ERA Daily Research - 1 September

Development charge rates jump 10.9% for non-landed residential use

The Business Times, 31 Aug 2021, Tue 8:18 pm   

By Fiona Lam

SINGAPORE has again increased the development charge (DC) rates for landed and non-landed residential use groups, with significant increases for some locations, as the private housing market remains buoyant.

However, the government is lowering DC rates for commercial use for the third consecutive time.

The latest revisions in rates apply to the six months from Sept 1, 2021 to Feb 28, 2022.

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

On average, rates are going up by 10.9 per cent for non-landed residential use and by 6.3 per cent for landed residential use.

This is the second consecutive increase for both groups, after a far milder 0.3 per cent rise for non-landed residential use and 1.5 per cent surge for landed residential use starting March 1.

JLL’s head of research and consultancy in Singapore, Tay Huey Ying, said the steeper revision was likely triggered by robust demand for non-landed residential development land, which rose to 12 transactions worth S$2.59 billion in March-August this year, from 11 deals worth S$1.04 billion in the prior six months.

Knight Frank Singapore head of research Leonard Tay said: “Continued brisk sales in the private residential market with new price points in certain locations, together with bullish top bids in recent government land sales (GLS) tenders, contributed to the rise in DC rates.”

According to Lee Sze Teck, Huttons Asia senior director (research), the latest increase in non-landed rates is the steepest since March 2018, and the jump in landed rates is the largest since September 2013.

As for commercial use, DC rates will be trimmed by 0.7 per cent on average starting this September.

DC rates remain unchanged for all the other use groups: hotel/hospital, industrial, place of worship/civic and community institution, open space, agriculture, and roads/railways.

The Ministry of National Development revises the rates on March 1 and Sept 1 each year, in consultation with the taxman's chief valuer. DC rates are based on the chief valuer's assessment of land values and take into consideration recent land sales.

They are stated according to use groups across 118 geographical sectors in Singapore.

For non-landed residential use, DC rates will be upped in 116 sectors by 2 to 19 per cent, and stay the same for the remaining two sectors.

The biggest surge of about 19 per cent is for Sectors 16 and 107, which include Chinatown, Duxton, Cantonment Road, Upper Thomson Road, Lornie Road, and Ang Mo Kio Avenue 6.

In particular, the rate for Sector 107 will be raised by 18.9 per cent, the second-highest adjustment this time round. “This was likely guided by the significant disparity between the land prices achieved for two GLS sites and their land prices imputed from the sector’s DC rates for non-landed residential use,” Ms Tay from JLL said.

For instance, the "hotly contested" Ang Mo Kio Avenue 1 site was sold for S$381.4 million or nearly S$1,118 psf per plot ratio (ppr), 32 per cent above the land value implied from that geographical sector’s non-landed residential DC rate, she highlighted.

Knight Frank’s Mr Tay noted the 17.9 per cent increase in Sectors 28, 29, 30, 31 and 32, generally in the Little India area, which was “possibly due to the award of the Northumberland Road site, where a winning bid of S$1,129 psf ppr exceeded previous GLS for predominantly private home developments in the locality”.

ERA head of research and consultancy Nicholas Mak expects the higher DC rates to add to the development cost of new condominium projects, which may eventually be passed on to homebuyers in the form of higher property prices.

Mr Lee from Huttons said the higher DC rates will also affect the collective-sale market, as it now costs developers more to intensify land use. “For example, Sector 9, which includes International Plaza in Tanjong Pagar, will see non-landed DC rates increasing 9.4 per cent.”

Similarly, Delasa chief executive Karamjit Singh told BT: “The latest rates would cream off value for residential en bloc sellers, especially for those projects with a high component of DC vis-a-vis the total land value. Such projects that have locked in their reserve prices would see their effective land rates rise, thereby lowering their competitiveness.”

Landed residential rates are going up in 116 sectors by 4 to 18 per cent, and left unchanged in the other two sectors.

The 18 per cent increase applies to Sector 67, which includes Cluny Road, Napier Road, Tanglin Road, and Stevens Road.

Ms Tay said the higher landed residential DC rates could have stemmed from the 6.3 per cent spike in landed home prices in H1 2021, driven by strong purchasing activity.

There were 1,778 caveats lodged for landed homes in the March-August 2021 period, up 9.9 per cent from the 1,618 captured for the previous six months, based on the Realis database, she noted.

Specifically, the higher rates also come amid active buying in the Good Class Bungalow (GCB) market. Mr Lee said: “A GCB in the Nassim area was sold for a record S$4,005 per square foot (psf), and DC rates there have been adjusted upwards by 18 per cent."

Meanwhile, commercial DC rates will be reduced by 1 to 3 per cent in 39 sectors. Rates are unchanged for the remaining 79 sectors.

The biggest decrease of 3 per cent for commercial use is for 10 sectors, which cover areas such as Orchard, Somerset, Dhoby Ghaut, Novena, Cluny Road, Napier Road, Stevens Road, and Jalan Bukit Ho Swee.

Mr Tay said the commercial use group continued to struggle as the retail sector has not fully recovered from the pandemic-related restrictions.

“The Orchard areas of Sectors 40, 41, 42, and 43 will see DC rates falling between 2.5 per cent and 3.4 per cent, due to the continued impact on tourist spending in Singapore’s prime shopping belt,” he added.

Source: https://www.businesstimes.com.sg/real-estate/development-charge-rates-jump-109-for-non-landed-residential-use

Drop me a message

I will get back to you soonest possible!