DC rates may rise and affect en bloc sales

Development charges, which are paid to enhance or intensify the use of some sites, are headed north for residential use at the upcoming DC rate revision effective March 1, say property consultants.

They cite the increase in private home values since last year as well as aggressive land bids for residential sites at state tenders in the past six months.

On average, DC rates for landed and non-landed residential use could rise about 5 to 10 per cent. However, consultants are predicting that rates for commercial, industrial and hotel use could remain flat.

The upcoming DC rate revision will also be monitored by those trying to embark on collective sales, especially for sites whose redevelopment would involve sizeable DC payment. DC is part of total land cost to a developer. If the DC rate increases significantly and the value of the site remains constant, the developer will offer owners less for the site, explains CB Richard Ellis executive director Jeremy Lake.

‘The problem today is that there’s already a price gap between owners’ and developers’ expectations. This will be compounded if there’s a significant hike in DC rates, in the case of sites with a significant DC component. The current environment (of rising private residential price expectations) is not conducive to owners reducing asking prices,’ he adds.

‘Hence for en bloc sites with significant DC component, the exposure to DC volatility can be very unhelpful in a rising market, whereas sites with zero or low DC component are fairly immune to DC volatility and those are good sites to work on.’ Mr Lake reckons that the next DC rate revision on Sept 1 may be more keenly watched – than the March 1 update – as a higher number of en bloc sale efforts are likely to be at a more advanced stage then.

DC rates – which are revised on March 1 and Sept 1 each year – are specified by use groups (such as landed and non-landed residential, commercial and hotels) across 118 geographical sectors throughout Singapore. The review is conducted by the Ministry of National Development in consultation with Chief Valuer, who takes into account current market values.

Colliers International is projecting 8 to 10 per cent rise in average DC rates for non-landed residential use from March 1. The biggest hikes of up to 20 per cent are likely to be in places like Serangoon Avenue 3, Upper Thomson Road and Sengkang West Avenue where winning land bids at state tenders have been at substantial premiums of 48-86 per cent to land values imputed from the Sept 1, 2009 DC rates for these geographical sectors, says the firm’s director Tay Huey Ying.

Suburban locations could see a bigger rise in DC rates than upmarket locations as last year’s rebound in home sales and prices was led by the mass market segment, she argues.

Private-sector land deals too point to higher DC rates. For instance, the Parisian site at Angullia Park was sold in October at $2,058 psf per plot ratio – about 70 per cent above the DC-rate implied land value for the area.

DTZ’s SE Asia research head Chua Chor Hoon reckons that non-landed DC rates will go up 15 to 25 per cent from March 1. Jones Lang LaSalle’s associate director (research and consultancy) Desmond Sim predicts 10-15 per cent hikes in non-landed residential DC rates in mass-market suburban locations, outpacing a 5-8 per cent rise in prime districts.

As for landed residential DC rates, he forecasts a 10-15 per cent increase across all geographical sectors, with a bigger increase likely for Sentosa Cove and Good Class Bungalow Areas.

CB Richard Ellis executive director Li Hiaw Ho notes that the official price indices for detached, semi-detached and terrace houses rose 20-odd per cent from July to December 2009. In addition, 2009 saw the highest total value of GCB sales at $1.64 billion. He forecasts an average 5-10 per cent rise this round for landed rates.

Mr Li forecasts DC rates for commercial and industrial use will remain unchanged or even fall very marginally.

Colliers’s Ms Tay, who is projecting an up to 5 per cent climb in average DC rate for industrial use, says: ‘The government is unlikely to make significant upward adjustments to DC rates for industrial use group in general in the upcoming review given the nascent recovery of the manufacturing sector and the industrial property market. Also, JTC Corp industrial land rents have not been adjusted since they were revised downward in January 2009, says Ms Tay.

She reckons commercial DC rates will remain largely unchanged as office rents have remained weak.