DC rate for industrial use cut but left unchanged in other use groups

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http://www.businesstimes.com.sg/real-estate/dc-rate-for-industrial-use-cut-but-left-unchanged-in-other-use-groups

DC rate for industrial use cut but left unchanged in other use groups

By Kalpana Rashiwala

[email protected]@KalpanaBT

Sep 1, 2015


FOR the first time in at least seven years, development charge (DC) rates in four of the five major use groups have been left unchanged.

The rates for commercial, landed and non-landed residential, hotel/hospital uses have been left untouched, but DC rates for industrial use have been trimmed by an average of 3 per cent.

DC rates are payable by developers for enhancing the use of some sites or for building bigger projects on them. These latest ones will apply from Sept 1, 2015 to Feb 29, 2016.

The Ministry of National Development (MND), in consultation with the Chief Valuer, revises these rates twice a year; the rates are stated according to use groups across 118 geographical sectors in Singapore.

Elaborating on the rate cuts for industrial use, MND said the declines ranged from 3 per cent to 4 per cent for 87 out of 118 sectors. The DC rates for the remaining 31 sectors are unchanged.

Also left untouched in the latest revision are DC rates for the use group that includes place of worship and civic and community institution, as well as the remaining use groups covering open space/nature reserve, agriculture and roads/railways.

Commenting on the DC rate cut being confined to industrial use, market observers noted the weak fundamentals in this segment of the local property market.

Tan Tiong Cheng, chairman of Knight Frank, said: "Rents, take-up and land bids are all headed south for industrial. That's obvious."

He argued that for the commercial segment, based on the current trend of a decline in office rents and factoring in the big supply coming in the next two years, one may conclude that office rents will remain subdued. "If at all, the price of commercial land should come off, but there is a lack of transactions, so the authorities have left DC rates for commercial use unchanged."

He added: "In the residential market, land bids at state tenders, (which are mostly for suburban and city-fringe sites), are no longer as aggressive. However, in the prime areas, there is a lack of private land sales. Thus the decision to maintain DC rates for residential use."

CBRE Research's Singapore and South-East Asia head Desmond Sim suggested that the Chief Valuer may have thought it too early to lower commercial and residential use DC rates because the office, retail and residential rental markets have just started to turn. "Should these rental markets continue to face headwinds, it is possible that there will be more data points to support a downward revision in DC rates. Another factor the Chief Valuer will look at is the movements in the official private housing price index," he added.

Agreeing, Cushman & Wakefield director of research Christine Li said: "Even though the residential rental market has weakened, the price correction has barely started."

During the heydays of the residential collective sales boom - last seen in 2007 - DC rates for non-landed residential use were widely watched, given their possible impact on major transactions in which the land price included a significant DC component.

JLL international director Karamjit Singh said: "Today, the impact of such DC rate changes is less, applying almost only to the tax payable by developers to add 10 per cent floor area in a private residential project, dedicated mainly to balconies."

For industrial DC rates, the average 2.7 per cent decline in the latest revision, based on an analysis by JLL Research, marks the first drop after being left untouched in the previous three revisions. JLL's head of Singapore and South-east Asia research Chua Yang Liang noted that the latest drop is the biggest since the 4.5 per cent cut in September 2005.

Dr Chua, highlighting that the fall in industrial DC rates this round will apply to 74 per cent of the 118 geographical sectors, said: "The last time something of this scale happened was in September 2005, when 97 per cent or 115 out of the 118 geographical sectors posted a decline."

SLP International executive director Nicholas Mak said that land prices at some of the industrial government land tenders have fallen. For example, land prices in Tampines Industrial Drive have dropped by almost 18 per cent between January and July this year.

MND said the biggest reduction in industrial DC rate of about 4 per cent applies to the following sectors:

Sector 98 (Kaki Bukit/ Bedok/ Xilin Avenue/ Simei/ Changi South area);
Sector 100 (Tampines Road/ Hougang/ Punggol/ Sengkang area);
Sector 106 (Sengkang West/ Seletar area)
Sector 114 (Boon Lay/ Jurong West/ Pioneer/ Tuas/ Sungei Kadut/ Choa Chu Kang/ Lim Chu Kang area)
Sectors 1 to 18, 22 to 47, 50 to 53, 55, 57, 58, 60 to 69, 89 to 97.

