DC rates set to go up, say analysts

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http://www.businesstimes.com.sg/sub/news/story/0,4574,428075-1298923140,00.html?

Published February 28, 2011

DC rates set to go up, say analysts

Hike will be more for landed home use, they say, citing higher values

By KALPANA RASHIWALA


(SINGAPORE) Development charges (DC), payable for enhancing a site's use or for building a bigger project on it, are headed north come March 1, say property consultants. They cite as reasons higher land and property prices over the past six months.

DC rates are revised on March 1 and Sept 1 each year across 118 geographical sectors in Singapore. The review is conducted by the Ministry of National Development in consultation with the Chief Valuer, who takes into account current market values.

The rates are tracked in property circles as they reflect land values, and can impact redevelopment sites with a sizeable DC component.

During the last revision that took effect on Sept 1, 2010, the average DC rates for landed and non-landed residential uses were raised by about 13 per cent each. This time around property consultants are predicting a bigger increase in DC rates for landed residential use than non-landed residential use, citing the more buoyant performance for landed home prices last year.

The average DC rate for industrial use, which was raised 10 per cent from Sept 1, 2010, could climb a further 5 per cent from March 1 in view of JTC Corp's recent upward adjustment of about 10 per cent to its posted land prices, says Colliers International executive director of investment services Tang Wei Leng.

The average DC rate for hotel use, which was left unchanged in the previous revision, could also see a 10 per cent increase this round. This will be on the back of strong growth in visitor arrivals last year, which has boosted hotel earnings and interest in new hotel developments.

'The prices of all the hotel sites awarded recently by the Urban Redevelopment Authority reflect premiums of 98-214 per cent to the land values implied by the prevailing DC rates for hotel use for the respective locations or geographical sectors,' says Ms Tang.

Jones Lang LaSalle's South-east Asia research head Chua Yang Liang says a key challenge for the Chief Valuer would be the strong performance of the Singapore economy and surge in prices of property transactions, reflecting significant premiums to the implied land values based on current Sept 1, 2010, DC rates for the use group and geographical sector.

'The Chief Valuer has the unenviable task of reconciling this huge gap and not shocking market sentiment,' he added.

JLL expects the average DC rate for non-landed residential use to rise by up to 30 per cent from March 1, whereas the firm's projected hike for the average landed residential DC rate is in the range of 25-35 per cent.

Colliers International projects a 5-8 per cent rise on average for landed residential rates, again higher than a 5 per cent hike in the average rate for non-landed residential use.

For non-landed residential DC rates, JLL's Dr Chua reckons Bishan and Paya Lebar areas may post bigger increases than other locations. CapitaLand's record bid last week for a 99-year leasehold condo site in Bishan at $869 per square foot per plot ratio is 117 per cent above the implied land value based on the current Sept 1, 2010, DC rate for non-landed residential use for the location.

Impetus for DC rate hikes in the Paya Lebar region could come from government plans to transform the area into a major commercial hub outside the city as well as evidence of market transactions in the region, says Dr Chua.

Colliers' Ms Tang sees the biggest gains in non-landed residential rates of about 15-20 per cent in the Novena, Tanglin, Geylang and Marine Parade locations, where some collective sale deals have been sealed at prices above their respective DC rate-imputed land values.

Karamjit Singh, managing director of Credo Real Estate, says that one or two out of every 10 en bloc sales currently in the market may have a significant DC component of at least 5 per cent of total land value. 'These may see a significant erosion in value if DC rates in their locations go up by 15 per cent or more,' he says.

CB Richard Ellis executive director Jeremy Lake predicts there could be a handful of en bloc sales sealed by private treaty negotiation in the next few weeks.

'Some collective sales tenders have closed in the past six to eight weeks without a deal being done. If these sites have DC component, developers may be waiting for the latest DC rates prior to firming up bids before the expiry of the 10-week deadline for a private treaty deal following the tender close,' he said.

For landed residential use, CBRE predicts the largest percentage increase in Sectors 68 (which includes the Gallop and Cluny Hill areas), 69 (Holland Park/ Tanglin Hill), 105 (Seletar Hills) and 106 (Mugliston Hill).

Colliers' Ms Tang reckons the biggest gains in landed rates of up to 20 per cent may be in sector 115 (which covers Sembawang), pointing to the sale of small landed housing plots at Sembawang Greenvale Phase 3 in October at about 145 per cent on average above the current DC rate-implied land value.

