Upward DC revision fuelled by the bullish biddings for sites?

SINGAPORE — The development charge (DC) rates for non-landed residential sites have been revised upwards for the first time in more than two years, in a move analysts said could have been fuelled by bullish bidding for several Government Land Sales (GLS) sites in the last six months and may not reflect improved market sentiments.

Effective today, DC rates for non-landed housing use for the next six months will be raised by an average of 2.7 per cent, with the increase ranging between 5 and 12 per cent in 39 out of 118 sectors. Rates are unchanged for the remaining 79 sectors. The largest increase of 12 per cent was seen in sector 48, which includes areas such as River Valley Road, River Valley Close, Kim Yam Road, Martin Road, Martin Place and Mohamed Sultan Road. Upcoming executive condo launches include Hundred Palms Residences EC, Yio Chu Kang EC, Inz Residence, Anchorvale Lane EC,  while existing ones include The Terrace EC, Brownstone EC, The Vales EC, Parc Life , Sol Acres EC, The Visionaire, Bellewoods EC, Signature at Yishun, The Criterion EC and Northwave EC.

The last time DC rates were raised in the closely watched segment was in March 2014, when 15 out of 118 sectors saw a 6 to 10 per cent increase.

“I have to say it’s a surprise … Market transaction values are sliding down, rentals are coming down, we are losing tenants and to see the rates of 39 sectors going up by 5 to 12 per cent is a bit surprising,” said Mr Ku Swee Yong, CEO of International Property Advisor.

Citing the murky economic outlook for Singapore, he added: “We are not expecting services, especially financial services, or manufacturing to pick up much. When you translate that to DC rates and real estate valuations … I think they should be trimming instead of increasing. The only reason is that they could want the market to cool down even more.”

Development charges are taxes levied when planning permission is granted to carry out development projects that increase the value of the land, for example, by re-zoning to a higher value use or increasing the plot ratio. They can have an impact on the break-even cost of projects and earnings of developers. The Ministry of National Development conducts its review of the DC rates across 118 geographical sectors twice a year in consultation with the chief valuer.

Given the current economic uncertainty, the average increase in the DC rates does not necessarily represent improved market sentiment, nor does it indicate an increase in capital values of the non-landed residential real estate, said Mr Nicholas Mak, executive director and head of research and consultancy at SLP International Property Consultants.

Some analysts, however, pointed to the 60 per cent quarter-on-quarter jump in private home sales in the second quarter as a contributing factor. Ms Christine Li, director of research at Cushman & Wakefield, noted that the higher DC rates “reflect the stablisation of the residential market and an early sign of bottoming out in the high-end segment”.

The analysts all agreed, though, that the upward revision was likely largely fuelled by the keen and bullish biddings seen for several GLS sites between March and last month. “For example, the Martin Place site (in sector 48) drew a total of 13 bids with the winning price of S$1,239 per sq ft per plot ratio (psf ppr) representing the highest unit land price ever received for a pure residential GLS site,” said Ms Tay Huey Ying, head of research for Singapore at JLL. According to JLL’s analysis, the psf ppr was 42 per cent above the land price imputed by the sector’s DC rate before this latest revision. “Following this revision, the DC rate for this sector would better reflect market land value,” she added.

Apart from the non-landed residential segment, DC rates for commercial land use and hotel/hospitality also increased by, on average, 0.6 per cent and 1.4 per cent respectively, while those of residential landed, industrial and place of worship/civic and community institution remained unchanged.

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