Development charge rates up 0.3% for non-landed residential use, 1.5% cut for commercial use

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IN tandem with the improving Singapore private housing market, the government has upped development charge (DC) rates for the landed and non-landed residential use groups for the half-year period starting March 1.

However, it is trimming DC rates for commercial use for the second consecutive time, albeit by a moderated 1.5 per cent on average, following the 3.6 per cent reduction during the previous revision that took effect Sept 1, 2020.

“This is in line with the trends for the office and retail property markets, both of which are still facing headwinds from the impact of the Covid-19 pandemic,” said JLL Singapore’s head of research and consultancy, Tay Huey Ying.

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, DC rates have been raised by 1.5 per cent for landed residential use and 0.3 per cent for non-landed residential use.

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

The increase for non-landed residential rates is the first since rates began trending down in March 2019.

Showsuite Consultancy’s chief executive, Karamjit Singh, said that from the perspective of most residential property developers and en bloc sellers,the new DC rates have “very little or no impact”.

The most significant rise in DC cost or erosion of en bloc sale values are in areas stretching from Tanah Merah to Geylang, Yishun, Sembawang and Sengkang. These are arising from specific land deals last year which include state land sale tenders.

“As for for mixed-use development sites with commercial components, the latest revisions present very marginal relief for land owners,” said Mr Singh.

Ms Tay, too, commented that the limited change in (non-landed residential) DC rates bodes well for the residential collective sales market which is reawakening amid the fast declining unsold inventory to 24,341 units as of fourth-quarter 2020 from its peak of 37,799 units in Q1 2019.

The Ministry of National Development revises the rates on March 1 and Sept 1 each year, in consultation with the taxman’s chief valuer (CV). DC rates are based on the CV’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 were increased in eight sectors by 3 per cent to 6 per cent, while the DC rate for one sector was cut by 4 per cent. Rates have been left unchanged for the remaining 109 sectors.

The 4 per cent cut is for Sector 34 which includes the Sophia Road area. Market watchers say the chief valuer probably took into account the price for the collective sales of Fairhaven and Sophia Ville.

Knight Frank Singapore’s head of research, Leonard Tay, said the few sectors where DC rates were revised upwards were in Bedok, where both Sectors 97 and 98 posted increases of 6.3 per cent , and in Yishun where the rates for Sectors 114 and 115 both rose by 4.3 per cent from a half-year ago. “The increases in these sectors could have been from the award of state land sites for a private residential parcel in Tanah Merah Kechil Link and an executive condo site in Yishun Avenue 9 in November 2020.

“Both these land tenders had winning bids (on a per square foot per plot ratio basis) above previous historical government land sales in these general respective vicinities.”

JLL’s Ms Tay noted that the rise in landed residential use DC rates announced on Friday is the first since holding flat from March 2018, “This is likely to have been underpinned by the 2.1 per cent y-o-y increase in the URA’s landed residential property price index in second half of 2020 amid an increasingly robust landed home sales market including the Good Class Bungalow market “

Mr Singh said that the chief valuer’s decision to leave DC rates for the industrial and hotel/hospital use groups completely untouched is probably due to a paucity of transactions in these segments.

CBRE’s associate director of research, Catherine He, said: “With Singapore embarking on phase three reopening and the rollout of its vaccination plans, we expect occupier and investor sentiments to improve, which could lead to a recovery in real estate activity, especially in the residential and commercial sectors.

“As a result, there might be more transaction activity to back the case for greater adjustments to DC rates.”