison using built-up transactions have

also produced a similar outcome as the study

from GLS regarding the need for delineation

between “Bedok and Tampines” and Simei.

There are several factors that induce the significant differences in land values between

“Bedok and Tampines” and Simei. Simei is a well-established housing estate with a variety

of amenities and facilities available. This gives rise to a positive impact on the value of the

residential properties situated in Simei. The residential properties in Simei are greatly sought-

after compared to Bedok and Tampines as Simei’s locational attributes cater to the different

needs of the population. Being located in close proximity with Changi Business District Park

whereby most expatriates are employed, Simei sees a higher demand in residential properties.

In addition, Simei is located nearby Singapore Expo, one of the largest meetings, incentives,

conferencing and exhibitions venue in Asia. Dwellers in this region will be able enjoy the

large array of events held in Singapore Expo without intensive commuting. The

agglomeration of other amenities such as hotels and shopping malls within the vicinity that

complement Singapore Expo is also prevalent. The large spectrum of amenities developed in

Simei has given rise to a price premium. Therefore, properties in Simei have a higher land

valueacomparedatoathoseainaBedokaandaTampines.

3.3 Rationale for Non-micro Delineation

A residual approach is undertaken for the

comparison between land values of built up

condominiums in Simei. This is to take into

account the different tenure of the condominiums

analysed. Tropical Spring is a 99-years leasehold

property while Sun Haven is a freehold property.

Figure 13 shows the insignificant percentage

difference in the residual freehold land values for

both condominiums across different locations

within Simei. Sun Haven is located 1.09 km away

from the MRT Station while Tropical Spring is

located only 0.29 km away from the MRT Station.

However, as shown in the graph, the residual

freehold land value for Sun Haven is only 5.12%

Figure 13: Built Up Sales for Simei

Figure 12: Built Up Sales for BTS

17

lower than Tropical Spring. This percentage is below the threshold of 12% and hence,

suggesting that further delineation within Simei is unnecessary. One reason that may justify

this suggestion include the relatively small size of Simei as an estate. This allows all non-

landed residential properties situated within this area to enjoy similar locational benefits from

the amenities provided.

In the case of Tanah Merah, there is lack of

empirical evidence on built up residential

properties to analyse the difference in land

values across varying locations. This is

because all the non-landed residential

properties in Tanah Merah were found in

clusters. However, this observation could also

suggest further delineation unnecessary as the

cluster of residential properties would have

similar external forces acting on them. Bedok

and Tampines are also faced with a similar

challenge as in Tanah Merah. The lack of

empirical evidence due to either clustering of

condominiums or aging non-landed residential

properties could deem further delineation

unjustifiable.

4. Analysis of Sector 100 Sector 100 is located in the North-East Region of Singapore and it comprises of geographical

areas such as Punggol, Sengkang, Buangkok and Hougang. Punggol and Sengkang region are

relatively new and there are numerous future plans presented in the Master Plan to provide

more amenities, commercial hubs and to metamorphose the lifestyle of the sector.Thus, the

process of delineating this sector should not only consider the trends of historical transaction,

but also be forward-looking

In order to determine whether further delineation is required, a minimal percentage difference

of 12% in land values was used. This percentage is derived from the difference in

development charge rate of a neighbouring sector, sector 99. Sector 99 was chosen instead of

sector 106 due to the lack of residential transactions in the latter sector.

Figure 14: Clustering of Condominiums in Tanah Merah

18

4.1 Macro Delineation

Figure 15 shows the proposed delineation for Sector

100. Sengkang, Buangkok and Hougang (SBH) is a

relatively more mature estate located nearer to the

central region compared to punggol. A mature estate

comprises of more well-established amenities such as

schools, malls as well as community centres. In SBH,

there are more amenities, which includes a

comprehensive public transport network services,

prestigious school such as Nan Chiau Primary School,

numerous healthcare facilities, recreational facilities

and parks. Hence, there is a stronger positive external

force in SBH which allows its residential housings to

command a higher price compared to punggol

(Moneysmart, n.d.).

