DC Rates Seen Rising By Up To 60%

Source : The Business Times, 21 Aug 2007

Sept 1 adjustment will be on top of the recent 40% increase across the board

Picture : Collier's Director Ms Tay Heuy Ying

AVERAGE development charge (DC) rates could go up 18-60 per cent for non-landed residential use, 10-25 per cent for commercial use and 10-40 per cent for hotel use come Sept 1, property consultants said.

The forecast increases - due to rising land values - would be on top of last month’s effective 40 per cent across-the-board increase in DC rates under a change in the formula for calculating them.

According to Jones Lang LaSalle regional director and head of investments Lui Seng Fatt: ‘The Chief Valuer is most unlikely to let the earlier 40 per cent hike, which was more a policy realignment by the state to get a larger share of the appreciation in land value, influence his decision on the quantums of revision for the Sept 1 DC table, since the rates are meant to reflect the market conditions.’

















Agreeing, Colliers International director for research and consultancy Tay Huey Ying said: ‘We expect the government to maintain the aggressiveness in the upward adjustment of DC rates as seen in the last (March 1) revision. It is unlikely to be deterred by the resulting large hike in DC rates that this dual exercise will cause.’
A surprise change in the DC formula on July 18 creams off 70 per cent of the enhancement in land value arising from higher use or plot ratio, up from 50 per cent. But while this effectively raised DC rates 40 per cent across the board, the July review was based on land values in the March 1 DC table.

In other words, the July 18 move was independent of the regular six-monthly DC rates reviews on March 1 and Sept 1 each year, which are based on market value.

DC, which may be payable when a site’s use is enhanced or when it is built on more intensively, is specified according to use - such as non-landed residential, landed residential, commercial and hotel, and listed by 118 geographical sectors or locations across Singapore.

Hot spot: Deals such as The Ardmore have been transacted at 80 per cent above land values

With recent transacted land values significantly above imputed values based on current DC rates for many locations and use groups, there is room for the Chief Valuer to impose steep increases in the Sept 1 revision, market watchers reckon.

They say some developers have been waiting for this before they finalise decisions on acquiring collective sale sites that have a significant DC component.

But according to CB Richard Ellis executive director Li Hiaw Ho: ‘Even without any revision in the DC rates, developers are likely to take a step back from acquiring sites through collective sales because of the high prices set by owners.

‘In addition, the possibility of losing deals because of strong opposition by minority owners is a dampener for developers. Therefore, the rate of collective sales may slow in the coming months.’

Citing other factors, Colliers’s Ms Tay said: ‘Developers are taking a cautious stance not only due to the impending DC rate revision but also because of the volatility of the stock market and possible credit tightening.’

According to her, higher DC rates by themselves would not necessarily lead to a slower collective sales market or put a stop to land price escalation. Rather, this depends more on whether developers are confident they can pass on higher costs to buyers, she said.

Jones Lang LaSalle expects DC rates for non-landed residential use to escalate 45-60 per cent islandwide on the back of collective sale transactions. Mr Lui predicts a 45-50 per cent rise in DC rates for District 9 locations, where deals such as The Ardmore and Char Yong Gardens have been done at 80 per cent and 92 per cent above land values implied by the current July 2007 DC rates.

The East Coast and Telok Blangah areas are likely to see higher non-landed residential DC rates to the tune of about 35-45 per cent and 25-30 per cent respectively, Mr Lui said.

Colliers’s Ms Tay expects the average non-landed residential DC rate to rise 18-25 per cent but reckons bigger jumps of 40-50 per cent are likely in Sinaran Drive, Telok Blangah, Bedok/St Patrick’s Road and Upper Paya Lebar/Geylang.

This is because transactions in these fringe areas since March have been done at prices that were 143-195 per cent above the land values implied by the current July 2007 DC rates.

As for landed residential use, JLL expects an average islandwide increase of 20-30 per cent, with the East Coast posting about 25-30 per cent, District 11 about 40-50 per cent and Sentosa some 20-30 per cent.

For commercial use, JLL expects DC rates to go up 20-25 per cent islandwide, while Colliers predicts the increase will average 10-15 per cent.

‘We expect DC rates for the Collyer Quay/Marina Bay locations to see the biggest adjustments to the tune of 40 to 50 per cent,’ said Ms Tay. ‘This is because the $1,540 psf per plot ratio transacted price achieved for the 60-year leasehold Collyer Quay commercial site in October 2006, in the previous review period, still reflects a 220 per cent premium on the land value inferred from the current DC rate for commercial use in this location.’

CBRE’s Mr Li expects the biggest jump in commercial use DC rates - about 40 per cent or more - to be for the Shenton Way and Tanjong Pagar micro-markets, where sites and many buildings were transacted in the past two quarters.

‘The recent award of Tampines P15 site at the Tampines Regional Centre for $622 per square foot per plot ratio in May could also result in an upward revision of the commercial DC rate for this location,’ he said. ‘The implied land value based on the DC rate for this sector is about $334 psf ppr.’

Colliers expects DC rates for industrial use to remain unchanged for all locations as there has been no clear increase in land prices, while DC rates for hotel use could rise 10-15 per cent on average.

JLL forecasts hotel DC rates will rise by an average of 35-40 per cent, given the recent sale of two hotel sites by the state in Tanjong Pagar at prices exceeding their DC rate-implied land values by about 80 per cent.

CBRE’s Mr Li said that a rise in hotel DC rates come Sept 1 can be expected because the booming tourism market has boosted interest in hotel investment.