Friday, March 1, 2013

Commercial, hotel use DC rates climb steeply

24% average hike in commercial use DC rates while those for hotel use rise 26%

The Business Times |  MARCH 01, 2013

[SINGAPORE] The government has increased development charge (DC) rates by a staggering 24 per cent on average for commercial use and 26 per cent for hotel use - on the back of strong land bids at state tenders in the past six months.

The average rate hikes for these two use groups were much higher than predicted by consultants.

In the residential segment, the average DC rate was raised 4 per cent for landed use but rates were left unchanged for non-landed use. The average DC rate for industrial use edged up 0.6 per cent.

DC rates, revised on March 1 and Sept 1 each year, are stated according to use groups, across 118 geographical sectors. Development charge is paid to the state in exchange for the right to enhance the use of certain sites or to build bigger projects on them. DC rates take into account current market values.

For commercial use, the biggest DC rate hike of 39 per cent was in geographical sectors 114 and 115 (which include Yishun, Sembawang, Woodlands, Choa Chu Kang and Jurong West).

The increase was due to the sale of a mixed commercial and residential site at the corner of Yishun Ring Road and Yishun Avenue 9 at a state tender which closed in January for $794 per square foot of potential gross floor area (GFA). This reflects substantial premiums of 46 per cent and 147 per cent to implied land values based on commercial and non-landed residential DC rates respectively as at Sept 1, 2012, notes Chia Siew Chuin, director of research and advisory at Colliers International.

The commercial DC rate for Sector 60 (which includes Thomson Road, Irrawaddy Road and Moulmein Road) climbed 33 per cent, supported by the sale of a white site in December for a record $1,632 psf per plot ratio (psf ppr), a premium of 103 per cent to the land value implied by Sept 1, 2012 commercial use DC rate.

Winning bidder Hoi Hup has said that it plans to develop medical suites and shops (both of which fall under "commercial" use) for 70 per cent of the project's GFA.

Also seeing a 33 per cent rise in the commercial use DC rate were sectors 106 (which includes Seletar) and 107 (which includes Upper Thomson and Sembawang Hills). Both are next to Sector 115.

In all, 116 of the 118 geographical sectors saw higher commercial use DC rates, with the smallest increase of 9 per cent in Sector 42 (near Orchard MRT Station). Rates in the other two sectors were unchanged. And the 23.7 per cent rise in the average DC rate for commercial use was the highest since September 2007, when the rate was raised 41.6 per cent, based on Jones Lang LaSalle's analysis.

CBRE Research associate director Desmond Sim said that increasing sales of strata shops and offices could have led to the 24 per cent average rise in commercial use DC rates.

For the hotel use group, the biggest jump of 46 per cent was in Sector 112 (which includes the Jurong Lake District). In November, a Resorts World Singapore subsidiary paid $1,167 psf ppr for a 99-year hotel plot at Jurong Town Hall Road, a new high for hotel land. That reflects 219 per cent premium to the Sept 1, 2012 DC rate implied land value, notes Jones Lang LaSalle's SE Asia research head, Chua Yang Liang.

Sector 60 saw the second highest increase for hotel use DC rate of 42 per cent, supported by the bid for the white site in Irrawaddy Road. A minimum 30 per cent hotel component was stipulated as a sale condition.

The Irrawaddy white site's pricing also reflects a premium of 173 per cent to the land value implied by the Sept 1, 2012 hotel use DC rate. Nearby, sectors 58, 61 and 62 each posted a 34 per cent rise in DC rates for the hotel use group.

In all, hotel use rates were upped in 116 sectors and left unchanged in two sectors.

Industrial use DC rates were kept unchanged in 114 sectors and raised in the other four. Sector 115 registered the biggest hike of 26 per cent, supported by winning bids at state tenders in Yishun Avenue 9 and Woodlands Avenue 10, translating to 80-108 per cent premiums above the Sept 1, 2012 DC rate-implied land value.

Sector 114, which includes Tuas, registered a 16 per cent increase, supported by a string of short-tenure sites transacted at state tenders in the past half-year at an average premium of 39 per cent to the then DC rate-implied land value, based on Colliers' analysis.

Landed residential DC rates went up 7-15 per cent in 41 sectors with no changes in the remaining 77. The biggest increase of 15 per cent was in Sectors 92, 93, 95, 96 and 97 covering places such as Tanjong Katong, Telok Kurau, Siglap, East Coast, Bayshore and Bedok South.

Analysts were surprised that there were no changes in non-landed residential DC rates despite transactions of such sites at prices above land values implied by the Sept 1, 2012 DC rate. Colliers' Ms Chia suggests that the authorities could be monitoring the effects of the January cooling measures.

JLL's Dr Chua said that overall, the latest DC rate revision is not likely to have an adverse impact on the property market as these rates affect only those projects that involve a change of use or that will tap gross floor area exceeding the Master Plan.

Martin Koh | 86666 944 | R020968Z
Sherry Tang | 9844 4400 | R020241C

Senior Sales Director
DTZ Property Network Pte Ltd (L3007960A)

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