However, the transformation of Punggol into a mature

estate may be possible in the near future especially

with the gradual implementation of the Punggol Master

Plan. This may lead to a converging percentage price

difference between the properties located in Punggol

and SBH.

As seen in figure 16, the percentage of price

differences between Punggol and SBH is

converging from 21.18% in 2013 to 18.22% in

2014 after the announcement of Punggol Master

Plan on 20 November 2013. However, only a

slight drop of 2.96% was reflected after this

announcement. Research has shown that the

announcement of future planning has a greater

positive effect on built up prices than to the

ending stage whereby plannings are officially

executed and operational (Tan, 2009/2010).

Thus, this suggest that the future price

convergence between Punggol and SBH will not

be more than 2.96%. The insignificant price

difference observed after the announcement

seems to show that the general public still

perceive SBH as a better location compared to

Punggol. This justifies the need for further

delineation in Sector 100, between SBH and

Punggol.

Furthermore, another reason for the large differences in price between the properties in

Punggol and SBH is because Punggol is located farther away from the CBD area. Research

has shown that linear distance to CBD is the most important variable in affecting land price.

Figure 15: Proposed Delineation for Sector 100

Figure 16: Built Up Sales for Sector 100 *Punggol: A Treasure Trove, Parc Centros **SBH: Jewel @ Buangkok, La Fiesta, The Luxurie

19

According to Lee (2002), Relationship between land prices per square meter is negatively

related to the linear distance to CBD. In this case, SBH is located 11.8km away from CBD

while Punggol is located 14.5km away from CBD area. Therefore, properties in SBH area are

likely to command a higher price premium compared to the properties in Punggol area.

4.2 Micro Delineation: Punggol

In order to determine the strengths and

influences of the external forces affecting land

values, it is necessary to identify the point of

areas whereby the land is able to enjoy the

spill-over effects from the facilities. The

various key facilities shown in the Appendix

B have different capacity in affecting the

value of property prices. The annotation of the

extent to which facilities can impact property

values is in the shape of a circle. Facilities

with greater capacity to affect the value of

properties would have a larger radius

compared to facilities with smaller capacity.

Point of areas with a number of interceptions

between various circles are locations whereby

the strength of the spill-over effects can be

measured.

As seen in figure 17, areas in Punggol that are marked “X” are the points of intersections.

This signifies that any distance beyond the “X”, will not be able to enjoy multiple facilities’

spill-over effects. These points will thus serve as a reference point for delineation.

However, based on figure 18, the percentage

difference in price between built up sales in

Punggol (i) and Punggol (ii) is converging from

13.11% in 2012 to 6.63% in 2014. This renders

delineation unnecessary since the percentage

difference in price is below 12%. The

underlying reason for the convergence is due to

the announcement made in the Master Plan

(2013) for the transformation of Punggol. The

plan includes improving accessibility within

and outside Punggol in the future. The Cross

Island Line (CRL) and the extension of the

North-East Line (NEL) will be completed by

2030 to better serve the new Punggol

downtown. Road improvements will be

implemented at Punggol Way and Punggol

Road to provide a smoother connections to

Tampines Expressway (TPE) as well as an

additional expressway, Punggol Semi-

Expressway for inter- and intra-town travel.

Figure 17: Proposed Delineation for Punggol

Figure 18: Built Up Sales for Punggol *Punggol (i): A Treasure Trove, Parc Centros **Punggol (ii): Flo Residence, River Isles

20

Figure 19: Proposed Delineation for SBH

4.3 Micro: Sengkang, Buangkok and

Hougang Similarly, areas marked “X” are the reference

point to delineate SBH, and the proposed

delineation can be seen in figure 19. Most of the

facilities like MRT, prestigious schools and

shopping malls are agglomerated around upper

left portion of the figure 19. This explains why

the “X” marks are drawn around these facilities

that enjoy the spill-over effects. This results in

the need for further delineation of SBH into 3

parts, SBH (i), SBH (ii) and SBH (iii).

