Hike in DC rates unlikely to derail en bloc fever soon

But the higher rates for non-landed residential use could dampen land bids, lower en bloc sellers' expectations

Thu, Mar 01, 2018

Kalpana Rashiwala

THE current collective sale market is unlikely to be derailed by the average 22.8 per cent hike in development charge (DC) rates for non-landed residential use in the next six months, say property consultants.

However, they say the latest set of DC rates, payable by developers seeking to enhance the use of a site or to build a bigger project on it, could tame developers' land bids. Some en bloc sellers may also need to rethink their price expectations.

JLL senior consultant Karamjit Singh said that generally, in about 20 per cent of en bloc sales, the DC quantum makes up more than 5 per cent of the total land cost.

"For these projects, it would mean either an erosion of some of the premium that sellers would have otherwise received, or it might lead to an unsuccessful tender - and it then remains to be seen whether a developer picks up the site subsequently via private treaty."

For the remaining 80 per cent of en bloc sale cases - where either no DC is payable or where the quantum makes up under 5 per cent of the total land cost - the DC rate hike would not be a deal breaker, although it could erode the bid price, he added.

"I think that the residential property market is not going to tank for a while, so most of the upcoming collective sales - so long as they are sensibly priced - should be able to find takers," said Mr Singh.

He is also chief executive of Showsuite, an online portal showcasing new homes.

ZACD Group executive director Nicholas Mak argued that as the en bloc sale market is gradually turning into a buyers' market, some developers are more likely to lower their bids.

"As a result, the escalation in land prices could slow down."

He also said: "Developers would have to decide whether to lower their bids in their land acquisitions or to accept lower profit margins."

The latest DC rates are for the period March 1 to Aug 31.

The Ministry of National Development (MND), in consultation with the chief valuer, revises DC rates twice a year, on March 1 and Sept 1, based on the chief valuer's assessment of land values and factoring in recent land sales and other property transactions.

Wednesday's announcement of the hike in DC rate was unsurprising, given the continuing bullish land bids by developers for residential sites at both state tenders and private-sector collective sales in the past six months.

DC rates are stated according to use groups across 118 geographical sectors in Singapore.

The average increase in these rates, at 22. 8 per cent for non-landed residential use, was steeper than the 13.8 per cent rise of the last revision six months ago.

It is also the biggest increase since September 2007, when the rate shot up by an average of 57.8 per cent.

The rates for commercial use have also gone up, but by an average of 2.7 per cent this round. It is lower than the 3.8 per cent rise in the previous round.

MND said on Wednesday evening that DC rates remain unchanged for landed residential and industrial uses, as well as the use groups that cover hotel/hospital, place of worship/civic and community institution and three other use groups.

For non-landed residential use, the rates have gone up in 116 of the 118 geographical sectors by between 12 per cent and 38 per cent.

There was no change in the remaining two sectors.

The biggest jump of 38 per cent occurred in three sectors:

Sector 19 (which includes the River Valley, Jiak Kim Street and Outram Road areas);
Sector 23 (including Oxley Rise, Dhoby Ghaut and Handy Road ) and
Sector 34 (including Adis Road, Sophia Road and Niven Road).

Analysts say the rate hike in Sector 19 was due to the S$1,733 per square foot per plot ratio (psf ppr) winning bid for a 99-year leasehold site in Jiak Kim Street (the former site of the Zouk nightspot) in the state tender last December.

JLL noted that this was 62 per cent above the land value implied from the September 2017 DC rate.

Its head of Singapore research and consultancy Tay Huey Ying said: "We recognise that this premium, which was computed in comparison with the pure residential DC rate, would have received a slight boost from the site's commercial use on the first storey."

The rate hikes for Sectors 23 and 34 were due to the S$1,722 psf ppr top bid for the Handy Road site at a state tender last month; this was 61 per cent above the DC rate-implied land value at the time.

The collective sales awarded at Royalville in Bukit Timah Road and Pearl Bank Apartments near Chinatown were likely to have been the evidence the chief valuer used for in an increase of DC rates for Sectors 109 and 18, which went up by 35 per cent and 31.6 per cent respectively.

MND announced on Wednesday that commercial-use DC rates are going up in 41 of the 118 geographical sectors by between 4 per cent and 16 per cent.

There is no change to the DC rates for the remaining 77 sectors.

The largest increase of 16 per cent applies to Sectors 1 to 6 (including Raffles Place, Boat Quay, Beach Road, Suntec City, Ophir Road and Hill Street).

Analysts attribute the above hikes to the sale of the commercial site in Beach Road at a state tender last September at S$1,706 psf ppr - 20 per cent above the implied land value for the area based on the September 2017 DC rate.

JLL's Ms Tay highlighted the strong recovery in Central Business District Grade A office rents last year, with the uptrend expected to continue in the short to medium term.

Commenting on the government's decision to leave DC rates for landed residential use untouched this round after a 0.3 per cent rise previously, she said that this may be due to a lack of development land transactional evidence, coupled with just a 1.7 per cent improvement in the Urban Redevelopment Authority's price index for landed residential properties in second-half 2017.

That rates for industrial use were left unchanged was due to the industrial property market remaining in a state of supply overhang and the recent lacklustre demand for industrial plots at state tenders.