Development charge (DC) rates for redeveloping land have gone up for commercial and industrial sites, as well as plots slated for non-landed private homes, and hotels and hospitals.
Land zoned for non-landed residential use had rates raised by 9.8 per cent on average, the Ministry of National Development (MND) said on Friday – its fifth straight increase, although down sharply from the 22.8 per cent hike in March.
DC rates for commercial sites were raised by 8.3 per cent on average, up from a 2.7 per cent increase previously, with the average rate for hotels and hospitals up by 11.8 per cent and the average increase for industrial sites coming in at 2.1 per cent after staying flat in the previous revision exercise.
The MND revises DC rates twice a year, on March 1 and Sept 1, for land use categories across 118 sectors island-wide.
The rates, based on an assessment of land values that takes into account recent market deals, are paid by developers for the right to enhance the use of some sites or to build bigger projects there.
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The rates have been kept unchanged for landed homes, civic and community institutions, and three other land use groups, which include nature reserves, agricultural land, drains, roads, railways and cemeteries.
The latest rate change comes nearly two months after surprise property cooling measures kicked in on July 6, and the new rates will apply from Sept 1, 2018 to Feb 28, 2019.
And the biggest rise in DC rates came in the non-landed residential use group, where the increases may have started as low as 3 per cent but surged in sector 43, which covers Tanglin Road, Cuscaden Road, Orchard Boulevard and Grange Road.
That sector saw the DC rate upped by 33.3 per cent to S$18,200 per square metre of gross floor area, from S$13,650 in March 2018.
Transactions in that area this year include a 5,723 sq m, 99-year leasehold site in Cuscaden Road, which smashed records in April when it netted S$$410 million in a government land sale (GLS), as well as freehold condominium Park House, which was sold en bloc in June for S$375.5 million, or a record unit price of S$2,910 per square foot per plot ratio (psf ppr).
But industry watcher Nicholas Mak, executive director of ZACD Group, called the latest residential rate hike “more focused” than in March.
The DC rates have just been raised in under two-thirds of non-landed residential sectors – or 75 out of 118 – against an almost universal increase in 116 sectors previously.
“The general upward revision of DC rates is in line with the other pre-emptive measures put in place to cool the property market and tame bullish bids by developers,” Christine Sun, head of research and consultancy at OrangeTee & Tie, told media.
“Moving forward, such steep increases in DC rates are less likely to be seen as the en-bloc market is already cooling off and developers’ thirst for land is moderating after the property measures.”
Lee Sze Teck, head of research at Huttons Asia, agreed with the sentiment and said that the latest increase is likely to be the last time that the non-landed residential use group sees an upward revision of more than 5 per cent. He predicted rate changes of between zero and 2 per cent in future revisions.
DC rates for commercial land were up almost across the board, with increases in 116 sectors. But the sector 110 area, covering Holland Road and Commonwealth Avenue West, pulled up the average, as the rate jumped by 16.9 per cent from S$8,680 psm of GA to S$10,150.
Market watchers said that the hike could have come on the back of the S$$1.2 billion bid for a Holland Road GLS site in May, which had a land price of S$1,888 psf ppr.
The deal could also have had a ripple effect on neighbouring sector 111, which spans the National University of Singapore and Kent Ridge Park, and which saw a 15.7 per cent rate increase to S$8,750 psm of GFA, said real estate consultancy CBRE.
CBRE added that the 14.3 per cent rise in sectors 54 to 57 in the Boon Keng area, as well as sector 99 around Changi Airport, did not come on the back of any notable transactions “but the improved occupier performance may have led to the increase in DC rates”.
Christine Li, senior director of research at Cushman & Wakefield, said that commercial DC rates are expected to be increased again in the next rate revision exercise, on projections of rising “Grade A” office rents in the central business district and prime retail rents having bottomed out. “Coupled with the continued steady compression of cap rates, this will result in capital values rising over the next half-year,” said Ms Li.
Meanwhile, the rate increase in the hotel and hospital use group was also broad-based, with rates going up by between 8 per cent and 23 per cent in 116 sectors.
But the biggest increase was in Collyer Quay, as well as sectors that cover Bras Basah and Beach Road, and Shenton Way. Rates in those areas went up by 23.3 per cent to S$12,950 psm of GFA, from S$10,500 in March.
While these locations have not seen any recent hotel sales or redevelopments, the hike could be due to rising interest in hotel assets, said Tricia Song, head of research for Singapore at Colliers International, citing the sale of Wanderlust Hotel in Dickson Road for S$37 million and the sale of Wangz Hotel in Outram Road S$46 million. “Earlier this year, 15, Hill Street was sold for S$118 million with a view to redevelop it into a 300-room luxury hotel,” she added.
Industrial land DC rates – which have historically stayed flat or gone downwards since 2013 – were raised in 26 sectors, with increases of between 6 per cent and 11 per cent.
Tay Huey Ying, head of research and consultancy at JLL Singapore, said: “The chief valuer has likely taken into consideration recent transactional evidence of industrial development sites, as well as firmer signs that the worst is over for the industrial property market.”
Three sectors – spanning the Macpherson area, from Ubi to Jalan Toa Payoh and Hougang Avenue 3 – saw the largest change, from S$$1,925 psm of GFA to S$$2,135, which was attributed to the S$76.25 million collective sale of Pei Fu Industrial Building in April. The next-largest jump was an increase of 10.3 per cent in the area around Pandan Reservoir, to S$$1,120 psm of GFA.
The mild rate hikes in the industrial use group “is a reflection of the cautious optimism in the manufacturing sector”, said CBRE..
But the industrial property market may not be completely in the clear yet.
Ms Tay noted that DC rates were left untouched in sector 114, which covers Tuas, Choa Chu Kang and Kranji, and sector 115, in Sembawang, Mandai and Woodlands, which she said was “likely in view of the lacklustre interest” in industrial GLS sites there.
Three out of four sites on the confirmed list for the first half of the year – two in Tuas and one in Woodlands – also failed to secure any bids at the close of the tender, she added.