DC rates rise to play catch-up with land prices

AMID strong developer appetite for condo development sites which has buoyed land prices, the government has upped the average DC (development charge) rate for non-landed residential use by 4 per cent for the March 1-Aug 31, 2017 period.

This is the second consecutive hike in the average DC rate for such use, following the 2.7 per cent rise during the previous revision six months earlier.

DC is payable for enhancing the use of some sites or to build bigger projects on them.

The Ministry of National Development, in consultation with the chief valuer (CV), revises DC rates twice a year, on March 1 and Sept 1. The rates are based on CV’s assessment of land values and take into consideration recent land sales and other property transactions.

On average, DC rates for commercial use have been raised by 1.3 per cent, following a 0.6 per cent increase previously. Analysts said that the trigger for the latest hike is the record land bid for the Central Boulevard site.

DC rates for the hotel/hospital use group have also gone up by 2.6 per cent on average in the latest revision.

However, rates for industrial use have been clipped by 3.7 per cent on average. DC rates remain unchanged for landed residential, place of worship/civic and community institution, and other use groups.

DC rates are stated according to use groups across 118 geographical sectors in Singapore.

JLL’s Singapore research head Tay Huey Ying said: “The upward revisions in the DC rates for the commercial and non-landed residential use groups are not surprising given that these two sectors have witnessed strong interest from investors and developers since the second quarter of 2016.”

Agreeing, Cushman & Wakefield Singapore research director Christine Li viewed the increases in DC rates for the two use groups as “playing catching-up”, as developers’ hunger for prime commercial sites and residential plots has driven land prices further north over the past six months – despite concerns over the supply overhang and soft leasing demand in both sectors.

For commercial use, DC rates have gone up in 14 of the 118 geographical sectors by between 5 per cent and 29 per cent – with no changes in the remaining 104 sectors.

The biggest increase is in Sector 11 (which includes Shenton Way, Raffles Place and the Marina Bay area).

IOI Properties Group’s S$1,689 per square foot per plot ratio winning bid for the Central Boulevard site at a state tender last November – reflects a 35 per cent premium to the land value implied by the Sept 1, 2016 DC rate for the Sector for commercial use, JLL’s analysis showed.

The rate hike for this sector led to CV adjusting upwards the DC rates for surrounding areas – to the tune of 20 per cent for Sector 12 (Bayfront) and 10.7 per cent each in Sectors 1-6 (which include the Raffles Place, Pickering Street, High Street/Coleman Street, Bugis, Marina Centre and Fullerton Road locales).

CBRE Research’s Singapore and South-East Asia head Desmond Sim noted that besides the Central Boulevard transaction, the investment sales market for CBD commercial buildings has also been active, with transactions such as 77 Robinson Road, a half-stake in Capital Square, and the balance space at GSH Plaza.

For non-landed residential use, DC rates were upped in 51 sectors by between 5 and 17 per cent, and left untouched in the remaining 67 sectors. The biggest increase of 17 per cent is for Sector 53 (which covers Jalan Besar, Syed Alwi Road, Serangoon Road and Lavender Street) and Sector 57 (including Balestier, Serangoon and Bendemeer roads).

Ms Tay of JLL noted that in Sector 53, the winning bid of $S1,001 psf ppr for the Perumal Road Government Land Sales site (non-landed residential with first-storey commercial) was 73 per cent above the implied land value for pure non-landed residential use based on the Sept 1, 2016 DC rate.

In DC Sector 57, a freehold site at 1177 Serangoon Road was sold by National Aerated Water Company in December 2016 for S$785 psf ppr inclusive of DC payable to change its use from industrial to residential. This is a 46 per cent premium over its implied land value based on the Sept 1, 2016 DC rate.

Nine sectors saw 15 per cent hikes each in DC rates – including Sectors 106 (which includes the Sengkang West and Seletar areas). Sector 100 (which includes Sengkang East and Punggol) rose 14 per cent. The increases for the two sectors were probably due to the prices fetched for residential sites sold in Fernvale Road and Anchorvale Lane respectively at state tenders.

Despite the steeper hikes on average in non-residential DC rates this time round, JLL highlighted that by and large, it does not expect this to have a significant impact on the materialisation of residential collective sales transactions – because in most instances DC does not form a large component of the overall sale price.

For hotel/hospital use, DC rates climbed 4-19 per cent in 33 sectors, with no changes in the other 85 sectors. The steepest hike of 19 per cent is for five sectors including Sector 107; the Housing Board’s sale of a site for a nursing home in Venus Drive in the Upper Thomson area is likely to be the sales evidence for this, said Cushman’s Ms Li.

However, an analyst who declined to be named suggests that the DC rate hikes for the hotel use group in general could potentially be preparation for the authorities allowing short-term residential leases in future. “One way to legitimise this business and make it more equitable would be to tax owners of such properties with some sort of temporary levy based on DC rates for hotel use,” he added.

For industrial DC rates were chopped in all 118 geographical sectors by 2-14 per cent. The biggest drop of 14 per cent was for Sector 100 (Tampines Road, Hougang, Punggol, Sengkang) and Sector 114 (including Boon Lay, Jurong West, Pioneer and Choa Chu Kang).

State land sales of several industrial sites along Tampines Industrial Drive and in Tuas South during the past half-year were at discounts of 10-32 per cent to their DC rate-implied land values, according to JLL’s data.

Moreover, slow economic growth and a generally weak manufacturing sector for the most part of last year, along with an oversupply of industrial space have all combined to produce broad-based islandwide declines in industrial property prices and rents, noted Ms Li.

Join The Discussion

Compare listings