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Published September 1, 2011
Lag factor may have given twist to DC rates
Some analysts attribute higher than expected development charge rate rises to recent lull
By KALPANA RASHIWALA
(SINGAPORE) Upward revisions in development charges (DC) effective today are generally above market expectations.
Under the latest revision, the average DC rate for commercial use has been increased by 21.7 per cent - much higher than the 12.7 per cent hike in the previous round effective March 1, 2011.
For industrial use, the average DC rate hike this time is 30.9 per cent, compared with 8.3 per cent previously.
In the residential segment, the latest increases in average DC rates are 16.5 per cent for landed use and 12.2 per cent for non-landed use.
They were previously revised upwards by 18.4 per cent and 10.6 per cent respectively.
However, the 7 per cent average hike for hotel use was lower than the 26.7 per cent jump six months earlier.
Property consultants had generally expected the latest DC rate increases to be smaller than the March 1 revisions, amid early signs that pricing for condo land is starting to come off due to the deterioration in global economic sentiment.
At a state tender in August, a 99-year condo plot near Potong Pasir MRT Station was sold at 6.6 per cent lower than a neighbouring plot in June last year.
When queried on this, a spokesman for Chief Valuer said: 'Chief Valuer took into consideration all the sales evidence during the past six months, and not just a single land bid.'
Some property consultants reckon the relatively quieter land sales market lately did not provide Chief Valuer with sufficient evidence of a slowdown in land prices.
Credo Real Estate executive director Ong Teck Hui said: 'There was a flurry of residential Government Land Sales tender closings until June, followed by a lull in July and just two tenders in August. This was also the case for the collective sales market.
'If there had been ample land transactions following the recent market turmoil, their bids would have been lower than those before and such evidence would have probably contributed to a more balanced DC revision.'
He predicts that if the external environment continues to deteriorate and land bids continue to fall, DC rates may have to be revised downwards in the next round effective March 1, 2012.
Development charges are payable to the state in exchange for the right to enhance the use of certain sites or to build bigger projects on them.
Ministry of National Development, in consultation with Chief Valuer, reviews DC rates twice a year, on March 1 and Sept 1. DC rates are stated according to use groups across 118 geographical sectors.
The steepest escalations in the latest announcement were for industrial and commercial use.
Jones Lang LaSalle (JLL) noted that the policies to cool the private residential market have sent seasoned investors to the strata industrial and commercial property markets, creating inflationary pressure in those segments.
While the percentage increases in DC rates were higher than general market expectations, the geographical sectors or locations that chalked up the biggest gains were not.
These were generally areas which had seen strong land bids, at prices significantly above the land values implied by March 1, 2011 DC rates.
JLL's analysis shows that in the latest round, the biggest hike for commercial-use DC rate of 31.7 per cent is for the geographical sector that includes Paya Lebar Way, followed by the sector that covers Jurong East (up 30.4 per cent).
A commercial site was sold in each location at state tenders in April and May this year at premiums of 139 per cent and 147 per cent respectively to their March 1 DC rate-implied land value, notes JLL's SE Asia research head Chua Yang Liang.
Leading the increase in industrial DC rates were Sectors 114 (which includes Tuas and Kranji) and 115 (including Woodlands, Sembawang and Mandai).
Colliers International director Chia Siew Chuin said the increases were probably prompted by high prices at state tenders.
A 45-year-leasehold plot at Tuas View Square fetched $174 per square foot per plot ratio (psf ppr) in June, reflecting a whopping 374 per cent premium to the March 1 DC rate-implied land value for the sector.
Likewise, a 60-year plot at Woodlands Avenue 12 was awarded in June at $152 psf ppr, some 272 per cent above the then DC rate-implied land value for the sector.
In the non-landed residential segment, the strongest growth of 38.9 per cent in DC rates was in the Bendemeer/Whampoa area, where a 99-year condo plot was sold at a state tender for $774 psf ppr, or 141 per cent above the then DC rate-implied land value.
Sector 94 (which covers Marine Parade and Amber Road) saw a 25 per cent rate hike - probably supported by the collective sales of Amber Glades and Amber Towers at 43 per cent and 50 per cent respectively above the March 1 DC rate-implied land value, based on Colliers' analysis.
Sector 50 (which includes Tanjong Rhu) posted a 22.9 per cent DC rate rise, supported by pricing for the Foretredale and Austral View en bloc sales.
For landed residential use, the biggest hikes were at 20 per cent in 22 sectors - including the Orchard/ Somerset area, Mount-batten/Kallang, Braddell/ Potong Pasir, and Seletar.
The smallest increases were in Sentosa (7.7 per cent), Anderson Road vicinity (also 7.7 per cent) and Orange Grove area (7.1 per cent), noted DTZ's SE Asia research head Chua Chor Hoon.
There was just one hotel site sold at a state tender in the past six months - at Robertson Quay - and that probably provided the impetus for a 9.4 per cent upward revision in rates around the Singapore River.