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News Release

Singapore

JLL News Flash | Development Charge rates revision largely within expectations


​​​​​​​In the latest half-yearly review of Singapore's development charge (DC)[i] rates by the Ministry of National Development in consultation with the Chief Valuer, the rates for the commercial, non-landed residential and hotel/hospital use groups applicable for the period from 1 March to 31 August 2017 have been revised upwards while those for the industrial use group have been revised downwards. The rates for landed residential, place of worship/civic and community institution, and other use groups have been kept unchanged. 

The upward revisions in the DC rates for the commercial and non-landed residential use groups are not surprising given that these two sectors have witnessed strong interest from investors and developers since 2Q16. 

Commercial

The 1.3 per cent average upward revision in the DC rates for the commercial use group is likely to have been underpinned by the recent wave of investors' interest in Singapore's commercial assets which, in turn, fuelled developers' interest in land for commercial development. 

In particular, some SGD 2.84 billion worth of land for commercial development (including white sites with significant office and/or retail component) was transacted in the six months between October 2016 and February 2017 (current DC review period), up from none that changed hands in the six months prior (March to September 2016). 

The largest transaction in the current review period was IOI Properties' SGD 2.57 billion purchase of the 1.09-ha 99-year leasehold Government Land Sales (GLS) white site at Central Boulevard (DC Sector 11 – Shenton Way/Raffles Quay/Marina Bay Financial Centre) meant predominantly for office use.  In the keenly contested November 2016 tender exercise, IOI Properties outbid six others to emerge the winner with its bid price of SGD 1,688.95 per sq ft per plot ratio which translated to  a 35 per cent premium over its corresponding land value implied from its September 2016 DC rate.  This has likely contributed to Sector 11 seeing the heftiest upward adjustment in DC rate of 29 per cent.

 

Non-Landed Residential

Following the first raise in five reviews in September 2016 by an average of 2.7 per cent across 39 sectors, the Chief Valuer has once again raised the DC rates for the non-landed residential use group in the latest review – this time round by an average of 4.0 per cent and across 51 sectors. 

This second successive increase in DC rates for the non-landed residential use group likely stemmed from the continued growth in developers' appetite for non-landed residential development land as evidenced by the more than doubling of non-landed residential development land deals closed to 11 in the six months between September 2016 and February 2017 from just five in the preceding six-month period between March and August 2016. 

Intense competition for development land resulting from developers' hunger for land on the back of the steadily improving buyer sentiment drove developers to bid aggressively and optimistically in both the private and public sector land markets.  This resulted in transacted land prices that generally reflected a premium above their corresponding land values implied from the September 2016 DC rates, with DC Sectors 53 (Jalan Besar/Syed Alwi Road/Serangoon Road/Lavendar Street) and 57 (Balestier Road/CTE/PIE/Serangoon Road/Bendemeer Road) witnessing the largest disparity based on JLL Research's analysis.  This coincided with these two sectors experiencing the greatest upward adjustments in DC rates of 17 per cent in this latest revision.

In DC Sector 53, the winning bid of $1,001 per sq ft per plot ratio for the Perumal Road GLS site (non-landed residential with first storey commercial) is significantly 73 per cent above the implied land value for pure non-landed residential use based on the September 2016 DC rates.

In DC Sector 57, a freehold land site at 1177 Serangoon Road was sold in December 2016 for $785 per sq ft per plot ratio inclusive of DC payable to change its use from industrial to residential. This worked out to a 46 per cent premium over its implied land value based on September 2016 DC rates.

The upward revision in the DC rates for the non-landed residential use group for these sectors will bring the implied land values closer to market values.   

By and large, we do not expect the upward revision in DC rates for the non-landed residential use group to have a significant impact on the materialisation of residential collective sales transactions. This is in view that, in most instances, though some cases may vary, DC does not constitute a large component of the overall sale price.

Landed Residential

We are surprised that the DC rates for the landed use group have remained unchanged.  Landed home prices have eroded by a total of 14.4 per cent since trending down in 4Q13 based on URA's statistics, but the DC rates for the landed residential use group have not seen any downward adjustments during this entire period.

Industrial

The 3.7 per cent average downward adjustment in DC rates for the industrial use group is in line with the muted developers' interest in industrial land sites given the challenges in both the industrial leasing and strata-titled sales segments. It is also in line with the lowering of posted rates for most of JTC's industrial land with effect from 1 January 2017.

Notably, Sector 100 (Tampines Road / Hougang / Punggol / Sengkang area) was one of two DC sectors that saw the largest 14 per cent downward adjustment in DC rates. This is in line with the downtrend seen in the recent bid prices for two 20-year leasehold plots in October 2016 and January 2017, which averaged $42.06 per sq ft per plot ratio at tender close, which is 16.4 per cent lower than the $50.31 per sq ft per plot ratio achieved for a similar plot in March 2016.​

However, despite some transactional evidence of an up creep in land prices, the DC rate for Sector 114 (Boon Lay / Jurong West / Pioneer / Tuas / Sungei Kadut / Choa Chu Kang / Lim Chu Kang area) was also adjusted downwards by 14 per cent in the latest review.

Specifically, the bid price for the two 20-year leasehold IGLS sites at Tuas South Link 2 (Plots 6 & 11) had averaged $36.37 per sq ft per plot ratio at tender close in October/November 2016, up 5.2 per cent compared to the average $34.57 per sq ft per plot ratio seen for two similar 20-year leasehold sites at Tuas South Link 2 (Plots 7 & 8) at their tender close in July/Aug 2016.

Notably, the higher bid price of $37.18 per sq ft per plot ratio for Plot 6, compared to Plot 11 ($35.57 per sq ft per plot ratio), Plot 7 ($33.35 per sq ft per plot ratio) and Plot 8 ($35.78 per sq ft per plot ratio) has lifted the average transacted land prices in DC Sector 114 in this review period.

However, the Chief Valuer has probably taken into consideration that the successful tenderer for Plot 6 – Wellbuilt Pte Ltd – had bid more aggressively following two earlier unsuccessful attempts for plots 7 and 8, and the fact that the transacted prices were below their corresponding land values implied from the September 2016 DC rates.

[i] Development charge is a tax that is levied when planning permission is granted to carry out development projects that increase the value of the land.