Muted updates to DC rates amid challenging macro scene

Singapore

AGAINST the backdrop of a challenging macroeconomic environment, the government has announced muted adjustments in development charges (DC).

The Ministry of National Development on Friday evening announced that it is raising DC rates for commercial use by 1.7 per cent on average for the period Sept 1, 2019 to Feb 29, 2020. The increase is only a shade of the 9.8 per cent hike for the last revision that took effect on March 1 this year.

DC rates for non-landed residential use have been trimmed by 0.3 per cent on average. This follows the 5.5 per cent cut in March.

Developers pay DC for the right to enhance the use of some sites or to build bigger projects on them.

DC rates remain unchanged for all other uses. During the previous revision, DC rates for the use group that includes hotels were jacked up by 45.6 per cent on average.

MND 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 across the island.

Commenting on the increase in DC rates for commercial use, ERA Realty head of research and consultancy Nicholas Mak said that in the latest revision, rates were increased in only 59 sectors by between 3 and 7 per cent. In the previous revision six months ago, rates had been raised for 116 sectors by between 3 per cent and 17 per cent.

Analysts noted that the biggest hike in commercial use DC rates this time include Sector 100 (which includes the Hougang, Punggol and Sengkang areas).

The transactions of Rivervale Mall and a one-third stake in Waterway Point are likely to have been among evidence the chief valuer used.

Also noteworthy is a string of office buildings being sold in the financial district and city areas in recent months, which may have supported increases in DC rates in their respective geographical sectors.

Examples include Sector 1 (which includes the Raffles Place area, where Chevron House was transacted), Sector 7 (which includes the Cecil Street and Robinson Road areas, where 71 Robinson Road and a half-stake in Frasers Tower have been transacted) and Sector 4 (which includes the Beach Road area, where the office and retail components of the Duo project have been sold).

These three sectors saw modest increases of about 3 per cent each in their respective DC rates for commercial use,

For non-landed residential use, DC rates were cut in just seven out of the 118 sectors by between 4 per cent and 7 per cent, with no change to the DC rates for the remaining 111 sectors.

The biggest cut of 7 per cent is for Sector 112 (which includes places such as West Coast and Clementi).

Cushman & Wakefield head of research for Singapore and Southeast Asia, Christine Li, said the cut was due to the 99-year leasehold private housing site along Clementi Avenue 1 that was sold at a state tender a few months ago .

JLL senior director of research and consultancy for Singapore, Ong Teck Hui, noted that the Clementi plot was sold for S$788 per square foot per plot ratio, which was 7 per cent below the implied land value derived from the then-prevailing Mar 1, 2019 DC rate for non-landed residential use for the area.

Mr Mak noted that both the number of geographical sectors and rate of decline in DC rates for non-landed residential use this time round was smaller than in the previous revision.

"The impact on the residential enbloc sale market will be minimal," he said. In any case, the residential collective sale market has been muted by the July 2018 cooling measures.

Said JLL's Mr Ong: "The firming of DC rates for non-landed residential use seems to be coincidental with the uptick in private home prices as reflected by the 1.5 per cent increase in the Urban Redevelopment Authority's private residential price index in Q2 2019.

"If home prices remain resilient, land prices are likely to continue to stabilise which will determine the direction of DC rates."

As for flat hotel use DC rates, Colliers International head of research for Singapore, Tricia Song, noted that this comes amid weak growth generally in the Singapore tourism and hotel trade in the first half. Moreover, there has been "a lack of significant hotel transactions in the last few months" , she added.