Development charge (DC) rates has been in the news quite recently because of the spate of en-blocs going on around Singapore.
Even though someone may be familiar with the en-bloc market, DC rates may be something new.
DC rates are not something that is thrust into the spotlight but has a big role to play in how present owners of en-bloc’d properties are remunerated, how reserve prices are calculated and how developers make their money.
This post sheds some light on what DC rates are all about, how they figure in an en-bloc process, why the government tweaks the rates up and down and how they can affect you.
What are DC rates?
From URA’s website, the definition of DC rate is as follows –
“Development charge is a tax levied when planning permission is granted to carry out development projects that increase the value of the land (e.g. when a development is rezoned or has its plot ratio increased). The development charge rates are received in consultation with the Chief Valuer at the Inland Revenue Authority (IRAS) every six months (on 1 March and 1 September).”
Other news publications and research analysts covering the property market define DC as
JLL’s Tay Huey Ying: “The DC is a tax that is levied when planning permission is granted to carry out development projects that increase the value of the land.”
TodayOnline: “The development charge is a tax levied on developers when planning permission is granted to carry out development projects that increase the value of land, including rezoning to a higher value use and increasing the plot ratio of the property.”
How do you check DC rates?
DC rates can be checked from URA’s website.
As of writing, the latest DC rates are as of 1 March 2018.
Alternatively, DC rates are available in a map provided by URA.
To find out the DC rates from the map, go here.
In the left toolbar, go to “Property use and Approval” and click on “Development Charge Rates”
Click on anywhere in the map and you will see a red highlight and a number in the middle of the section you just clicked.
On the right is the DC sector, the effective date, use groups and dates.
The table on the right will also show the various use groups and their corresponding rates.
What are DC use groups?
DC use groups are categories created by URA that correspond to various property asset groups.
The following table from URA shows the various use groups and the purposes for which development is permitted or to be authorized.
Most popular among property owners, investors and developers are use groups A, B1, B2 and D which correspond to shops/offices etc, residential landed, residential non-landed and industrial uses.
|Use Group||Purposes for which development is permitted or to be authorised|
|A||Shop, office, association office, cinema, place of entertainment, clinic, medical suite, restaurant, petrol station, auto-service centre, commercial garage, market, sports and recreation building|
|B1||Residential (landed dwelling-house1)|
|B2||Residential (non-landed residential building)|
|C||Hospital, hotel room and hotel-related uses|
|D||Industrial, warehousing, science park, business park, transport depot, airport, dock, port uses, utility installation, telecommunication infrastructure, Mass Rapid Transit Station, Light Rail Transit Station|
|E||Place of worship, community building, community sports and fitness building, educational and institutional uses, government building|
|F||Open space, nature reserve|
|H||Drain, road, railway, cemetery, Mass Rapid Transit Route, Light Rail Transit Route|
What are DC geographical sectors?
DC sectors are various areas of Singapore that has been classified by URA into numbers 1 to 118.
For example, DC sector 1 corresponds to a section of Raffles Place.
To the east of DC sector 1 is DC sector 6 which corresponds to a section of Collyer Quay and Esplanade Bridge.
URA makes it easy to find the various DC sector numbers with their mapping tool.
How do historical DC rates look like?
Yours truly has compiled historical DC rates since 1989.
They are available from URA’s website anyway.
The following chart shows the historical DC rates for use group B2 (non-landed residential).
The chart starts from year 2000 because prior to year 2000, both landed (presently use group B1) and non-landed (presently use group B2) were considered as use group B.
Very evidently, the trend of DC rates follows very closely with that of the URA property price index.
Click here to contact me for the full history of DC rates in an excel file.
The peak of prices in 2007/2008 corresponds to a peak in DC rates during that period, followed by a trough in 2009.
Thereafter, DC rates climbed till 2013 before falling, all these in tandem with the property price index.
Recently, DC rates have made a historical high not seen since 2007/2008.
Naturally, a question would be why DC rates rise and fall?
It would be good to take a step back and understand how DC rates are used as a policy tool by the government.
When the market is hot and booming for example when there are many en-bloc sales (or high priced sales or increasing volume) happening, the government may be concerned that prices would run ahead of fundamentals and/or a bubble could form.
During en-bloc sales, developers buy land that is underutilized (meaning that the present built up area is not as much as what the land and its plot ratio can accommodate), and redevelop them.
In the process of redeveloping (and maximizing the plot ratio), developers will have to the government the development charge.
Remember I mentioned earlier that DC is payable when the value of land is increased?
In the process of redevelopment, the developer will have more units than in the past to sell (e.g. the apartment has 20 units, but the developer is maximizing the plot ratio and building 40 units – this is where value is increased).
The government won’t let the private developer take all the profit and not have a share.
Therefore, DC is payable by the developer to the government.
In an en-bloc sale, developers bid very bullishly and buy over older developments and give the present owners a windfall.
If a higher DC were payable to the government, the developer would have less profit to take home.
In this case, the developer would lower the amount they offer to present owners to preserve some profit for themselves.
Through this method of raising DC rates, the government has in effect made developers more cautious in their bidding.
This is how DC rates affect the ebb and flow of en-bloc sales.
How are development charges calculated?
This is a pretty technical question, so it would be best to refer to SLA’s document on the calculation of differential premium (DP).
The calculation of a DP and DC is similar. Both calculations are based off the DC rates table I pointed out earlier.
In the event there is a top up of lease from, for example, 60 years, to 99 years, there is also an increase in value of the land, and therefore DC or DP needs to be paid.
Whatever the case may be, any increase in the value of land will require the applicant to pay a sum of money to the government.
Other questions related to DC rates
How often are DC rates revised?
DC rates are revised every 6 months, in March and September of each year.
Who pays for development charges?
The owner of the land or the applicant for the planning permission is liable for payment.
What is the Bala’s table?
On the topic of DCs and increasing the value of land, since most properties in Singapore have a 99-year leasehold tenure, the Bala’s table (appendix 1) will be important to consider.
This is because there can be an increase in the value of land when a lease is topped up from, for example, 60 years, to 99 years.
And as mentioned earlier, when there is an increase in the value of land, DC needs to be paid.