Hike in DC rates not reflective of more cautious sentiment after July cooling measures: consultants

By
/ EdgeProp Singapore
|
September 1, 2018 2:33 AM SGT
The Ministry of National Development (MND) on Sept 1, revised the development charge (DC) rates for redevelopment land for the period of Sept 1, 2018 to Feb 28, 2019. DC rates are revised every six months, and are payable when planning permission is granted to carry out development projects that increase the value of the land, for example, rezoning to a higher value use and/or increasing the plot ratio, says Tricia Song, Colliers International head of research for Singapore.
In the latest half-yearly period, the DC rates for commercial, non-landed residential, hotel/hospitality and industrial were increased. The DC rates remain unchanged for landed residential, place of worship/civic and community institution and others.
The Tanglin Road/Cuscaden Road/Orchard Boulevard/Grange Road area saw the steepest increase of 33%, most likely due to the record collective sale price of $2,910 psf per plot ratio (psf ppr) for the freehold Park House site (pictured) in June (Credit: CBRE)
On the back of bullish land bids by developers and en bloc sale fever in 1H2018, the government hiked the DC rates for non-landed residential use by 9.8% on average, says Nicholas Mak, executive director of ZACD Group. The increase is not as precipitous as the 22.8% climb during the last revision six months ago - the biggest increase since Sept 2007 when the rate soared by an average of 57.8%, he adds.
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DC rates increase 33% for Tanglin-Cuscaden area
DC rates for non-landed residential sites will increase for 75 of the 118 geographical sectors by between 3% and 33%, with no change to the remaining 43 sectors, adds Mak. In the previous revision six months ago, the non-landed residential DC rates increased for 116 out of 118 sectors.
The Tanglin Road/Cuscaden Road/Orchard Boulevard/Grange Road area otherwise known as Sector 43 saw the steepest increase of 33%, most likely due to the record collective sale price of $2,910 psf per plot ratio (psf ppr) for the freehold Park House site in June; and the record price of $2,377 psf ppr for the 99-year leasehold residential site on Cuscaden Road sold in a government land tender that closed at the end of April, notes Mak.
“The rise in non-landed residential DC rates should not come as a surprise, given the frenzy of en bloc activities in 2Q2018, which saw land transactions at record prices,” says Christine Li, Cushman & Wakefield (C&W) senior director of research. Residential en bloc transactions in 2Q2018 was $3.8 billion, almost half of 2017’s tally of $8.2 billion. For the whole of 2018 to date, total en bloc deals is around $9.9 billion.
Developers’ margins affected
Li sees the rise in DC rates further dampening sentiments after the recent slew of cooling measures in July. “Developers are likely to adopt a more prudent and cautious stance in view of higher costs (due to higher DC rates) and lower demand (due to the new cooling measures).”
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Developers’ margins would also be affected, points out Li. “Developers may try to pass on this cost to homebuyers which would be challenging in the current market. The alternative would be to launch much smaller units to boost profitability.”
Given that there is a lag between DC rate changes and market shifts, the next revision in March 2019 could be more muted and may present a truer picture of the non-landed residential property market, says Colliers' Song.
“The latest figures which tracked market developments in the March to August period may not fully reflect the current climate, particularly the more cautious sentiment following the July 6 property cooling measures,” says Song. She expects developers to hold back on land acquisition in the near-term.
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Commercial DC rates up 8.3%
Commercial DC rates rose across the board, with 116 out of 118 sectors showing increases, notes C&W’s Li. In contrast, only 41 out of 118 sectors showed an increase in the previous revision six months ago. The average increase was also higher at 8.3%, compared to the previous period of 2.7%, she adds.
The DC rate for Sector 110 (Commonwealth Avenue West / North Buona Vista Road / Holland Road / Ulu Pandan Road / Clementi Road Area) rose the most with a spike of 17%. This was attributed to the tender price of $1.2 billion or $1,888 psf ppr for the Holland Road GLS mixed-use site, which was awarded to a Far East Organization-led consortium, adds Li.