Government eases DC rates for key use groups

Government eases DC rates for key use groups

AMID the overall price and rental weakness across various segments of the property market, the government has trimmed development charge rates for most of the major use groups for the Mar 1 to Aug 31 period this year.

Development charge (DC) is payable for enhancing the use of some sites or to build bigger projects on them.

On average, DC rates have been trimmed for industrial use by 3 per cent, followed by cuts of 2 per cent each for commercial and hotel/hospital uses. For non-landed residential use, the average DC rate has been shaved by one per cent. However, the rates for landed residential use were left untouched as were the rates for place of worship/civic and community institution, and other use groups.

The latest rates were announced on Monday evening by the Ministry of National Development, which, in consultation with the Chief Valuer, revises DC rates twice a year - on March 1 and Sept 1. The rates are stated according to use groups across 118 geographical sectors in Singapore.

JLL noted that the 3.1 per cent drop in industrial use DC rates on average this round follows the 2.7 per cent cut in the previous revision. This time around, the biggest chop of 16 per cent was in geographical sector 114, which includes places such as Tuas and Choa Chu Kang. Analysts noted that an industrial site at Tuas South Link 2 (plot 5) was awarded in January by JTC Corporation at a price that was 29 per cent below the land value implied by the then-prevailing Sept 1, 2015 DC rate.

The nearby sectors 115 (which includes Sembawang and Woodlands), 112 (West Coast Road and Jurong East) and 113 (which includes Bukit Batok and Jurong Road) also saw industrial use DC rates being chopped by 10 per cent, 9 per cent and 7 per cent respectively, show JLL's figures.

In all, MND trimmed DC rates for industrial use in 87 sectors, with the smallest reduction being 3 per cent. Rates were left unchanged for the remaining 31 sectors.

CBRE's head of research Desmond Sim said the two consecutive reductions in industrial DC rates underscore the "overall continual weak occupier market".

For commercial use, MND trimmed DC rates in 105 sectors by 2-5 per cent.

The largest contraction of 5.0 per cent was in Sectors 1 to 6 (which include places such as Raffles Place, Phillip Street, Fullerton Road, Marina Centre, Bugis and Coleman Street); Sector 11 (Raffles Quay, Marina Bay) and Sector 23 (Dhoby Ghaut), followed by the second largest fall of 4.2 per cent in (most of) sectors 13 to 20 (including Marina South and Marina Straits View, People's Park, China Square, Robertson Quay and Clarke Quay), noted JLL.

"These sectors make up the vast majority of the 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," said JLL's head of SE Asia research Chua Yang Liang.

For non-landed residential use, DC rates were cut in 39 sectors by 2-4 per cent and left unchanged for the remaining 79 sectors. The sectors that saw the largest cut of 4 per cent included Sectors 37-38, (which include Stevens, Newton and Cairnhill roads); Sectors 67 and 70 (including Grange, River Valley, Jervois, Tanglin, Napier and Cluny roads); and Sector 117 (Sentosa Cove) noted Cushman & Wakefield director, research, Christine Li. "The drop in DC rates in these sectors is reflective of the price correction in prime residential areas."

DC rates were also clipped by 4 per cent in Sector 113 (including Yuan Ching Road and Choa Chu Kang); the Chief Valuer could have used the sale of an EC site in Choa Chu Kang Avenue 5 as evidence, said analysts. Sector 112 saw a 3 per cent rate drop; here the state's sale of a 99-year private residential site in Clementi Avenue 1 would have been used for evidence of market value in the locale.

Some market watchers noted that the reduction in DC rates came despite the fact that some Government Land Sale sites and other properties were transacted in the past six months at premiums to their previous, ie Sept 1, 2015 DC rate implied land values.

Shedding some light on this, Knight Frank executive chairman Tan Tiong Cheng said: "DC rate is like an average value for the entire geographical sector, so while you may have some higher prices being fetched for certain sites or buildings, they may be very prime and not representative as an average for the sector."

For the use group that covers hotels and hospitals, all sectors except Sectors 116 (Jurong Islands and other nearby offshore islands) & 118 (Pulau Ubin and Pulau Tekong) saw a reduction in DC rates, ranging from 2-3 per cent.

This article was first published on March 1, 2016.
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