Development charge rates mostly unchanged in latest review

Sole change is that for non-landed residential use, with 0.2% average decrease, a third consecutive decline

Sat, Feb 29, 2020

KALPANA RASHIWALA


THE government has left development charge (DC) rates largely unchanged for the next half year amid a generally stable property market over the past six months and thin transaction evidence.

The only use group with a change in DC rates in the latest revision, effective for the March 1 to Aug 31 period, is non-landed residential use, with a 0.2 per cent average decrease.

This is the third consecutive decline, following reductions of 0.3 per cent in September 2019 and 5.5 per cent in March 2019.

Developers pay DC for the right to enhance the use of some sites or to build bigger projects on them. The Ministry of National Development revises the rates on March 1 and Sept 1 each year, in consultation with the taxman's chief valuer (CV).

DC rates are based on the CV's assessment of land values and take into consideration recent land sales. They are stated according to use groups across 118 geographical sectors.

Cushman & Wakefield's head of research for Singapore and Southeast Asia, Christine Li, said the fact that DC rates are largely unchanged is an indication that the Singapore property market has largely stabilised in terms of both rentals and prices.

"Although there is a drastic change in terms of the macroeconomic environment globally due to the Covid-19 outbreak, there isn't enough sales evidence to support any decline in the DC rates other than the non-landed residential sector which saw a small decline."

ERA Realty's research and consultancy head Nicholas Mak pointed out that besides the average rate of decline for non-landed residential DC rates getting smaller, the number of geographical sectors with reductions in DC has declined from 94 in March 2019 to seven in September 2019 to five in the latest revision.

"A contributing factor is that the private land sale market has slowed down significantly since the latest cooling measures were implemented in July 2018. Residential enbloc sales are few and far in between."

Tricia Song, head of research for Singapore at Colliers International, said the modest cut in non-landed residential DC rates is also reflective of the relatively muted bidding at state land tenders and generally slower economic outlook.

JLL's head of research and consultancy for Singapore, Tay Huey Ying, said the reductions in DC rates for the five geographical sectors were well supported by transaction evidence.

The 7 per cent cut for sector 34 and the neighbouring sector 35 is supported by the collective sale of the Casa Sophia for S$1,205 psf ppr (inclusive of an estimated DC of about S$2.2 million), 11 per cent below the land value implied by the DC rates prior to this latest revision.

The 5 per cent DC rate cut for sector 103 was supported by a state land parcel in Jalan Bungai Rampai in the Bartley area fetching S$885 psf ppr, 10 per cent below the land value implied by the Sept 1, 2019 DC rate for non-landed residential use in the area.

The DC rate cuts in sectors 46 and 47 are supported by the S$1,515 psf ppr winning bid for the Irwell Bank Road site at a state tender in January - 8 per cent below its implied land value.

Mr Mak does not expect the latest revision of DC rates to encourage any increase in activities in the private residential enbloc sale or land sale market. "The revision reflects that in the government's opinion, the residential land values in most parts of Singapore have not changed."

For the latest revision, DC rates remain unchanged for all other use groups, including landed residential, commercial, hotels/hospital, and industrial.

In the previous revision, DC rates for commercial use were raised 1.7 per cent on average, with no changes in DC rates for landed residential, hotel/hospital and industrial uses.

JLL's Ms Tay highlighted that DC rates for the commercial use group have been kept unchanged after seven consecutive upward adjustments. "This is in keeping with the relatively more subdued commercial investment sales market activity following the conclusion of several prominent deals in the earlier part of 2019."

Based on JLL's research, commercial assets (comprising office, retail, shophouses and mixed assets with significant office/retail components) worth at least S$5 million each that were transacted during the DC review period of September 2019 to February 2020 totalled only S$2.75 billion. This is a steep fall from the S$8.55 billion similarly garnered in the six months prior.

"At the same time, the exuberance in the office leasing market has also abated since Q2 2019 as occupiers become increasingly cautious amid headwinds following the marked slowdown in economic activity and a slew of GDP growth downgrades," Ms Tay added.

Colliers' Ms Song notes that DC rates for hotel use have been kept unchanged for the second consecutive review, after spiking 45.6 per cent in the March 2019 revision. "We think keeping a status quo on the hotel DC rate is appropriate at this time. Given the Covid-19 outbreak and potential 20-30 per cent drop in visitor arrivals in 2020, we see room for hotel DC rates to ease should transacted valuations fall."

She noted that hotel transactions were relaively robust in late-2019 - such as Andaz Hotel at Duo and W Singapore at Sentosa Cove.

Ms Li of Cushman said that while on the one hand there has been some evidence suggesting that hotel prices have still been on the upward trend in the past six months or so, recent deals associated with the redevelopment of the Liang Court site were done at relatively low land rates.