This is supported by figure 20, whereby the

percentage difference in price between SBH (ii) and

SBH (iii) is diverging from 20.88% in 2011 to

22.29% in 2014. This renders the need for further

delineation within SBH as the percentage difference

in price between the 2 areas are more than 12%. The

reason for this is because SBH (ii) more accessible

to key amenities such as schools, shopping malls

and transport nodes whereas SBH (iii) is suffering

from a deficit of key amenities. However, SBH (iii)

comprises of Paya Lebar Airbase which is still

currently subjected to future redevelopment

planning (The Straits Times, 2013). As such there

may be new key facilities located in SBH (iii) which

would be crucial in affecting the value of properties

located in SBH (iii). As the government has yet to

declare any long-term land use plans in that area, it

is difficult to predict and quantify for the possible

impact on property values. Thus, the general public

may fail to appreciate the potential intrinsic value in

that area. Additionally, SBH (i) does not have any

condominium project to make a price comparison

with SBH (ii). Nonetheless, it is justifiable for the

land to be delineated to SBH (i) as it suffers from

lack of facilities.

Figure 20: Built Up Sales for SBH *SBH(ii): Jewel @ Buangkok, La Fiesta, The Luxurie **SBH(iii): Parc Vera, Riversails, Evergreen Park, Boathouse Residence

21

PART B

1 Highest and Best Use of the Site

The figure in Appendix C shows the amenities surrounding the site.

1.1 Rationale for Mass-market Condominium

Mass-market condominiums constitute the largest proportion of Singapore’s private housing

market. They are located in Rest of Central Region and Outside Central Region, unlike

luxury condominiums which are often situated only in the prime districts of 1, 4, 9, 10 and

11. According to the conformity principle, property value is influenced by the extent to which

a property is in harmony with its surrounding. When this principle is taken into account,

situating a luxury condominium in Jalan Lempang (District 5) might negatively affect the

value of the project. In addition, the luxury market located in prime areas are undergoing

aggressive price discounts due to the general weakening property market. Therefore, it is

challenging for the subject property to capture the demand of luxury market. Furthermore, the

significant drop of 6.2% in the average price of luxury condominiums from 2013 to 2014

(CBRE, 2015) deems luxury market unfavorable. On the other hand, developing a mass-

market condominium in the current market bound with many cooling measures might be

more profitable. This is due to the higher affordability of mass-market condominiums

compared to luxury market, hence generating a relatively higher demand among potential

buyers. Therefore, the subject property should be a mass-market condominium.

1.2 Target Market

1.2.1 Families with Children

In Singapore, primary school enrolment is done through a balloting system whereby the first

priority is given to children living 1km away from the school. There are various schools that

are located in the vicinity of the subject property. In particular, Nan Hua Primary which is a

prestigious and reputable school is located only 0.3 km away. As most parents are concerned

about their children’s education, the close proximity with many schools will heighten the

demand of families with children in the subject property.

1.2.2 HDB Upgraders from Mature Estates

There is currently a negative trend in the average HDB resale price due to the cooling

measures and weakening property market. However according to SRX Property’s new sub-

indices for mature and non-mature estates, non-mature estates were responsible for the

general fall in prices (Heng, 2015). Average HDB resale price for mature estates had rose by

0.2% while those of non-mature estate dropped by 0.9% in January 2015. This shows that the

subject property can still attempt to capture the demand of HDB upgraders from mature

estates in contrast to those from non-mature estates. With the rise in HDB resale prices for

mature estate, HDB residents can still seize some profits when disposing their properties.

This increases the monetary allowance HDB upgraders can allocate for their new residential

purchases. According to iProperty survey, 68% of HDB upgraders aim for a mass-market

condominium compared to other types of private residential properties (Singapore Business

Review, 2013). In addition, the subject property will not compromise the quality of lives and

convenience of HDB upgraders from mature estates. This is because Clementi is also

considered as a mature estate and is surrounded by various amenities. Therefore, the subject

property will suit the preference of these upgraders.

