Direction of DC Rates Adjustments is Consistent with Market Trend

In the latest half-yearly review of Singapore’s development charge (DC)¹ rates by the Ministry of National Development in consultation with the Chief Valuer, the rates applicable for the period from 1 March to 31 August 2019 for the commercial and hotel/hospital use groups have been raised by up to 73.9% while those for non-landed residential use were trimmed by up to 13.3%.  The DC rates for the remaining use groups (e.g. landed residential and industrial) have remained unchanged. 

The direction of rates revision is consistent with market trends.

Commercial

The DC rates for the Commercial use group have been raised by an average of 9.8% across 116 out of the total 118 geographical sectors.  This is the steepest increase since rates trended up in September 2016. 

The upward revision in commercial DC rates is well supported by the upbeat commercial investment sales market that is underpinned by investors’ optimism in the mid-to-long term prospects of the office property market on the back of a healthy set of demand and supply fundamentals, and to some extent, the robust shophouse market.

Based on data compiled as of 28 February 2019, some SGD 4.73 billion worth of commercial assets (comprising office, retail, shophouses and mixed assets with significant office/retail components) priced SGD 5 million and above apiece were transacted during the DC review period between September 2018 and February 2019.  This is 46.9% higher than the SGD 3.22 billion attained in the preceding six months.

Non-Landed Residential

The DC rates for the non-landed residential use group were trimmed for the first time in three years, and this is in line with the waning interest in development sites following the July 2018 residential market cooling measures and the revision in guidelines on the maximum allowable dwelling units in non-landed residential developments outside the central area.

Based on information collated by JLL research, not a single residential collective sales was concluded in the six months to end-February 2019, while residential (ex-EC) government land sale sites (GLS) for which tender closed during this period generally attracted fewer bids (up to 7) compared to those closed in the six months prior (they attracted up to 10 bids).

They also attracted more cautious bids than before.  For example, the residential site at Kampong Java Road for which tender closed in January 2019 attracted a top bid of SGD 418,380,000 (SGD 1,192 psf/pr). In the vicinity, several collective sale sites were sold at higher unit land prices although these were before the July cooling measures.  These include Makeway View at SGD 1,626 psf/pr in March 2018 (Freehold), Dunearn Gardens at SGD 1,914 psf/pr in April 2018 (Freehold) and Chancery Court at SGD1,610 psf/pr in May 2018 (99 years).

JLL’s analysis of the Kampong Java Road GLS plot for non-landed residential development in DC Sector 61 awarded on 21 January 2019, also indicated an 11% discount in its land price of SGD 1,192 psf/pf, compared to its corresponding implied land value derived from the September 2018 DC rate.

The reduction in DC rates for the non-landed residential use group is unlikely to reinvigorate the collective sales market as the mismatch in buyers and sellers’ price expectations remains.  

Industrial

The DC rates for the industrial use group have been left unchanged following the 2.1% average increase in the previous revision.

The Chief Valuer had likely taken into consideration the relatively stable industrial property market, as well as the cautious outlook for the sector.  JTC’s statistics showed that the all-industrial property price index (which tracks price movements of single-user and multi-user factories) held relatively stable for the third straight quarter in 4Q18, while the all-industrial property rental index was unchanged in 4Q18, ending 14 successive quarters of quarter-on-quarter rental decline. Nonetheless, the sector’s outlook remain cautious as macroeconomic risks such as the global trade war, Brexit outcome and slowing manufacturing sector and trade activity in 2019 could weigh on business sentiments and demand for industrial space.

Industrial land transactions that took place in the six-month ending in February 2019 also provided mix signals.

From our analysis, land plots with 30 years or longer leasehold tenure were transacted at or above their land values implied from the September 2018 DC rates, while land plots with 20-year leasehold tenure were sold at a discount to their land values implied from their September 2018 DC rates.  Two 20-year leasehold industrial GLS sites were also not awarded in the six months ending in February 2019 as their highest bids fell below their respective reserve prices.

Note:

¹Development charge is a tax that is levied when planning permission is granted to carry out development projects that increase the value of the land.

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