JLL's Dr Chua expects stronger upside pressure on landed residential DC rates in Good Class Bungalow Areas, noting strong interest and increase in land values in this segment in the past half year or so.

He also sees 10-20 per cent growth in the average commercial DC rate, with a higher increase for the CBD areas on the back of appreciation in office rental values over the past six months.

Analysts say the sale of the white site at Tanjong Pagar with a minimum stipulated office component last year will also create impetus for growth in commercial use DC rates in that part of the CBD.

Colliers' Ms Tang anticipates an average gain of 5-8 per cent in the average commercial DC rate, with bigger increases for some suburban locations like Bedok and Punggol, where sites at state land tenders have fetched top bids at 96 per cent and 181 per cent premiums to their respective DC rate-implied land values.

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Published March 1, 2011

Hotel use leads hike in DC rates

Average rate for landed residential use up 18%; non-landed up 11%

By KALPANA RASHIWALA


THE government yesterday announced the biggest hikes in average DC rates for hotel and commercial uses since 2007.

The increase for landed residential use, at 18 per cent, was the biggest in more than a decade, according to Jones Lang LaSalle's analysis.

Hotel use led the hike in development charge rates which take effect from today.

The average DC rate for this use has escalated about 27 per cent, reflecting the buoyant hotel business and strong bids for hotel development sites in recent months.

As predicted by property consultants, for the residential segment, the authorities have raised the average DC rate for landed use by a bigger percentage quantum than for non-landed use, at 18 per cent and 11 per cent respectively, given the stronger expansion in landed home prices last year compared with condominium/apartment prices.

The government yesterday also announced average DC rate increases of 13 per cent and 8 per cent respectively for commercial and industrial uses.

DC is payable to the state in exchange for the right to enhance the use of some sites or to build bigger projects on them. The Ministry of National Development, in consultation with the Chief Valuer, revises DC rates twice a year, on March 1 and Sept 1. The revisions are based on current market values.

'The DC revision exercise is the Chief Valuer's way of providing a more accurate representation of current land prices,' as CB Richard Ellis executive director Li Hiaw Ho puts it.

Jones Lang LaSalle's South-east Asia research head Chua Yang Liang said: 'The impact of this latest round of revisions is unlikely to dampen or stir market sentiments . . . not every development project will be affected.'

For hotel use DC rates, the biggest increase of 39.3 per cent, according to Jones Lang LaSalle's analysis, was in the Orchard/ Somerset and Tanglin/Cus-caden vicinities - home to many hotels in the shopping belt.

The Robinson Road/Ce-cil Street area, too, saw a 39.1 per cent growth, not surprising given the record hotel land price of $1,072 per square foot per plot ratio (psf ppr) fetched earlier this year for the Ogilvy Centre site. That land bid was 214 per cent above the land value implied by the Sept 1, 2010, hotel use DC rate for the location.

Clarke Quay/Clemenceau Avenue/Havelock Road - where a hotel site was sold in September last year at a land price 98 per cent above its Sept 1, 2010, DC rate implied value - also saw a 39.1 per cent DC hike. Hotel rates islandwide had been left untouched in the previous revision on Sept 1, 2010.

For commercial use, the biggest rise in DC rate of 29 per cent was in the geographical sector that includes the 'white' site above Tanjong Pagar MRT Station which GuocoLand clinched for $1,006 psf ppr late last year.

In the industrial category, the steepest climb was 19.6 per cent, in the geographical sector that includes Tuas, Jurong and Woodlands.

A 30-year leasehold plot at Pioneer Road North was sold by the state in December at a land price which was about 238 per cent above the land value implied by the Sept 1, 2010, industrial use DC rate for the location.

The second highest rate hike for industrial DC rates of 13 per cent was in the Paya Lebar/Ubi area.

As for landed residential use, the steepest hike of 25 per cent was in Sector 108, which covers Holland Road, Sixth Avenue, Eng Neo Avenue, Adam Road and Farrer Road.

Analysts highlighted two Good Class Bungalow (GCB) transactions at 61 Belmont Road and 18 Astrid Hill, at land prices which were at least double the Sept 1, 2010, DC rate for the sector, as likely triggers for the latest rate hike in the sector.

The effect also rubbed off on the neighbouring sectors 68 and 69, which include the Botanic Garden/ Gallop Road and Ridout/ Peirce Hill/Swettenham Road vicinities respectively, each posting a 23.5 per cent increase, based on JLL's numbers.

