Property Development charges projected to rise

Property development charges (DC) rates - payable for enhancing the use of some sites or building bigger projects on them - expected to head upwards come March 1 for all major use groups. They cite an appreciation in land values over the past six months. In some cases, the hikes could be in double digits.

DC rates, revised on March 1 and Sept 1 each year, are stated according to use groups - such as landed residential, commercial and hotel - across 118 geographical sectors. The Ministry of National Development, in consultation with the Chief Valuer, revises DC rates based on current market values. In addition to being tracked in property circles as they can impact redevelopment sites with a sizeable DC component, DC rates are seen as the government's reading of land and property values.


The average DC rate for industrial use, which saw the biggest hike (among major use groups) of 14.3 per cent in the last revision six months ago, could potentially rise.

Prices fetched for industrial Government Land Sale (GLS) sites in the past half-year reflect an average premium of about 59 per cent compared with land values implied by the prevailing Sept 1, 2012 industrial use DC rates for the respective locations. This is a shade higher than the March-August 2012 period, when the prices fetched by industrial GLS sites reflected an average premium of 55 per cent to then-prevailing DC rates.

Advancing another reason industrial DC rates are likely to rise, the strong demand and escalating prices of strata industrial units which prompted the authorities to introduce a seller's stamp duty for this segment in January. JTC Corporation raised industrial land rents by 5-10 per cent from Jan 1, 2013, after leaving them unchanged in second-half 2012.

Analysts predict Sector 114 - which includes Tuas, which has been a hotbed of transactions of short-tenure sites sold at state tenders in the past half-year - will see a substantial DC rate hike.

Another sector for a significant DC rate hike is sector 115, where GLS sites in Yishun and Woodlands were sold at substantial premiums (80-108 per cent) to the DC rate-implied land value.

Last round, the market was surprised by a 9 per cent escalation in the average DC rate for commercial use. Commercial use DC rates may lead gains among the major use groups, due to investment sales deals in the past half year such as 79 Anson, Mapletree Anson, Katong Junction and NOL Building at prices substantially above land values implied by DC rates in the respective locations.

In addition there has been robust demand for strata office and shop units as seen at Alexandra Central.

The average DC rate for the use group that includes hotels increased 10.8 per cent last round. This time it could climb further. The geographical sectors that will see the biggest rate hikes will include Sector 112, which covers Jurong East, where a hotel site was sold at a state tender in November at about 200 per cent above the DC rate implied land value. Analysts also predict the Victoria Street/Jalan Sultan, and MacPherson locations may see a big jump in hotel use DC rates, citing transactions in these areas.

With landed residential DC rates left untouched in the previous two rounds of revisions, a moderate rise. Urban Redevelopment Authority's landed residential property price index rose 1.1 per cent and 1.8 per cent quarter-on-quarter in Q3 and Q4 2012, a stronger pace than the 0.1 per cent and 0.4 per cent increases in Q1 and Q2 last year. During the previous revision, the average DC rate for non-landed residential use inched up 1.2 per cent.

DC rates are likely to rise significantly for Sectors 72 (which includes Alexandra area) and 82 (Tiong Bahru Road/Bukit Merah View), 97 (New Upper Changi Road/Tanah Merah/Bedok South), 107 (Ang Mo Kio/Thomson) and 112 (West Coast, Clementi), citing GLS and private-sector land deals at prices above DC rate-implied land values.

Analysts also note that in the prime Dracyott Park area (in Sector 39), Hampton Court was sold at a record $2,526 per square foot per plot ratio - 51 per cent above the land value implied by the current DC rate for the location, possibly setting the stage for a DC rate hike in the sector.

Source: Business Times –25 February 2013