Monday, February 28, 2011

DC rates set to go up

(SINGAPORE) Development charges (DC), payable for enhancing a site's use or for building a bigger project on it, are headed north come March 1, say property consultants. They cite as reasons higher land and property prices over the past six months.


DC rates are revised on March 1 and Sept 1 each year across 118 geographical sectors in Singapore. The review is conducted by the Ministry of National Development in consultation with the Chief Valuer, who takes into account current market values.


The rates are tracked in property circles as they reflect land values, and can impact redevelopment sites with a sizeable DC component.


During the last revision that took effect on Sept 1, 2010, the average DC rates for landed and non-landed residential uses were raised by about 13 per cent each. This time around property consultants are predicting a bigger increase in DC rates for landed residential use than non-landed residential use, citing the more buoyant performance for landed home prices last year.


The average DC rate for industrial use, which was raised 10 per cent from Sept 1, 2010, could climb a further 5 per cent from March 1 in view of JTC Corp's recent upward adjustment of about 10 per cent to its posted land prices, says Colliers International executive director of investment services Tang Wei Leng.


The average DC rate for hotel use, which was left unchanged in the previous revision, could also see a 10 per cent increase this round. This will be on the back of strong growth in visitor arrivals last year, which has boosted hotel earnings and interest in new hotel developments.


'The prices of all the hotel sites awarded recently by the Urban Redevelopment Authority reflect premiums of 98-214 per cent to the land values implied by the prevailing DC rates for hotel use for the respective locations or geographical sectors,' says Ms Tang.


Jones Lang LaSalle's South-east Asia research head Chua Yang Liang says a key challenge for the Chief Valuer would be the strong performance of the Singapore economy and surge in prices of property transactions, reflecting significant premiums to the implied land values based on current Sept 1, 2010, DC rates for the use group and geographical sector.


'The Chief Valuer has the unenviable task of reconciling this huge gap and not shocking market sentiment,' he added.


JLL expects the average DC rate for non-landed residential use to rise by up to 30 per cent from March 1, whereas the firm's projected hike for the average landed residential DC rate is in the range of 25-35 per cent.


Colliers International projects a 5-8 per cent rise on average for landed residential rates, again higher than a 5 per cent hike in the average rate for non-landed residential use.


For non-landed residential DC rates, JLL's Dr Chua reckons Bishan and Paya Lebar areas may post bigger increases than other locations. CapitaLand's record bid last week for a 99-year leasehold condo site in Bishan at $869 per square foot per plot ratio is 117 per cent above the implied land value based on the current Sept 1, 2010, DC rate for non-landed residential use for the location.


Impetus for DC rate hikes in the Paya Lebar region could come from government plans to transform the area into a major commercial hub outside the city as well as evidence of market transactions in the region, says Dr Chua.


Colliers' Ms Tang sees the biggest gains in non-landed residential rates of about 15-20 per cent in the Novena, Tanglin, Geylang and Marine Parade locations, where some collective sale deals have been sealed at prices above their respective DC rate-imputed land values.


Karamjit Singh, managing director of Credo Real Estate, says that one or two out of every 10 en bloc sales currently in the market may have a significant DC component of at least 5 per cent of total land value. 'These may see a significant erosion in value if DC rates in their locations go up by 15 per cent or more,' he says.


CB Richard Ellis executive director Jeremy Lake predicts there could be a handful of en bloc sales sealed by private treaty negotiation in the next few weeks.


'Some collective sales tenders have closed in the past six to eight weeks without a deal being done. If these sites have DC component, developers may be waiting for the latest DC rates prior to firming up bids before the expiry of the 10-week deadline for a private treaty deal following the tender close,' he said.


For landed residential use, CBRE predicts the largest percentage increase in Sectors 68 (which includes the Gallop and Cluny Hill areas), 69 (Holland Park/ Tanglin Hill), 105 (Seletar Hills) and 106 (Mugliston Hill).


Colliers' Ms Tang reckons the biggest gains in landed rates of up to 20 per cent may be in sector 115 (which covers Sembawang), pointing to the sale of small landed housing plots at Sembawang Greenvale Phase 3 in October at about 145 per cent on average above the current DC rate-implied land value.


JLL's Dr Chua expects stronger upside pressure on landed residential DC rates in Good Class Bungalow Areas, noting strong interest and increase in land values in this segment in the past half year or so.


He also sees 10-20 per cent growth in the average commercial DC rate, with a higher increase for the CBD areas on the back of appreciation in office rental values over the past six months.


Analysts say the sale of the white site at Tanjong Pagar with a minimum stipulated office component last year will also create impetus for growth in commercial use DC rates in that part of the CBD.


Colliers' Ms Tang anticipates an average gain of 5-8 per cent in the average commercial DC rate, with bigger increases for some suburban locations like Bedok and Punggol, where sites at state land tenders have fetched top bids at 96 per cent and 181 per cent premiums to their respective DC rate-implied land values.

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