Increases in landed residential DC rates were recorded in 116 of the total 118 geographical sectors that Singapore is split into for DC computation. Rates were left untouched in Jurong Islands and other nearby islands, and Pulau Ubin/Tekong. The smallest gain of 7.7 per cent was in Sector 67, which includes the Nassim, Orange Grove and Ladyhill locale.

Credo Real Estate managing director Karamjit Singh said: 'Many GCB Areas saw hikes in landed residential DC rates because over the past six months, GCB prices have risen the most among various property types. However the impact of the hikes would not be felt within the GCB market itself since DC is not payable for a plot that is redeveloped into a single dwelling unit such as a bungalow. Rather, the effect is more likely to be felt among developers of other mixed landed properties near the GCB Areas which have seen a DC rate rise.'

For non-landed residential use, the biggest rate hike was in the Punggol/ Upper Serangoon Road area, followed by Braddell/ Potong Pasir/ Bartley and Bishan/Ang Mo Kio. Analysts attributed this to recent sales of sites in these locations, including by the state.

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http://www.straitstimes.com/Money/Story/STIStory_639868.html

Mar 1, 2011

Development charges rise across sectors

Trend reflects higher values of residential and commercial land

By Esther Teo, Property Reporter


THE rebounding property market has led the Government to jack up the charges developers have to pay when they enhance the use of a plot of land.

The new development charges (DCs), which take effect today, reflect higher property values of residential and commercial land over the past six months.

Residential areas like Farrer Road and Punggol, which are near MRT stations or other developing infrastructure, have been hit with particularly hefty fee increases.

Commercial land has seen the biggest rise in DCs in 31/2 years, said CB Richard Ellis Research executive director Li Hiaw Ho. 'This is the first time since September 2007 that such hefty increases in DC rates were imposed, reflecting the sharp turnaround in the economy as well as land values.'

The landed homes segment has seen fees rise an average of 18 per cent - the largest increase since the DC process started in March 2000.

The steepest hike of 25 per cent was in the Holland Road, Sixth Avenue and Adam and Farrer road areas, possibly due to the imminent completion of new MRT stations.

Average fees for the non-landed homes segment rose by 11 per cent, but the Upper Serangoon and Punggol areas had increases of 17 per cent.

Experts say this could be due to rising land prices of government sites sold there in the second half of last year.

They add that the increases are supported by the Government's intention to develop the Punggol area.

Jones Lang LaSalle's South-east Asia research head, Dr Chua Yang Liang, cited December's sale of a 99-year leasehold private condominium plot at the junction of Punggol Central and Punggol Walk for $406 per sq ft (psf) per plot ratio (ppr) as an example of how developers jostling for a piece of the new town are sending prices upwards.

Fees for areas that include Bishan, Braddell and Potong Pasir were also raised by 15.4 per cent.

The new Circle Line and the recent sale of a Bishan site for $869 psf ppr have indicated developers' confidence in the area's potential.

DCs, which are adjusted every six months, can run in the millions of dollars and are set by the chief valuer based on recent land and property values.

They apply at varying levels across 118 geographical sectors - in the sectors of hospital, hotel, office, industrial and residential.

This year, the charges rose in all the main sectors.

Experts say the increases reflect property market trends over the past six months.

Dr Chua said DC rate revisions were strongest in places where there were strong government land sales, such as the commercial sector around Tanjong Pagar and Punggol's non-landed residential segment.

'The impact of this latest round of revisions is unlikely to either dampen or stir market sentiments. The DC is not a large proportion of the overall development costs, and therefore the impact on the eventual selling price will be muted,' he added.

The hotel and hospital sector, which has been boosted by strong tourist arrivals, had an average DC rise of 27 per cent - although eight sectors covering the Church Street, Clemenceau Avenue, Somerset Road and Tanglin Road areas saw fees shoot up 39 per cent.

The commercial sector had an average increase of 13 per cent, with the sharpest gain of 29 per cent registered in the Tanjong Pagar area.

Mr Li of CB Richard Ellis Research noted that the commercial segment averaged increases of 12.7 per cent this time, compared with an average 0.8 per cent increase last September.

He also said that this hike could be substantiated by the mixed-use land parcel at the junction of Peck Seah and Choon Guan streets that was sold in November for a whopping $1.71 billion.

The industrial and warehousing sector had averaged increases of 8 per cent, although the rates have shot up 20 per cent in Tuas, Jurong and Woodlands.

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