Saturday, September 1, 2012

Commercial DC rates see a surprise hike

Business Times: Sat, Sep 01

THE development charge (DC) rates for commercial use were raised steeply, taking many market watchers by surprise. DC rates for industrial use also went up sharply, but the market had been bracing itself for this.

Effective today, average DC rates for commercial use will go up 9 per cent, while those for industrial use will rise 14.3 per cent. The buoyant hotel industry will also see DC rates climb an average of 10.8 per cent.

In contrast, the average DC rates for non-landed residential use rose only mildly. They were left untouched for landed residential use.

DC is payable to the state in exchange for the right to enhance the use of certain sites or to build bigger projects on them. They are revised every six months taking into account current market values.

While most analysts polled by BT earlier had predicted increases in DC rates for industrial use, they had expected rates to be either flat or to increase only slightly for commercial use.

Yesterday evening, Jones Lang LaSalle's (JLL) head of SE Asia research Chua Yang Liang attributed the significant hike in commercial DC rates to recent commercial investment sales deals and a relatively active commercial strata unit sales market.

DC rates are specified according to use groups across 118 geographical sectors throughout Singapore and revised on March 1 and Sept 1.

For commercial use, the biggest hikes in DC rates of 20 per cent each were for Sector 93 (which includes the East Coast/Marine Parade locations) and Sector 53, which covers the Lavender/Kitchener/Farrer Park areas. For Sector 93, the increase was due to the sale of GRTH Building at East Coast Road in March at 179 per cent above the land value implied by the previous March 1, 2012, DC rate, according to JLL's analysis yesterday evening.

The hike for Sector 53 is thought to be due to "normalisation" or equalisation of DC rates with surrounding areas, though JLL's Dr Chua suggests the ongoing urban regeneration in the location could have been a factor.

Another reason for the 20 per cent rise in commercial DC rate for Sector 53 could be the bullish bid at a state tender in April for a hotel site above Farrer Park MRT Station - in the same sector. The top bidder was reported to be planning to build a significant retail component in addition to a hotel on the site. Indeed, Sector 53 topped the hikes for hotel DC rates, with a 26 per cent increase.

As for commercial use, the DC rate for Sector 51, which includes Beach Road, was upped 17 per cent.

The nudge could have come from the unit land price for the sale of KeyPoint by Frasers Commercial Trust to Fragrance Group and World Class Land in April. Another acquisition by Fragrance, Tower 15 at Hoe Chiang Road, in May, also is understood to have been the impetus for a 16 per cent hike in the commercial DC rate for geographical Sector 10 (which includes Anson/Cantonment roads).

Tower 15's transacted price works out to $1,420 per square foot (psf) of potential gross floor area (GFA), or about $15,285 per square metre of GFA, which would be about 91 per cent above the land value implied by the March 2012 DC rate for commercial use for the sector.

Sector 109 - which covers King Albert, Dunearn and Ulu Pandan locations - also saw a 16 per cent commercial use DC rate hike. The spur was probably the sale of McDonald's Place at King Albert Park at $12,992 per square metre of potential GFA - 160 per cent above the March 2012 DC-rate implied land value. Two nearby sectors - 68 and 69 - also saw their DC rates being jacked up by 16 per cent.

In all, commercial DC rates were increased in 114 geographical sectors, with the smallest hikes at 5 per cent (including the Raffles Place, Marina Centre and Marina Bay areas). There were no changes for the remaining four sectors - including those in the Orchard and Somerset MRT stations' locations, Jurong and Pulau Ubin/Pulau Tekong, based on JLL's analysis.

Industrial DC rates were raised in 116 sectors (by 12 to 23 per cent) and were left untouched in the other two. The sector covering Ang Mo Kio/Yio Chu Kang topped the increases.

An industrial plot was sold at Serangoon North Avenue 4 at 86 per cent above the then DC-rate implied land value. Colliers International director Chia Siew Chuin noted that winning bids at state tenders for this site as well as three other plots in Aljunied/Sims Drive, Kaki Bukit and Tai Seng Link exceeded land values implied by March 2012 DC rates by 55-94 per cent.

As for homes, non-landed residential DC rates went up by an average of 1.2 per cent. They were raised in only 15 sectors with no change in the other 103.

The largest increase of 12 per cent was in Sector 98. Two 99-year private housing sites at Tanah Merah Kechil Road and Tampines Avenue 10 were sold at state tenders in the past six months at around 80 per cent and 12 per cent above their then DC-rate implied land value, shows Colliers' analysis.

Sector 72 - which includes the Prince Charles Crescent/Alexandra Rd vicinity - saw an 11 per cent growth, probably due to the $7,807 per square metre of GFA price at which a reserve list in the area was recently triggered for release.

Two collective sales in Pasir Panjang, Westvale Condominium and Harbour View Gardens, at prices above the value implied by existing rates, likely provided the impetus for an 11 per cent increase in the DC rate for Sector 111.

Sector 100 was up by the same quantum; the area saw two sites (at Sengkang Square and Buangkok Drive) sold at 64 per cent and 58 per cent above the land value implied by March 2012 rates.


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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