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News Release

Singapore

JLL’s perspective: Revision of the development charge rates for the period 1 September 2015 to 29 February 2016

First major contraction in Industrial Development Charge rates since September 2005


Singapore, 31 August 2015 – The latest revision of the Development Charge (DC) rates effective 1 September 2015 to 29 February 2016 saw a decline in the Industrial Use Group D (at an average of 3 per cent). This is the first time where there is a major decline in Industrial DC rates across over 74 per cent (87 out of 118) of the sectors in Singapore. The last time this happened was in September 2005. The DC rates for the remaining Use Groups, including Commercial (Use Group A), Landed Residential (Use Group B1), Non-Landed Residential (use Group B2), and Hotel / Hospital (Use Group C) remain unchanged. The overall revision comes on the back of lower transaction volumes (overall market and land)  and prices tapering to stability, with the market still feeling the effects of the credit tightening and anti-speculative measures.

To no surprise, there was no change in the revised DC rates for use groups A (Commercial and Mixed-Use), B1 (Landed Residential), B2 (Non-Landed residential) and C (Hospitality) effective from September 1st, 2015 through February 28th, 2016 compared to that of the previous 6-month period ending August 31st, 2015. The notable slow-down in private and public land sales in the commercial, residential (both landed and non-landed) and hotel property sectors are mainly accountable for the standstill in the respective use group's revised DC rates.

For instance, six state land parcels designated for non-landed residential development were tendered out in the past six months (March to August 2015). This is fewer than the 10 in the 6-month period a year ago ie. (March to August 2014). On the other hand, these recent Non-Landed Residential land sales registered a slightly higher percentage of transacted land value over the DC implied land value than those in 2014, which thus saw an average correction of 3 per cent on DC rates for Use Group B2 (Non-Landed Residential). We believe that the DC rates for use group B2 are reflective of the current market price moving closer to stabilisation, hence no revision was made.

The downward adjustment for the Industrial Use Group is the largest drop islandwide since 2005, following recent periods of flat to positive average DC rate changes. The decline is for 74 per cent of the sectors. The last time something of this scale happened was in September 2005 which saw  97 per cent (115 out of 118) of the DC sectors registering a decline. This recent islandwide adjustment is as expected with the six consecutive months of shrinkage in GDP output of the manufacturing sector, alongside a fall in export orders given the sluggish Chinese economy.

With reports of excess industrial space and more supply expected on-stream, the run up to the September 2015 DC rates release saw only five development transactions in this Use Group. This is the lowest number of industrial site sales within the six month period prior to DC rate releases since March 2010. These Government Land Sales sites also saw fewer bids with softer prices, amid falling rentals.

Dr Chua Yang Liang, Head of Research for Singapore and South East Asia, said: "The downward adjustment in the DC rates for industrial has been the largest we have seen since September 2005, when the average decline was at 4.5 per cent. At that time, the overall annual industrial production growth slowed from almost 14 per cent in 2004 to 9.5 per cent by 2005."  

"In the recent few years, our industrial production has slowed to some 1 to 2 per cent per annum, according to the Industrial Production Growth Index released by the Department of Statistics. Correspondingly this recent downward adjustment in Industrial DC rates, despite the dearth of industrial land transactions, is an affirmation of the weakening industrial land market dragged down by weaker global demand and internal restructuring, " added Dr Chua.