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Published September 1, 2010
DC rate hikes keep step with property recovery
Sentosa sees biggest jump in landed residential DC rates, to the tune of 36%
By KALPANA RASHIWALA
(SINGAPORE) As expected, the government has raised development charge (DC) rates for residential, commercial and industrial uses starting today on the back of Singapore's broad-based property market recovery.
Hikes in the charges - which are based on current market values and payable for intensifying or enhancing the use of some sites - reflect the fact that all land deals in the past six months were sealed at prices above land values imputed from the previous March 1, 2010 DC rates, says Colliers International director Tay Huey Ying.
DC rates for landed as well as non-landed residential use have been raised by an average of 13 per cent. The average DC rate for commercial use increased one per cent; the biggest hike of 25 per cent was in Jurong Lake District, where Lend Lease bought a site at a hotly contested state tender in June for $650 per square foot per plot ratio.
DC rates - which are revised on March 1 and Sept 1 each year - are specified by use groups (such as landed and non-landed residential, commercial and hotel) across 118 geographical sectors in Singapore.
Industrial-use DC rates were increased by 10 per cent on average, led by sector 115 (Woodlands/Yishun area), where the rate has been hiked 16.3 per cent, on the back of evidence of bullish prices for industrial sites awarded at state tenders in April at some 123-139 per cent above the imputed land values based on March 1 DC rates for the location. DC rates for hotel/ hospital use, however, were left untouched.
The review was conducted by the Ministry of National Development in consultation with the Chief Valuer.
Sentosa saw the biggest hike in landed residential DC rates, to the tune of 36.4 per cent. Analysts were not surprised given the record bungalow prices fetched this year at Sentosa Cove.
Sentosa also posted one of the biggest increases in non-landed residential DC rates, at 22.7 per cent. The biggest hike of 28 per cent, however, was for sector 50 (which includes the Tanjong Rhu and Fort Road areas), as well as the Farrer Park/Balestier location (sectors 58/59).
The former Fort Terrace site was sold in March at a unit land price that was 137 per cent above the imputed land value based on the March 1 DC rate for the area. This was the highest premium reflected for any non-landed residential development site sold in the past six months, observes Ms Tay.
CBRE Research executive director Li Hiaw Ho notes that the rate increase for the Balestier area was supported by land prices for the Diamond Tower, Goodwill Mansion, Colourscan Building and Melrose Court deals.
Looking ahead, however, developers are expected to be more measured when bidding for development sites, given the property market cooling measures released this week, he added.
Jones Lang LaSalle's SE Asia research head Chua Yang Liang also predicts 'a more moderate collective sales market over the short term', citing the latest hikes in non-landed residential DC rates as well as the cooling measures.
However, Credo Real Estate managing director Karamjit Singh says the DC rate increases per se will not have much impact on en bloc sales in general. He estimates that for every 10 en bloc cases in the market today, about five or six do not entail a DC payment, while three or four may have a small DC component vis-a-vis the total land value. Only one out of 10 cases will have a significant DC component of at least 5 per cent of total land value.
'The en bloc cases that would see the most significant erosion in values would be those whose owners were attempting to sell them for their rezoning potential, e.g. from current industrial use to residential, or where their current built-up plot ratios are much lower than their potential plot ratios,' he added.
Jones Lang LaSalle's analysis showed that non-landed residential DC rates advanced in 116 of the 118 geographical sectors, remaining unchanged in just two areas. The smallest gain of 5.6 per cent was in the sector covering Philip Street, Pickering Street, South Bridge Road and Canal Road. Rates climbed 20 per cent for Pasir Ris/Loyang, 18.8 per cent for Harbourfont area and 16.7 per cent for Tampines/Bedok Reservoir area - supported by evidence of land sales, mostly through state tenders.
Landed residential rates also advanced in 116 sectors; the smallest rise of 6.9 per cent was in Ulu Pandan/Pine Grove area.
Industrial rates were upped in all 118 sectors, with the smallest gains at 8.3 per cent.
Jones Lang LaSalle's analysis also showed that commercial-use rates climbed in only 11 sectors - all outside the central region. In the CBD, commercial DC rates were left unchanged, although non-landed residential rates went up by 12.5 to 16.7 per cent.
'The gap between the two uses has widened further compared with the March 1 rates. This would have an impact on developers intending to redevelop old office blocks to residential use,' notes DTZ's SE Asia research head Chua Chor Hoon.
'With the office market recovering and the residential market hit by the property measures, some developers may reconsider their plans and redevelop these properties into new offices or have a bigger office component in their proposed schemes,' she added.
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