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DC rate for industrial use cut but left unchanged in other use groups

For the first time in at least seven years, development charge (DC) rates in four of the five major use groups have been left unchanged.


FOR the first time in at least seven years, development charge (DC) rates in four of the five major use groups have been left unchanged.

The rates for commercial, landed and non-landed residential, hotel/hospital uses have been left untouched, but DC rates for industrial use have been trimmed by an average of 3 per cent.

DC rates are payable by developers for enhancing the use of some sites or for building bigger projects on them. These latest ones will apply from Sept 1, 2015 to Feb 29, 2016.

The Ministry of National Development (MND), in consultation with the Chief Valuer, revises these rates twice a year; the rates are stated according to use groups across 118 geographical sectors in Singapore.

Elaborating on the rate cuts for industrial use, MND said the declines ranged from 3 per cent to 4 per cent for 87 out of 118 sectors. The DC rates for the remaining 31 sectors are unchanged.

Also left untouched in the latest revision are DC rates for the use group that includes place of worship and civic and community institution, as well as the remaining use groups covering open space/nature reserve, agriculture and roads/railways.

Commenting on the DC rate cut being confined to industrial use, market observers noted the weak fundamentals in this segment of the local property market.

Tan Tiong Cheng, chairman of Knight Frank, said: "Rents, take-up and land bids are all headed south for industrial. That's obvious."

He argued that for the commercial segment, based on the current trend of a decline in office rents and factoring in the big supply coming in the next two years, one may conclude that office rents will remain subdued. "If at all, the price of commercial land should come off, but there is a lack of transactions, so the authorities have left DC rates for commercial use unchanged."

He added: "In the residential market, land bids at state tenders, (which are mostly for suburban and city-fringe sites), are no longer as aggressive. However, in the prime areas, there is a lack of private land sales. Thus the decision to maintain DC rates for residential use."

CBRE Research's Singapore and South-East Asia head Desmond Sim suggested that the Chief Valuer may have thought it too early to lower commercial and residential use DC rates because the office, retail and residential rental markets have just started to turn. "Should these rental markets continue to face headwinds, it is possible that there will be more data points to support a downward revision in DC rates. Another factor the Chief Valuer will look at is the movements in the official private housing price index," he added.

Agreeing, Cushman & Wakefield director of research Christine Li said: "Even though the residential rental market has weakened, the price correction has barely started."

During the heydays of the residential collective sales boom - last seen in 2007 - DC rates for non-landed residential use were widely watched, given their possible impact on major transactions in which the land price included a significant DC component.

JLL international director Karamjit Singh said: "Today, the impact of such DC rate changes is less, applying almost only to the tax payable by developers to add 10 per cent floor area in a private residential project, dedicated mainly to balconies."

For industrial DC rates, the average 2.7 per cent decline in the latest revision, based on an analysis by JLL Research, marks the first drop after being left untouched in the previous three revisions. JLL's head of Singapore and South-east Asia research Chua Yang Liang noted that the latest drop is the biggest since the 4.5 per cent cut in September 2005.

Dr Chua, highlighting that the fall in industrial DC rates this round will apply to 74 per cent of the 118 geographical sectors, said: "The last time something of this scale happened was in September 2005, when 97 per cent or 115 out of the 118 geographical sectors posted a decline."

SLP International executive director Nicholas Mak said that land prices at some of the industrial government land tenders have fallen. For example, land prices in Tampines Industrial Drive have dropped by almost 18 per cent between January and July this year.

MND said the biggest reduction in industrial DC rate of about 4 per cent applies to the following sectors:

  • Sector 98 (Kaki Bukit/ Bedok/ Xilin Avenue/ Simei/ Changi South area);
  • Sector 100 (Tampines Road/ Hougang/ Punggol/ Sengkang area);
  • Sector 106 (Sengkang West/ Seletar area)
  • Sector 114 (Boon Lay/ Jurong West/ Pioneer/ Tuas/ Sungei Kadut/ Choa Chu Kang/ Lim Chu Kang area)
  • Sectors 1 to 18, 22 to 47, 50 to 53, 55, 57, 58, 60 to 69, 89 to 97.