Impact of hike in development charge rates

Lynette Khoo

Mar 5, 2018


Developers may face greater pressure on margins given the latest hikes in development charges (DC).

While this should keep future land bids in check, it could also have an impact on the prices of future projects, if developers are able to preserve their profit margins by launching projects at higher prices.

The Government's announcement on DC rate hikes last Wednesday for the period from March 1 to Aug 31 came as a non-surprise since land-starved developers have been bidding up land prices since last year. Such rates reflect the chief valuer's opinion of the current land prices in various sectors based on past market transactions.

What is noteworthy is the magnitude of increase. The average 22.8 per cent jump for residential non-landed projects is the highest in a decade. The rates for non-landed residential use were raised by 12 per cent to 38 per cent, while rates for commercial uses went up by 4 per cent to 16 per cent.

DC is a tax levied on developers when they receive planning permission for projects that intensify or change the use of land. But for land with existing state title restrictions, the developer pays a differential premium (DP) instead to lift these restrictions, and this is usually based on the published DC rates.

Property consultants note that the DC rates rose the highest in areas where developers have lodged high bids for government land sale sites and collective sale sites.

These DC rate hikes came shortly after the Government raised the top marginal rate for buyer's stamp duty (BSD) on Feb 19, which also applies to developers' purchase of residential sites. The higher DC and BSD rates will add to overall development costs, thus hitting directly at developers' margins.

Some property consultants believe that developers may moderate their land bids, especially for sites with a lower development baseline (or approved use) as these sites are subject to higher DC rates. For sites recently acquired and yet to lock in the DC rates, they will be subject to the revised DC rates.

If market conditions permit, developers may well pass on the higher costs to home buyers, which means prices of future residential projects may go up.