Government raises development charge rates for non-landed residential sector

By Feily Sofian

/ The Edge Property |

August 31, 2016 6:12 PM SGT

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The government has raised the development charge rates for three sectors - commercial, non-landed residential and hotel / hospital - with effect from Sept 1, 2016. DC is a tax that property owners must pay to the state if they enjoy an increase in land value resulting from a higher plot ratio or a change of use. The rates are revised twice a year, on March 1 and Sept 1, pegged to 70% of the freehold land value in a particular area.

Among the three sectors, non-landed residential saw the biggest increase averaging 2.7%. The largest increase of 12% applies to sector 48 which covers River Valley Road / River Valley Close / Kim Yam Road / Martin Road / Martin Place / Mohamed Sultan Road. In June, a unit of GuocoLand submitted the top bid of $1,239 psf ppr for a 99-year leasehold condominium site at Martin Place/ River Valley Close. It was the highest per square foot price fetched for a pure residential site sold at a state tender. The site attracted 13 bids.

The upward revision also reflects the more upbeat market sentiment. In 2Q2016, the URA price index for private non-landed homes slipped 0.1% q-o-q, the smallest decline seen in 11 consecutive quarters. Meanwhile, the price index for non-landed private homes in Core Central Region rose for the second straight quarter in 2Q2016.

Christine Li, head of research at Cushman & Wakefield, highlights the recent uptick in the residential sales in OUE Twin Peaks where a deferred payment scheme was well-received by both the local and foreign buyers.

Meanwhile, the DC rates for the landed home segment remain unchanged. Tay Huey Ying, head of research at JLL Singapore, says "It came as a surprise that DC rates for the landed residential use group have been kept unchanged as this appears to run contrary to market trend. According to URA’s all-property private residential price index, prices of landed homes have eroded by a total of 12.5% since trending down in 4Q2013, yet the DC rates for this use group have been left unchanged at March 2014’s rates."

"Another surprise was the fact that DC rates for the industrial use group have been left unchanged despite some evidences of weakening land prices amid the protracted manufacturing sector slump which has seen many plants operating at excess capacity," Tay says.

The commercial sector saw a smaller increase in DC rates, averaging 0.6% on average. The largest increase of 5% applies to Sectors 1 to 6 (Rochor Road / Ophir Road / Temasek Boulevard / Raffles Boulevard / Raffles Place / Church Street / South Bridge Road / South Canal Road), and Sector 11 (Shenton Way / Raffles Quay / Marina Bay Financial Centre). The revision was likely driven by several big-ticket investment deals that took place recently, including the sale of Asia Square Tower 1 and Straits Trading Building.

Cushman & Wakefield's Li says the capital market has shown little signs of price retreating compared to the last six months on the back of increased market activities.

Lastly, the DC rates for the hotel / hospital segment have been raised by 1.4% on average. The largest increase of 5% applies to Sector 12 (Bayfront Avenue), and Sectors 41 to 43 (Orchard Road / Somerset Road / Scotts Road / Orchard Boulevard / Cuscaden Road / Tanglin Road).

Tourist arrivals rose 12.5% y-o-y between January and June 2016 to 8.2 million. However, the average revenue per available room for hotels was down 2.5% y-o-y in the same period. The hike in DC rates for hotel / hospitality sector therefore also came as rather surprising. In May, Shun Tak Holdings acquired a freehold hotel site on Cuscaden Road. The price works out to $2,145 psf ppr after development charge.

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