Published August 24, 2006

DC rates in Orchard Rd area expected to rise
Key factor is record bid last week for Somerset Central commercial site


THE record price achieved in last week's tender for the Somerset Central commercial plot is expected to lead to an increase of up to 25 per cent in commercial development charge (DC) rates in the Orchard Road area come Sept 1, property consultants say.

DC rates are revised twice a year on March 1 and Sept 1, and are specified according to use group - such as commercial, non-landed residential and industrial - and based on 118 locations or 'geographic sectors' across Singapore.

The average DC rate for commercial use is expected to increase by anywhere from 3 to 10 per cent, according to property consultants polled by BT.

For non-landed residential use, the average rate could rise 5 to 8 per cent, while for landed residential, the average hike is expected to be one to 5 per cent. Industrial DC rates are expected to stay put, with Colliers International arguing that there could even be a case for reductions in some locations.

Hotel DC rates are expected to increase on the back of current bullish sentiment in the tourism industry - as reflected in this week's strong top bid for a hotel plot at Unity Street in the Robertson Quay area.

DC rate changes are tracked in property circles because they reflect values and can affect the breakeven costs of developers seeking to redevelop sites.

DC is payable by developers to the state for enhancing a site's use or intensity. Revisions are made by the Ministry of National Development in consultation with the Chief Valuer, who takes into account current market value.

For commercial DC rates, a key transaction that the Chief Valuer will look at is Lend Lease's top bid of $1,455 psf per plot ratio for the Somerset Central site last week, which is 117 per cent higher than the land value of $669 psf ppr implied by the prevailing commercial DC rate for the location.

As a result, the Orchard area is likely to see the biggest hike for commercial DC rates, to the tune of 20-25 per cent, predicts Colliers International's director for research and consultancy Tay Huey Ying.

CB Richard Ellis, too, forecasts the increase for the location will be about 20 per cent, while Jones Lang LaSalle reckons the hike could come in at 10-15 per cent, sparked by the Orchard Road rejuvenation theme.

JLL also sees an increase of the same quantum for commercial DC rates in the Marina Bay area, as land values there will benefit from major projects like the Integrated Resort and the Business and Financial Centre.

CBRE reckons that commercial DC rates in the existing Central Business District will also be raised, citing several high-profile office building deals in recent months, such as SIA Building, which was sold for $1,165 psf of net lettable area, and Robinson Centre ($1,115 psf).

The firm also predicts hikes in commercial DC rates in places like Tampines, Woodlands and Alexandra Road following the sale of DBS Tampines Centre & Pavillion, Causeway Point and Anchorpoint.

As for non-landed residential DC rates, the biggest gains of 18-22 per cent are expected to be recorded in prime districts, triggered by bullish collective sale transactions over the past six months like Beverly Mai, Lucky Tower and Habitat One at prices substantially above the DC rate-implied land values, JLL reckons.

CBRE predicts a 10-15 per cent rise in the non-landed residential rate at Sentosa as well as a double-digit gain for the landed residential DC rate in the same location - on the back of continuing appreciation in land prices in Sentosa Cove, the up-scale waterfront housing district shaping up on Sentosa.

As for industrial use, Colliers' Ms Tay says: 'The rates are expected to remain unchanged or may even be revised downwards for some locations like Tuas, Bedok and Serangoon North, as successful tender bids for industrial Government Land Sale sites in these areas are still below the DC rate-implied land values for the locations.'

Market watchers expect DC rates for hotel use to be raised, especially in the Marina Bay and Singapore River locations. The government has offered several sites in the Singapore River vicinity for hotel development. One of them - at Unity Street/Clemenceau Avenue - attracted a bullish top bid that was more than double the minimum price at a tender that closed earlier this week.