MND Slashes Development Charge Rates

Source : The Business Times, February 28, 2009

However, it leaves untouched DC rates for landed residential and industrial uses throughout Singapore

THE government yesterday announced bigger cuts to development charge (DC) rates, which are payable for enhancing the use of some sites, compared with the previous revision six months earlier. It used lower condo/apartment prices and weaker office rentals as evidence, given the dearth of land transactions.

The average DC rate was chopped 15 per cent for non-landed residential use, 10 per cent for hotel and hospital use and 4 per cent for commercial use. The average rate was also trimmed 4 per cent for business zone commercial use (which covers the warehouse retail scheme).

However, the Ministry of National Development (MND) left completely untouched DC rates islandwide for landed residential and industrial uses, and for this reason, some market watchers described yesterday's adjustment as 'conservative'.

'More corrections are expected in future DC rate revisions in light of the economic climate and sentiments,' said Chua Yang Liang, Jones Lang LaSalle (JLL) head of research (SE Asia).

Colliers International director Tay Huey Ying too reckons that 'we could see adjustments made to those areas which did not see corrections this round'.

She was also disappointed that the government had stuck to its DC calculation formula, which creams off 70 per cent of the enhancement in land value, instead of reverting to its pre-July 2007 formula of 50 per cent.

MND reviews DC rates in consultation with the Chief Valuer, taking into account current property market values.

A spokeswoman for the Chief Valuer said: 'As there was very little land sales evidence during the past half-year, we had to look at other indications of property values such as sales of apartments/condos and office rents, and use the residual valuation method to derive the land values - in the case of non-landed residential and commercial use DC rates.'

In trimming hotel use DC rates, the Chief Valuer looked at the price fetched for a hotel site at Kallang/Jellicoe roads at a state tender that closed in October last year, which was about 10 per cent lower than the land value implied by the Sept 1, 2008 DC rate for the location, and proposed an average 10 per cent islandwide drop in the DC rate for hotel use, she added.

DC is payable to the state in exchange for the rights to enhance the use of some sites or to build bigger projects on them. DC rates are revised twice yearly, on March 1 and Sept 1. They are specified according to use groups (such as landed residential, non-landed residential and commercial) across 118 geographical sectors or locations across Singapore.

For yesterday's revision, which takes effect tomorrow, non-landed residential DC rates fell in 115 geographical sectors by between 7.1 per cent and 30 per cent. The Ardmore/Draycott, Leonie Hill and Oxley areas saw 30 per cent reductions, followed by Sentosa, with a 29.4 per cent decrease, according to JLL's analysis.

Noting the big corrections in Districts 9 and 10 and Sentosa, JLL said that these are the areas with luxury residential projects that have also seen the greatest price correction over the past six months.

Hotel DC rates were slashed across all 118 sectors. The falls ranged from 7.1 to 11.1 per cent.

However, commercial DC rates were cut in just 48 sectors by between 4 and 17.6 per cent, with the largest reduction in the area around Somerset MRT Station. Office strongholds in the CBD - including Raffles Place/Golden Shoe, Marina Centre, Marina Bay and Fullerton Road - all saw commercial use DC rates ease 16.7 per cent.

Colliers' Ms Tay wondered why commercial DC rates were not cut islandwide, unlike the case for hotel use. 'That's not very balanced.'

She also said that the government was being conservative in not trimming DC rates for industrial use at all, despite the fact that JTC Corp has revised downwards its land rent and land premium since the start of the year.

DC rates are tracked in property circles as they reflect land values. However, the latest DC revision is not expected to have much market impact as developers are unlikely to have much appetite for buying sites in the near future.

Says JLL's Dr Chua: 'Despite the large revisions to non-landed residential DC rates, there's unlikely to be a sudden rush by developers to reinitiate en bloc deals or change their development plans.

'Our market understanding is that most developers had locked away the earlier DC rates when they made their planning applications to capitalise on the exemption of bay windows and planter boxes from gross floor area calculation prior to rescission of policy on Dec 31, 2008. The savings in DC rates is not sufficient to warrant such a move.'

Colliers' Ms Tay said yesterday's revisions indicate that 'the government has recognised the market has taken a turn for the worse, but it probably took the approach of erring on the side of caution'.

During the last DC rate revision effective Sept 1, 2008, MND left DC rates largely unchanged, except for an average 6.3 per cent cut for non-landed residential use.

At the time, property consultants said that there may not be sufficient evidence yet of declines in property values, and that rates could be cut at the next revision if stronger evidence emerges of falling values.

The last revision also saw MND change boundaries for eight sectors in three precincts - the Race Course Road area, Jurong Lakeside area and Pulau Brani.

Yesterday's revision saw no change to sector boundaries. However, some industry observers reckon that changes could be on the cards in future for locations in the vicinity of new MRT stations opening this year and next.