1.2.3 Private Investors

In the current economic condition, investors are faced with continuous enforcement of loan

curbs, causing them to turn towards properties that are relatively less expensive (Mohamed,

2015). The subject property is a mass-market condominium situated in Clementi that is able

22

to attract many investors because it is relatively easy to afford and finance. Due to the

proximity with many schools and employment centres, potential tenants can be easily

secured. This will ensure steady rental incomes for investors. Moreover, the subject property

is considered to have high growth potential due to the government’s decentralisation strategy

on making Jurong as a regional centre. There is also a lower risk involved with mass-market

condominiums in Outside Central Region that will further appeal investors. This is illustrated

in the island-wide drop of non-landed private residential prices in 2014 where the average

price of those located Outside Central Region is least affected (Savills Research, 2015).

1.3 Number of Units

From a developer’s point of view, developers aim to optimise their profits by building as

many units as possible. According to Urban Redevelopment Authority (URA), the maximum

number of dwelling units allowed in this development is 900. In view of this constraint, the

number of proposed units is 870.

1.4 Rationale for Unit Types and Distribution

In light of cooling measures, affordability of houses will decline significantly (ST Property,

2013). Therefore, more smaller units should be assigned in this development because they

have a lower overall quantum price. A significant proportion of units are also assigned to

have 2 and 3 bedrooms to cater towards one of our target market - families with children.

There are only a limited number of 4-bedroom units allocated because it is less affordable for

potential buyers who are targeting mass-market condominium.

2 Forecasted Selling Prices and Estimation of Gross Development Value (GDV)

2.1 Comparable

Refer to Appendix D for the average transaction price of various units types in the Trilinq.

2.2 Adjustments

23

2.2.1 Transaction Date

The comparable units from The Trilinq were transacted between March 2013 to January 2015

while the subject units are assumed to be launched and transacted in 2018. The comparables

transacted consisted of only developers’ sales. Therefore prices reflected on these

comparables are based on the market conditions in 2013 when The Trilinq was first launched.

The price index for non-landed residential properties situated in the outside central region

(OCR) rose by an average of 2.8% from Q1 2013 to Q4 2014 (URA, 2015). According to

OCBC Singapore Credit Outlook published in January 2015, it is forecasted that there will be

an island-wide 10% to 15% decline in private residential prices from 2015 to end of 2016.

The rationale behind this forecast concerns cooling measures, oversupply of residential

properties coupled with the higher interest rate outlook. Nevertheless, the report stated that a

significant plunge of 20% by end of 2016 is rather unlikely as investment demand will surge

at the lower property price points, given the high price elasticity in the property market.

Moreover, the government would most probably intervene and begin relaxing the cooling

measures if the property price were to plunge by 20% to avoid any crash in the property

market. This justifies that the forecasted property prices in 2017 and 2018 would remain

fairly stable at the reasonable forecasted level of 10% to 15% price decline by end of 2016.

We analysed that 11% forecasted decrease in prices from those of 2015 should be assumed

for residential properties situated in OCR, the lower bound of the overall 10% to 15%

forecasted price decrease (as mentioned in the report). This is because the prices of

residential properties for OCR has been the least affected by the decline of property market

for the past 2 years compared to Core Central Region (CCR) and Rest of Central Region

(RCR).

The final price adjustment for transaction dates that are to be imposed on the comparables

should take into account the whole period of Q1 2013 to 2018. Therefore, we need to

incorporate both the past data of 2.8% upward adjustments (URA, 2015) and the forecasted

data of 11% downward adjustments (OCBC Singapore Credit Outlook 2015). This conclude

that the price adjustments for transaction dates imposed on the subject units will be an overall

downward adjustments of approximately 8.5%.

2.2.2 Location

The Trilinq is located along the main road of Commonwealth Avenue West whereas our

subject site is located further away from the main road at Jalan Lempeng. Hence, residents

from The Trilinq will have better accessibility to Clementi MRT Station. Our subject site is

located right next to Ayer Rajah Expressway, however, it is not easily accessible as a detour

has to be taken in order to arrive at the entrance of the expressway. Furthermore, cars

travelling on the expressway will generate a lot of noise and disturbance which decreases the

value of the subject site. Hence, taking into consideration of the locational factors, we have

decided to adjust the selling prices downwards by 2% for our subject site.

