DC rates up 1.7% for commercial, down 0.3% for non-landed residential use

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/ EdgeProp Singapore
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September 5, 2019 5:18 PM SGT
SINGAPORE (EDGEPROP) - On Aug 30, the Ministry of National Development announced changes in development charge (DC) rates. For the period of Sept 1, 2019, to Feb 29, 2020, DC rates for commercial use (Use Group A) will increase by 1.7% on average, while those for non-landed residential use (Use Group B2) will decrease by 0.3% on average. The DC rates for the remaining use groups – landed residential, industrial, and hotel – remain unchanged.
DC rates are payable when planning permission is granted to carry out development projects that increase the value of the land, for example, re-zoning to a higher value use and/or increasing the plot ratio. These rates are revised on a half-yearly basis.
The revised rates take into account the chief valuer’s assessment of land values and recent land sales. They are classified according to use groups across 118 geographical sectors in Singapore.
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Property consultants observed that the new DC rates are “within expectations” amid the current macroeconomic environment.
“Benefitting from business relocations and investment diversion amid heightened uncertainties and the global slowdown, Singapore appears to be more appealing as an investment safe haven,” says Christine Li, head of research, Singapore and Southeast Asia, Cushman & Wakefield (C&W).
“As such, for the period of September 2019 to February 2020, DC rates for commercial use increased, while those for non-landed residential use decreased,” she explains.
DEVELOPMENT CHARGE RATE - SOURCE: COLLIERS INTERNATIONAL, URA
SOURCE: COLLIERS INTERNATIONAL, URA

Commercial

The increases in DC rates for commercial use saw adjustments of between 2.6% and 6.9%, averaging at 1.7% across 59 out of the total 118 geographical sectors. The highest increase of 6.9% was for suburban areas: Sector 100 (Tampines Road/Hougang/Punggol/Sengkang), Sector 105 (Ang Mo Kio/Yio Chu Kang/Seletar) and Sector 112 (West Coast Highway/Jurong East).
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Ong Teck Hui, JLL’s senior director, research and consultancy, Singapore, attributes the increase in DC rates for commercial use in suburban areas to the investment interest seen in the preceding six months.
In March, SC Capital Partners purchased Rivervale Mall in Sengkang for $230 million or $2,833 psf on net lettable area (NLA).
In May, Frasers Centrepoint Trust acquired a one-third stake in Waterway Point in Punggol from its sponsor Frasers Property at $440.6 million or $3,502 psf on NLA.
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C&W’s Li says: “Suburban malls are projected to continue posting robust growth in capital values as the strong performance of well-managed retail spaces in choice locations continues to attract demand from retailers.”
Meanwhile, DC rates for sectors under the CBD Incentive Scheme (Sectors 7, 9 and 10) have seen steady increases since September 2016, according to JLL’s Ong. He highlights that the latest round of revision is the lowest increase in seven rounds of revision.
“Together with DC rates for hotel and non-landed residential holding flat in these sectors, [the changes] are less likely to impede potential redevelopment plans under the CBD Incentive Scheme,” he adds.
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Non-landed residential

DC rates for non-landed residential use were reduced by 0.3% on average, with seven out of the 118 sectors registering reductions of 3.8% to 7.4%.
“This comes after a 5.5% decrease in DC rates during the March 2019 review, and it is the first successive back-to-back decline since the September 2014/March 2015 review,” states Tricia Song, head of research for Singapore at Colliers International.
“The trimming of the DC rates for non-landed residential use in this review should be modestly comforting for property developers who have had to grapple with more uncertainties following the roll-out of new cooling measures in July 2018,” she adds.
The largest decrease of 7.4% was seen in Sector 112 which includes Bukit Batok East Avenue 6, Upper Bukit Timah Road, Clementi and West Coast Highway. She reckons this could be due to the bid price for the Government Land Sales (GLS) Clementi Avenue 1 site tender which closed on July 3. “The bid price of $788.30 psf per plot ratio [ppr] was below market expectations and significantly below the implied land rate ($883 psf ppr derived from the March DC rate) in this sector,” she says.
Elsewhere, the DC rate in Sector 34, which includes Sophia Road, Upper Wilkie Road and Mackenzie Road, decreased around 6.5%. “A small apartment block with five units was reportedly sold collectively in March at $9.28 million. Although the land rate was not reported, this transaction could have contributed to the decline in residential non-landed DC rate for that sector,” says Nicholas Mak, ERA Realty Network’s head of research and consultancy.
He adds that the new DC rates “will not result in the recovery in the residential collective sale market as the en bloc sale market has been muted by the July 2018 cooling measures”.
DEVELOPMENT CHARGE RATE - NON-LANDED RESIDENTIAL DC RATES & SECTORS

Hotel and industrial

The DC rates for hotels remain unchanged. This follows a sharp hike of 45.6% on average in the last revision. Colliers’ Song observes that this could be partly due to the lack of significant hotel transactions in the last few months.
“While investors are still interested in hospitality assets, the 45.6% hike in DC rates for hotel use since March 1, 2019, proved to be too punitive for hotel land deals,” she says. “Hotel transactions since then have focused on income assets such as Bay Hotel, Ibis Novena and a stake sale in Marina Mandarin.”
The DC rates for industrial use has also been kept stable. “The chief valuer likely took into consideration the relatively stable industrial property market, as well as the cautious outlook for the sector given the stronger headwinds ahead,” notes JLL’s Ong.
According to JTC statistics, island-wide occupancy rate for industrial buildings remained unchanged for the second consecutive quarter at 89.3% in 2Q2019.
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