Thursday, August 30, 2012

Residential DC rates poised to climb

Business Times: Tue, Aug 28

[SINGAPORE] Development charge (DC) rates are set to increase from Sept 1 for non-landed residential use, say property consultants. This is based on land sales in the past six months at prices above land values implied by prevailing DC rates.

Most also forecast higher DC - payable for enhancing the use of some sites or building a bigger development on them - for industrial use, again citing winning land bids at state tenders.

However, rates are predicted to remain either flat or increase only slightly for landed residential and commercial use. Nevertheless, commercial DC rates may rise in locations where there have been brisk sales of strata offices or shops, suggests Colliers International director Chia Siew Chuin. These could include Shenton Way (where Oxley Tower and Eon Shenton's office and shop units sold like hot cakes earlier this year), Changi and Upper Changi Roads - shop units at East Village proved to be popular - as well as Upper Serangoon and Upper Paya Lebar.

DC rates, revised on March 1 and Sept 1 each year, are stated according to use groups - such as landed residential use, commercial and hotel - across 118 geographical sectors. The Ministry of National Development, in consultation with the Chief Valuer, revises DC rates based on current market values. They are tracked in property circles as they can impact redevelopment sites with a sizeable DC component.

DC was payable for only five of the 15 successful en bloc sales this year, notes Karamjit Singh, managing director of Credo Real Estate. "If commercial DC rates move up sharply in specific locations - skewed by some recent land deals, en bloc sales and high sale values of strata-titled retail units - going forward, some mixed-use en bloc projects could see their premiums lowered on account of potentially higher DC payable upon redevelopment. The projects that are likely to be affected are those with low existing gross floor areas compared to their redevelopment potential," he said.

Colliers' Ms Chia said non-landed residential DC rates could dip in some traditional prime areas, given relatively lacklustre market activity. "While this isn't expected to significantly rekindle the interest of collective-sale hopefuls . . . it would be seen as a positive factor for the market."

Even if DC rates have limited impact, they are monitored as they are an indication of the government's reading of land values.

At the last DC rate revision on March 1, the average DC rate for non-landed residential use was trimmed 3 per cent, marking the first decline for this use group since September 2009. This round, most consultants expect a hike. Jones Lang LaSalle predicts the increase will average 3-8 per cent; Colliers, 5 per cent; and Knight Frank, 3-5 per cent.

The increases are likely to be concentrated in geographical sectors such as 100 (which includes Punggol, Sengkang and Buangkok) and 99 (covering Pasir Ris and Loyang), where four 99-year leasehold state land parcels have been sold in the past half-year at 42-64 per cent above land value implied by prevailing March 1, 2012 non-landed residential DC rates in the respective geographical sectors, says JLL's head of Southeast Asia research, Chua Yang Liang.

A rate hike is also expected in geographical sector 113, which covers Hillview, where a plot was sold at a state tender at 79 per cent above the DC-rate implied land value. Colliers notes that three other private housing plots - on Boon Lay Way, Bright Hill Drive and in Tanah Merah - fetched premiums of 52, 55 and 81 per cent above their respective DC-rate implied land values.

In the March revision, landed residential DC rates were left untouched. This round, JLL expects a slight increase, averaging around 3 per cent. Colliers' Ms Chia envisages mostly flat rates as the average landed DC rate was raised 75 per cent between September 2009 and September 2011. "If anything, there could be marginal increases for geographical sectors that include Good Class Bungalow Areas," she added. DTZ projects a slight increase in landed DC rates "as this segment continues to outperform others in terms of price increase".

For commercial use, the average DC rate appreciated 6 per cent in the March revision. However, come Sept 1, "commercial DC rates are expected to be flat on average, despite falling office rents, as prices have held up with strong investor interest as a result of residential cooling measures", says DTZ's SE Asia research head, Chua Chor Hoon.

Industrial DC rates were left untouched in the March revision, after being jacked up 30.9 per cent on Sept 1, 2011.

However, for the upcoming revision, expectations are running high for a rate hike - on the back of evidence of "strong demand, leasing and sales markets, and unrelenting price appreciation", as Colliers' Ms Chia put it. She predicts a 10-15 per cent jump in the average industrial DC rate. "The most telling increases are expected in the mature locations of Ubi and Kaki Bukit, and Upper Paya Lebar and Tai Seng."

At recent industrial state land tenders, winning bids for sites at Serangoon North Avenue 4, Aljunied Road/Sims Drive, Kaki Bukit and Tai Seng Link exceeded their respective March DC-rate implied land values by 55-94 per cent.

DTZ's Ms Chua expects industrial DC rates to rise as prices of industrial strata units have been appreciating much more than other property sectors due to lower unit and absolute prices. Knight Frank research head Png Poh Soon predicts a 1-3 per cent hike in the average industrial DC rate while JLL expects the figure to hold.

For hotel use, Colliers predicts a 5 per cent hike in the average DC rate from Sept 1. The increase in hotel occupancies has resulted in a positive outlook for the sector. The sole hotel plot sold in the past half- year, on Rangoon/Farrer Park Station Roads, was 157 per cent above the DC-rate implied land value.


Martin Koh | 86666 944 | R020968Z
Sherry Tang | 9844 4400 | R020241C
Senior Sales Director
DTZ Debenham Tie Leung (SEA) Pte Ltd (L3006301G)

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