24

2.2.3 Market Positioning

The Trilinq is positioned as a high end mass-market condominium with units enjoying

unblocked views, high loft ceilings and numerous facilities. However, our subject site is

positioned to cater to the mid end mass-market. Furthermore, The Trilinq adopted an

aggressive pricing strategy that was not in line with market sentiments. Thus, the projected

prices for our subject site should be reduced by 5% to reflect the difference in our target

market and market positioning.

3 Construction Cost

Construction cost is largely dependent on the quality and positioning of the development. As

the development is determined to be a mass-market condominium, the estimated cost of

construction will be of an average quality condominium. According to Rider Levett

Bucknall’s publication, we have decided to adopt $2,700 per sqm of GFA as the construction

cost for this development.

4 Marketing and Legal Cost

4.1 Marketing

Sales commissions are paid to the real estate agents when they successfully secure a sale

from a buyer. The commission rate depends on the market condition during the time of sale.

During rising market condition, developers quote a sales commission of 0.6%. However due

to the cooling measures imposed on the market, mass residential sales volume have been

reduced (KnightFrank, 2015). This has prompted developers to increase their sales

commission to 1.5%, incentivising agents to adopt more aggressive sales approach. The

promotional expenses for real estate projects usually include advertising fees, banners,

brochures and architectural models. Based on commercial practices, developers incur

approximately $1,500,000 for advertisements and promotions. Moreover, show flats are built

to provide buyers with a clearer representation of the units. This would cost approximately

0.15% of estimated GDV to construct and maintain.

4.2 Legal Cost

In a real estate development project, solicitors are needed in 3 different segments of the

project which includes the purchase of land, mortgage and sale of units when the property is

launched. The legal cost and stamp duties payable for the acquisition of land by en bloc is

estimated to be 1.5% and 3% of the land purchase price respectively. On the other hand, legal

cost associated with the sale of units and securing a mortgage for the project by simple loan

structure is estimated to be 1.5% of the Gross Development Value (GDV).

5 Financing cost

In determining the financing cost for land and construction, the financial statements of

CapitaLand and Keppel Land were analysed. Even though the specific interest rate on land

loans and construction loans are not published, the average interest rate on borrowings at a

corporate level is provided. CapitaLand and Keppel Land have an average interest rate of

3.4% (CapitaLand Limited Financial Year 2014 Results, 2015) and 2.5% (Keppel Land

Financial Year 2014 Results, 2015) respectively. This low levels of interest rate are largely

due to their strong credit ratings and reputations in the industry. However, a higher interest

rate will be assumed for both the construction loan and the land loan of this project. We have

estimated that for a typical developer, the interest rate on construction loans will be 6% and

the interest rate on land loans will be 4%. Land loans have a lower interest rate compared to

construction loans because land can be used as a collateral in the mortgage, reducing risk.

25

6 Residual Land Valuation Refer to Appendix E for the calculation of GDV.

7 Differential and Upgrading Premium

26

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pplementaryslides.pdf

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Appendix A: Illustration on Derivation of Residual FHLV

Appendix B: Key Facilities in Affecting the Value of Property Prices

Facilities (Colour) Radius (Km)

Mass Rapid Transit (Purple) 1 Kilometer

Prestigious Primary School (Orange) 1 Kilometer

Shopping Mall (Pink) 0.3 Kilometer

Green Park (Green) 0.3 Kilometer

Body of Water (Blue) 0.3 Kilometer

Industrial Park (Grey) 0.3 Kilometer

1 With reference to Institute of Real Estate Studies (2011), the effective radius of these key

facilities are in accordance to their studies. 2 The colour listed beside the facility is the colour of the circle found in Map X, Y, Z

Appendix C: Amenities Surrounding the Subject Property

30

Appendix D: Transaction Prices of Comparable on Various Unit Types

Appendix E: Calculation of GDV