Development charges increased for three property market sectors

Rows of shophouses with blocks of high-rise condominium in the Orchard Road estate, on Sept 7
PHOTO: The Straits Times

Development charges (DC) for three segments of the real estate sector have been increased on the back of strong investment interest and an upturn in property market sentiment.

The DC rates for commercial, non-landed residential, and hotel or hospital uses have gone up following increases in the last review as well.

The charges are payable for enhancing the use of some sites, or building bigger projects.

They are revised every six months by the Ministry of National Development in consultation with the Chief Valuer.

Most analysts were not surprised by the hike in rates for commercial and condominium uses.

"Developers' hunger for prime commercial sites and residential sites has driven land prices further north over the last six months," noted Cushman & Wakefield research director Christine Li.

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The DC rates for commercial use have been raised by 1.3 per cent on average, with the largest jump of 29 per cent in the Shenton Way/ Raffles Quay/Marina Bay Financial Centre area.

Analysts said this was underpinned by the recent wave of investor interest in commercial assets, including the record $2.57 billion bid for a white site, or mixed-use site, in Central Boulevard in the Marina Bay area.

Condo DC rates are up an average of 4 per cent, with the sharpest increase of 17 per cent in two sectors covering areas such as Jalan Besar, Serangoon Road, Balestier Road and Bendemeer Road.

The increase was likely influenced by deals such as the sale of a Perumal Road site in Little India and another at 1177, Serangoon Road - both went for premiums over their implied land value, consultancy JLL noted.

JLL head of research for Singapore Tay Huey Ying said the rise in condo DC rates is not expected to have a significant impact on the collective sale market.

What took consultants by surprise was the rise in DC rates for hotel or hospital sites, given that there has been no hotel transaction in the past six months and just one deal involving a nursing home site in Venus Drive in the Upper Thomson area.

How property prices are affected by new MRT stations

  • In the residential market context, the "location" is usually defined as the distance of the property to key employment centres, leisure amenities and educational institutes. However, the key determinant of the value of a residential property is actually its distance to key transportation nodes.
  • The relative value of a location varies over time, as the introduction of new transport infrastructure in the neighbourhood improves accessibility to activity centres.
  • Most of the stations on the upcoming Downtown Line Stage 3 are surrounded by HDB estates, commercial developments or industrial developments, with the exception of Upper Changi Station and Bedok Reservoir Station.
  • The proposed Upper Changi Station is located near private residential developments and landed properties. Based on proximity, the non-landed developments that are likely to gain most from the completion of the Downtown Line Stage 3 include Changi Court, Changi Green, Cascadale and Tropicana.
  • Unlike properties near the proposed Upper Changi Station, developments close to the Bedok Reservoir station are not within walking distance to any MRT station. Hence, benefits to the private developments will be greater.
  • The effect on price appreciation may vary across developments, as the newer developments, such as Waterfront Gold, have taken into account "the MRT effect" and was priced higher when it was launched.
  • The Thomson-East Coast Line, which will open in five stages from 2019 to 2024, is anticipated to add value to a number of private residential properties located near the proposed new MRT stops.
  • The completion of the Thomson Line is expected to benefit owners of landed homes in the Yio Chu Kang, Ang Mo Kio and Bishan areas.
  • The terraces near the upcoming stations were transacted at between S$2.2 million and S$3.5 million in 2016, depending on the gross floor areas of the sites and their condition. Prices for these landed homes have been fairly stable since 2013.
  • River Valley has been a popular place for expatriates given its vibrant night life, trendy bistros and its proximity to the main shopping area at Orchard/Scotts Road.
  • With the upcoming station at Great World City, several private developments in the area are expected to see more demand. Given that the quantum for the larger units in the area is high, their price appreciation is likely to be moderated due to a tempering of demand by the cooling measures.
  • Interest in the private developments along the East Coast line has always been keen. The developments here tend to attract strong rental demand due to the character of the place.

Hotel or hospital DC rates have been increased by 2.6 per cent on average, with the steepest rise of 19 per cent in several suburban locations, including Punggol and Lornie Road.

Chesterton Singapore managing director Donald Han said: "The rise in hotel/hospital DC rates in the suburbs could perhaps be seen as a way to address short-term stays, such as Airbnb."

However, DC rates for industry use were slashed by 3.7 per cent on average. The largest decline of 14 per cent was seen in sectors comprising areas such as Tampines Road, Boon Lay and Tuas.

"(It is) in line with the market conditions... Industrial prices and the occupier market have been facing pressure," noted Mr Desmond Sim, head of CBRE Research for Singapore and South-east Asia.

DCs remain unchanged for other use groups. The revised rates are effective from today to Aug 31.

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This article was first published on Mar 01, 2017.
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