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DC rate contractions across four sectors with Industrial leading the pack
Singapore, 29th February 2015 – The latest revision of the Development Charge (DC) rates effective 1st March 2016 to 31st August 2016 have shown contractions across Use Group A (Commercial), Use Group B2 (Residential Non-landed), Use Group C (Hotel/Hospitality) and Use Group D (Industrial). DC rates for Use Group B1 (Residential Landed), Use Group E (Place of Worship/Civic and Community Insitution) and Use Group F, G and H remain unchanged. The overall downward revision across these sectors come on the back of the lowered transactions volumes over the past half year, ending 29th February 2016. These revisions to DC rates are in line with market expectations despite limited transactional evidence.
The greatest decline registered in the latest DC rate revision was in the Industrial sector. Continuing from the previous fall of average 2.7 per cent in the September 2015 round of revision, average decline intensified slightly to 3.1 per cent. The largest decline, 16.0 per cent in Sector 114 (Tuas/Choa Chu Kang/Kranji), was due to the lower land premium fetched in the iGLS sites sold in the recent 6 months. We believe that the Government's effort in restructuring the economy and foreign labour control have led to the subdued investment sentiment in the traditional industrial sector. Thus, the decline in industrial DC rates is in line with market expectations.
In Use Group A (Commercial), DC Rates have decreased by an average of 2.4 per cent from September 2015. The largest contraction of 5.0 per cent was in DC Sectors 1 to 6, Sector 11 and Sector 23, followed by second largest fall of 4.2 per cent in DC Sectors including 13 to 20. These Sectors make up the vast majority of CBD. The overall adjustment in the commercial DC rate is modest, as the underlying weight of private capital in the market has provided support to land values. Based on JLL analysis of the more relevant transactions (as such as CPF building, Alexandra View Site) both exhibited a smaller gap between implied land value (DC rate) and transacted land price than in the earlier revision back in September 2015.
Also, we noted that the negative average change in DC rates for Use Group B2 was largely affected by the widespread decline in sectors within the Core Central Region (CCR). CCR captures a large proportion of the DC Sectors that saw negative DC rate changes, including sector 70 (Chatsworth/Bishopsgate/Jervois Road) which saw the largest drop of 3.9 per cent, sectors 37 & 38 (Newton Circus, Goodwood Park/part Balmoral) which saw the second highest dip of 3.8 per cent, and many other sectors in District 9, 10, 11 and Downtown Core that recorded declines between 1.6 per cent and 3.6 per cent. We believe that the significant decline in both transaction volume and the price of private non-landed residential properties in the CCR have supported the Chief Valuer's decision in slashing the rates.
The DC rates for Use Group C (Hotel/Hospital) saw a decrease in all sectors except Sector 116 and Sector 118. This reduction in DC Rate comes unsurprisingly due to lack of transactions over the past half year. There was only just one major transaction in the Use Group. This was the sale of the BIG Hotel on 19th November 2015 which had a transactional premium over the implied land value.
Dr Chua Yang Liang, Head of Research South East Asia, says "The average of 1 per cent decline in the Residential use group is particularly interesting when we look at the overall declining trend since September 2014, only intermittently broken in September 2015 when rates were held stable. This recent decline, albeit smaller, signals the underlying weakness in the residential market despite some of the underlying support for recent government land sale sites."
This is a classic situation where the Chief Valuer has the unenviable role of deciding whether the pricing for residential land sale sites has been supported by the larger needs of developers having to keep their ongoing business of development or a genuine increase in land values supported by the larger economic fundamental. In my opinion, the Chief Valuer is more likely than ever to be influenced by the larger economic conditions, including any measures and strategies the government has announced, when reviewing the DC rates in this most recent revision." he adds.
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Dr Chua Yang Liang
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