Published February 10, 2007

Prime residential DC seen rising 20-35%

But potentialen bloc sellers remain upbeat due to positive outlook


DEVELOPMENT charges (DC), which may be incurred when a site is built on more intensively, are headed for another round of increases come March 1, potentially pushing up the breakeven costs of some new projects.

Rising market: Following the en bloc sale of The Parisian at a benchmark land price, some predict hefty increases for non-landed residential use in the Angullia Park area

Some property consultants predict increases of as much as 30-35 per cent for non-landed residential use in the Angullia Park area, following the collective sale of The Parisian at a benchmark land price, while Jones Lang LaSalle regional director and head of investments Lui Seng Fatt predicts a whopping 80-100 per cent hike for commercial use in the Raffles Place and Marina Bay areas.

But averaged out islandwide, the increase is expected to be far less than that - generally about 2-12 per cent for commercial use, 6-12 per cent for non-landed residential use, 2-4 per cent for landed residential use, 1-8 per cent for hotel use, and zero for industrial use.

Colliers International says a six-month analysis of the land values imputed by current DC rates shows that they were lower than actual land prices achieved in many locations for residential, commercial and hotel uses.

This will create the impetus for increases in DC rates for these uses, it adds.

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

The rate revisions are tracked in property circles because they reflect property values, can affect the breakeven costs of developers seeking to redevelop sites and have an impact on the success rates of collective sales for redevelopments which would attract a substantial DC.

Revisions are made by the Ministry of National Development in consultation with the Chief Valuer, who takes into account current market values.

For this round, there seems to be less angst about a potential DC rate hike reducing the chances of success for collective sales, given the more optimistic mood in the property market, say market watchers.

'The key determinant of the pace of collective sales is not DC rate hikes, but demand and selling prices that developers see at their residential project launches,' says Knight Frank director Nicholas Mak.

'In other words, a DC rate hike will not slow down land acquisition by developers if they continue to enjoy strong demand for their high-end residential project launches and if upmarket home prices continue to grow at a very fast pace,' he added.

In any case, says DTZ Debenham Tie Leung director Tang Wei Leng, not all collective sales will be affected by a rise in DC rates. In some cases, the DC may be a relatively insignificant component of total land cost. But where the DC component is more substantial, it was common for owners of estates slated for collective sales and their marketing agents to fear that a big hike in DC rates could mean owners will have to be prepared to accept lower prices, as developers would be reluctant to increase their total land cost.

The mood seems different this time around.

'Property owners are so upbeat these days that they think that if DC rates go up, developers should bear it,' a seasoned en bloc property agent told BT.

'Some owners even dare to say that since the DC rate hike reflects the market in the first place, they should in fact raise their asking prices proportionately to the DC rate hike.'

For non-landed residential use, JLL predicts that DC rates in super-prime districts that have seen collective sale benchmarks lately could rise by some 20-25 per cent, while Knight Frank predicts increases of 20-30 per cent in the Ardmore Park, Draycott Drive, and Angullia Park locations.

Colliers notes that the land value imputed from the existing DC rate in the Angullia Park location is about 46 per cent lower than the unit land price achieved for The Parisian late last year, creating room for a hike of 30-35 per cent in the DC rate for this and neighbouring locations.

Mr Mak predicts significant increases in non-landed residential DC rates in the Central Business District and Marina Bay locations because of high prices fetched during recent residential launches in the areas.

Mr Lui predicts that DC rates for commercial use will rise 20-30 per cent in the Orchard Road area and by 80-100 per cent in Raffles Place and Marina Bay, reflecting rising land values in the areas.

Colliers expects the biggest rate increase for commercial use (20-25 per cent) to be in the Collyer Quay/Marina Bay area, on the back of the aggressive top bid for the Collyer Quay site in October last year.

Colliers predicts that DC rates for hotel use will see their biggest hikes of 30-35 per cent for the Mohammed Sultan, Bencoolen Street and Sinaran Drive locations, as the top bids for hotel sites there at recent state tenders were more than double their respective land values imputed from current DC rates.