The government has raised the Development Charge (DC) for new building projects from 50 per cent to 70 per cent of the increase in value of the land, in line with the buoyant property market.

The announcement, which takes immediate effect today, and is seen as a move to cool the red-hot property market, prompted property stocks to post the biggest drop in three months.

The revised rates will apply to development applications which are given provisional permission from today. They will also apply to cases that are granted a second or subsequent extension to their provisional permission on or after this operative date.

A statement from the National Development Ministry today said the DC rates have been revised to reflect the appreciation in land value, and is a reinstatement of what it was in 1985.

The government reduced the DC from 70 per cent to 50 per cent in 1985 to avoid eroding the share of value enhancement to the developers in the then declining market due to the recession.

"With the current buoyant property market, the converse is true. Thus, the government has decided to reinstate the DC to its original rate at 70 per cent," said the ministry statement.

Market watchers says the move will take some of the heat off the en bloc frenzy, which has pushed ups prices of such collective sales in recent months.

"It will help to cool the red-hot market for en bloc sales of residential properties. Sellers will get less because of the revision in the development charge rates. But the revision will have minimal impact on developers, who will certainly factor in the cost in the prices they offer for the land," Mr Colin Tan, head of research, Chesterton International, told AsiaOne.

Mr Donald Han, managing director of Cushman & Wakefield Pte, a property consulting company based in Singapore, told Bloomberg: "This government is trying to nip it at the beginning. It's a way of controlling the market to make sure there's no overbuilding or overpayment. Developers may think twice before paying more for a piece of land."

Home prices and office rents have been steadily climbing since the beginning of this year due to the robust economy. Private home prices rose at their fastest pace in almost eight years in the second quarter, according to the latest government data.

A development charge is levied when the value of the land increases because of rezoning or when the government eases restrictions on the size of a property project. Currently, they are pegged at 50 per cent of the enhancement of value, based on a formula adjusted during the 1985 recession.

The charge allows the government to have a share of the gains from the enhanced value of the development project.

The portion of the gain taxed by the government can then be used to offset expenditure on infrastructure improvements, such as road and rail works, and utilities to support the higher land zoning or intensification of land.

The balance of the gain is retained by the owner and provides an incentive for him to undertake the development work.

The ministry statement says for land with title restrictions on the use and intensity, which are subject to a levy of differential premium by the Singapore Land Authority, the differential premium will similarly be adjusted to 70 per cent.

Mr James Chua, of Phillip Capital Management in Singapore, told Bloomberg that the move is negative for property stocks, saying: "Raising the charge is one of the most obvious ways to take earnings away from developers."

In swift reaction to the announcement, Singapore's property index fell 2.7 per cent today, led by major developers including CapitaLand and City Developments.

Shares of CapitaLand fell 15 cents, or 2 per cent, to S$7.55 at the close of trading today. Its rival, City Developments, fell 40 cents, or 2.5 per cnet , to S$15.90.

Wing Tai Holdings fell 26 cents, or 6.6 per cent, to S$3.70, UOL Group Ltd dipped 25 cents, or 4.3 per cent, to S$5.55, as did Keppel Land Ltd, the property arm of Keppel Corp, which fell 15 cents, or 1.7 per cent, to S$8.55.

Overall, Singapore share prices closed 1.84 per cent lower today. The Straits Times Index tumbled 67.08 points to 3,583.97.