SINGAPORE (EDGEPROP) - On Feb 28, The Ministry of National Development (MND) revised development charge (DC) rates for the six-month period from Mar 1 to Aug 31.
The DC rate is revised every six months. It is a tax levied by the government when planning permission is granted for development projects that increase the value of the land, for instance through rezoning to a higher value use, an increase in plot ratio or both.
For non-landed residential developments or redevelopments, DC rates have decreased an average of 0.2%. Only five out of the 118 DC sectors saw a decline in rates, according to Nicholas Mak, head of research & consultancy for ERA Realty. “This is the third consecutive time that the average non-landed residential DC has decreased,” he observes. “The rate of decline is also getting smaller.”
A contributing factor to the smaller rate of decline (0.2%) in DC rate is due to significantly slower activity in the private land sale market since the latest property cooling measures were implemented in July 2018. “Residential en bloc sales have been few and far between,” adds Mak.
Source: URA, ERA Research & Consultancy
The largest decrease of 7% was for Sectors 34 and 35 which include areas such as Sophia Road, Upper Wilkie Road, Cavenagh Road, and Bukit Timah Road. Mak attributes the decline in DC rates for Sectors 34 and 35 to the en bloc sale of Casa Sophia in December 2019. It was the only reported land deal within the area in the last six months. It was also sold for $29 million, 3.3% lower than the $30 million asking price. The land price translated to $1,205 psf per plot ratio (psf ppr) including DC.
Meanwhile, the DC rate in Sector 46 which includes Grange Rd/Irwell Bank Rd/Devonshire Rd declined 5.4%. This is reflective of the market sentiment and bids received for the Irwell Bank Road site at the close of the tender on Jan 9. The top bid of $1,515 psf ppr was below Colliers’ expectation and also below the implied land rate of $1,719 psf ppr prior to this latest DC rate revision, says Tricia Song, head of research for Singapore at Colliers International
For landed residential use, DC rate has remain unchanged for the fifth consecutive time.
“The latest revision of the DC rates will not encourage any increase in activity in the private residential en bloc or land sale market,” says Mak. “The revision reflects that in the government’s opinion, the residential land values in most parts of Singapore has not changed.”
The DC rate for the hotel, commercial, hospital and other uses remain unchanged too.
There were a number of significant hotel transactions towards the end of last year, such as the sale of Andaz Hotel at DUO to Hoi Hup Realty for $475 million ($1.4 million per key) last October. Lasst November saw the sale of Novotel Singapore Clarke Quay for $375.9 million to CDL and CapitaLand; and acquisition of W Singapore at Sentosa Cove for $324 million ($1.35 million per key) by Singapore-listed CDL Hospitality Trusts.
“It is interesting that development charges for hotels are not revised upwards, despite some sales evidence suggesting that hotel prices are still on the upward trend in the last six months or so,” comments Christine Li, head of research for Singapore and Southeast Asia at Cushman & Wakefield. She reckons it is in response to the impact that the Covid-19 outbreak is having on the hospitality sector, which is likely to hit prices of hotel assets in the near-term.
Colliers' Song is of the same view. “Given the COVID-19 outbreak and potential 20-30% drop in the visitor arrivals in 2020, we see room for hotel DC rates to ease should transacted valuations fall," she says.
In the commercial sector, DC rates were unchanged, reflecting the first pause after seven consecutive increases since September 2016, notes Song. The DC rate for commercial use has increased by an average of 1.7% in the previous revision.
“Capital values have stabilised - as reflected in some transactions in late-2019 – which could explain why there was no change in the DC rate for commercial use,” comments Song. Transactions in 4Q2019 include Bugis Junction Towers, which changed hands for $547.5 million ($2,200 psf) last October; and Robinson Centre, which was sold for $340 million ($2,568 psf) in December.
Given how quickly the Covid-19 outbreak has developed, investment sales volume is likely to be affected in 1Q2020, says Cushman & Wakefield’s Li. “Potential sellers could be reluctant to sell in the current weak environment as buyers take stock of the Covid-19 situation and re-adjust their acquisition strategy in view of the increased risks,” she observes.
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