Sharp hikes in development charge rates a surprise

[SINGAPORE] Reflecting the current tepid market for residential land, the government yesterday cut the average development charge (DC) rates for landed and non-landed residential land by one and 2 per cent respectively.

There is no change in DC rates for commercial, hotel and industrial land. The new rates, which take effect today, will apply for the next six months after which there will be another review.

The cut in residential DC rates - which are broken down according to location or "geographical sectors" - ranged from 1.6 to 9.4 per cent, but in most cases, there was no change. Potential home buyers hoping the dip in residential DC rates would translate into price cuts by developers will probably be disappointed as it is chiefly market conditions at the time of a property's launch that determine pricing levels, property agents noted.

DC rates are widely followed in property circles as they affect the breakeven cost of a property project and thus developers' bottom lines.

Revisions in the rates also affect those trying to sell land such as en bloc home sellers as a significant drop in the DC rate would increase the attractiveness of a site to the developer as it lowers his cost of development.

Real estate circles generally welcomed the latest revisions. "The reduction of residential DC rates endorses the government's plan to make them more relevant by introducing six-monthly reviews.

"Land values have moderated over the past half year, especially for private freehold condominium land, and this reduction would reflect this trend," noted CB Richard Ellis executive director Soon Su Lin. Knight Frank director Amy Khor expects positive spinoffs from yesterday's announcement on various property sectors.

It may provide a mild boost to the current weak sentiment in the collective sales market for sites located in areas where DC rates were cut more significantly.

"For the commercial property sector, the fact that the government left DC rates untouched may give land owners an added incentive to redevelop their sites to achieve a higher intensity of land use," Dr Khor reckoned.

Developers, however, were not pleased, describing the 1-2 per cent average cut in residential rates as a "token" reduction.

"We are quite disappointed that the rates did not sufficiently correct for the inordinately sharp average 27 per cent increase in DC rates for the residential sector announced in March," said the Real Estate Developers' Association of Singapore.

Agreeing, a Hong Leong Group spokesman said the cuts were insignificant. "Some sectors still carry much higher DC rates than real values," he said.

The DC is a charge payable to the government when a developer makes enhanced use of land beyond that stipulated in the 1958 Master Plan. It is also payable for any subsequent enhanced use of land for which the DC has already been paid.

Yesterday's cut in the average DC rate for residential land was largely within market expectation given the consolidation or even slight softening in land values.

However, property consultants had earlier expressed mixed views on commercial and industrial DC rates. Some had thought that rates would hold due to the dearth of land transactions in these sectors. Others had reasoned that rates would go up as land values could be imputed from the recent price increases for completed office and industrial space.

Yesterday's revision - where DC rates were generally kept constant - was in sharp contrast to the last revision six months ago when residential DC rates on average shot up by a much higher-than-expected 27 per cent. For commercial land, the average increase was a surprising 11 per cent, while industrial rates were maintained.

"The latest revision reflects more closely the market mood and condition than the last round," noted Jones Lang LaSalle national director Steven Choo.

The declines in DC rates for landed residential use ranged from 1.6 per cent in Ridout Road to 8.7 per cent in the Chatsworth area.

For non-landed residential use, the DC rate cut ranged from 3.3 per cent in the Pandan Valley and Newton areas to 9.4 per cent at Meyer Road.

Dr Choo noted that the drop in DC rates in the east coast where, besides Meyer Road, the rate for Tampines/Bedok Reservoir was also chopped by 8.6 per cent. This, he said, was to adjust for the fact that rates in the east had been revised upwards too fast in March.

DC rates are levied for various land uses - such as residential, commercial and industrial - and are fixed according to geographical sectors islandwide.

The government yesterday made a small revision in the number of geographical sectors from 116 to 118. The additions arose from splitting the offshore islands, which were previously lumped into one sector, into three - Jurong Islands and the nearby islands, Sentosa and Pulau Ubin/Pulau Tekong - to reflect the differences in land values on different islands.

Property analysts read the split as a signal that the long-awaited Sentosa Cove land sales might be imminent.

"The split reflects more accurately the fact that land on Sentosa has a higher value than say, on Pulau Tekong," noted Dr Choo.

Source: 1st September 2013 ST Property

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Sharp hikes in development charge rates a surprise

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