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Jones Lang LaSalle’s Perspective: URA’s Revision of development charge rates for the period 1 March 2013 to 30 September 2013

DC rates continue to march forward for Commercial and Hotel/Hospital sectors with an average increase of 24% and 26.1% respectively.

SINGAPORE, 28 February 2013
The latest revision of the development charge (DC) rates effective 1 March 2013 to 30 September 2013 saw the average rates for use group A (Commercial) and C (Hotel) continue its strong increase at 24 per cent and 26 per cent respectively. In addition, the landed segment has seen its first increase in average DC rates of 3.9 per cent since its one year hiatus.

Use group A (Commercial) has recorded its strongest average development charge rate increase of 24 per cent, maintaining the 9 per cent increase witnessed in the September 2012 revision. Sectors which registered the highest increase include Sectors 114 and 115 – Tuas/Choa Chu Kang/Kranji and Sembawang/Mandai/Woodlands area at 39 per cent. This exceptional rise in commercial rates in Sectors 114, 115, is possibly motivated by the need to close the gap between the DC rates between these areas.  For example, in Sector107 used to be aligned with Sector 105 in 1998, but over time the DC rates (for the commercial use group) have widened. Similarly in Sectors 114 and 115, the rise is to also to close the gap with Sector 113. In fact with this revision, the gap between Sectors 114 and 113 is effectively reduced to zero today, down from a high of 11 per cent in Sep 2012. Historically, these sectors didn’t differ much. With this adjustment, it has brought the gap (between Sectors 114/115 and 113) to be on par with that back in Sept 2008.

“If we follow the bid rent theory, the further one gets from the city centre/economic center, the lower the land values become. Now since these DC sectors are essentially about equal distance from the city, the land values for similar use group cannot be that far apart.  The Chief Valuer has taken this lull in the current market to adjust the DC rates and minimize the gaps in the suburbs” opines Dr Chua  Yang Liang, Head of Research South East Asia.

Apart from the commercial sector witnessing strong DC rate revision, use group C (Hotels/Hospitals) also saw many sectors registering high rates. The largest rise came at 46 per cent in Sector 112 (West Coast/Jurong East), falling within expectations that the Chief Valuer could be motivated by the sale of Jurong Town Hall, which had transacted at over 200 per cent above its implied land value. Coupled with the current push by the government for more development in the Jurong area, the revision in DC rates for this sector is timely as it reflects the higher land values driven by the renewal of the area. 
“The Jurong area will see values increase in tandem with the current Jurong Lake District rejuvenation efforts. In time to come, it will transform into a melting pot of commercial activities as more businesses decentralise functions away from the city centre” says Dr Chua.
The moderate 3.9 per cent increase of DC rates in use group B1 (Landed) comes within expectations as our house views the rates in the landed sector has been adjusted to “catch up” with rising landed prices. The east coast area has registered the highest growth rates, particularly in Sectors 92, 93, 95, 96 and 97 - Guillemard/Tanjong Katong, Haig Road/Marine Parade, Siglap/Telok Kurau, East Coast/Bayshore and Bedok South. The area has generally witnessed land prices rise above their DC-rate implied land values. Transactions which supported this increase include the sale of a detached unit at East Coast Drive in sector 93 reflected a premium of 176 per cent compared with its DC rate-implied land value, while a semi-detached unit at Greenfield Drive (Sector 95) transacted at over 250 per cent. Over at Sector 97, detached houses at Riviera Drive and Bedok Avenue were found to be sold at 144 per cent and 92 per cent above its respective implied land values.

Overall, this current revision is not likely to have adverse impact on the property market going forward as the DC rates only affect those projects that involve a change of use or have development intensity that exceeds what the planning document has prescribed.

About Jones Lang LaSalle
Jones Lang LaSalle (NYSE:JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual revenue of $3.9 billion, Jones Lang LaSalle operates in 70 countries from more than 1,000 locations worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services to a property portfolio of 2.6 billion square feet. Its investment management business, LaSalle Investment Management, has $47.0 billion of real estate assets under management.
Jones Lang LaSalle has over 50 years of experience in Asia Pacific, with over 25,100 employees operating in 78 offices in 14 countries across the region. The firm was named ‘Best Property Consultancy’ in nine Asia Pacific countries at the International Property Awards Asia Pacific 2012, in association with HSBC, and was named the number one real estate advisory firm in Asia Pacific in the Euromoney Real Estate Awards 2012. 
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