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http://www.straitstimes.com/business/development-charge-rates-for-residential-sites-to-stay-the-same

Development charge rates for residential sites to stay the same

Sep 1, 2015

Jacqueline Woo


Developers have little to cheer about amid the tough market, with development charge (DC) rates for residential sites set to remain unchanged until next Feb 29 at least.

The Ministry of National Development announced yesterday that the rates for both landed and non-landed residential sites will stay the same.

Rates for sites to be used for most other purposes, including commercial and hospitality, will also not budge, but those for industrial use sites will be trimmed by an average of 3 per cent.

DCs, which developers pay to the Government for enhancing the use of a site or building a bigger project, are reviewed every six months and revised according to market values.

Analysts said the move to leave DC rates for residential sites unchanged is a surprise given the weakened economic outlook.

SLP International executive director Nicholas Mak noted that a few non-landed development land parcels have been sold in the past six months at lower prices - a sign of slow demand.

For instance, the land price of a Dundee Road parcel is $871.14 per sq ft per plot ratio (psf ppr), lower than the $882.86 psf ppr at the adjacent Commonwealth Towers in Queenstown.

"Perhaps the Government may be of the opinion that after two rounds of downward revision of DC rates, in September last year and March this year, there is no need for further reduction in this round," said Mr Mak.

Ms Christine Li, research director at Cushman & Wakefield, noted that the move "reflects the stabilisation of the residential market, as supply-demand imbalance is being slowly restored through various government cooling measures".

A further impetus for the Government to keep rates steady was the lack of evidence of a softening market, she added.

"Even though the residential rental market has weakened, the price correction has barely started," said Ms Li, pointing to non-landed resale prices, which stood at $1,108 psf in the second quarter this year, down just 2.7 per cent from the $1,139 psf in the first quarter.

Mr Ong Kah Seng, director at R'ST Research, said the private residential market is still some distance away from staging a notable recovery, "since there is still high unsold stock by developers and cooling measures will continually curb large property loans".

"There was therefore no major need to adjust DC rates downwards for residential properties in this round," he said.

Mr Desmond Sim, the head of CBRE Research for Singapore and South-east Asia, noted that the reduction in DC rates for industrial sites was likely due to the "sedate" market performance over the past six months.

Dr Chua Yang Liang, JLL's head of research for Singapore and South- east Asia, said the downward adjustment is the largest since September 2005.

"(This), despite the dearth of industrial land transactions, is an affirmation of the weakening industrial land market dragged down by weaker global demand and internal restructuring," he said.

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http://www.straitstimes.com/business/property/dc-decisions-speak-volumes

DC decisions speak volumes

DC rates for industrial sites were lowered by an average of 3 per cent - its first and largest cut since the 4.5 per cent reduction in September 2005.

Sep 2, 2015

Jacqueline Woo


Anyone seeking clues as to how the Government sees the property sector ought to study the changes to development charges (DCs) announced on Monday.

They provide a handy snapshot about a complex sector that is experiencing strains in some areas but regarded as healthy enough in others.

DCs are levies developers pay for enhancing the use of a site or building a bigger project. They are revised every six months in the light of market values. So any change would point to how the Government sees the sector.

For the first time in about seven years, the DCs for a wide range of sites have been left unchanged, at least until the review on Feb 29 next year.

These include plots set aside for landed and non-landed residential use, commercial use, hospitality use and hospitals.

But DC rates for industrial sites were lowered by an average of 3 per cent - its first and largest cut since the 4.5 per cent reduction in September 2005.

There are signals flashing across both decisions.

Lowering DC rates for industrial sites is as clear an indication as any of how that market is contracting amid a slowing global economy.

Yet keeping rates the same across the broader market is surely a sign that the Government is happy with the pace of decline it is seeing in the once red-hot real estate market.

Prices of non-landed homes in the second quarter, for instance, eased about 9 per cent from the peak in the third quarter of 2013.

Developers will not welcome the decision to leave the rates unchanged, given the muted sentiment in the property sector.

Analysts such as Mr Desmond Sim, CBRE research head for Singapore and South-east Asia, noted that while some segments in the market are beginning to see slight improvements, it would be "too quick" to revise the rates.

But with prices set to stabilise, perhaps a cut in DC rates could be back on the table in the next round of revisions.