DC rates change announced by Chief Valuer

DC rates change within expectations say property watchers

The Ministry of National Development has revised the development charge (DC) rates for the period 1 March 2020 to 31 August 2020.  The DC rates change is carried out on a half-yearly basis in consultation with the Chief Valuer.

The DC rates change for Use Group B2 {Residential, (non-landed)} reflected a decrease.

The DC rates remain unchanged for Use Groups A (Commercial), B1 {Residential, (landed)}, C (Hotel/Hospital), D (Industry), E (Place of Worship / Civic and Community Institution), and 3 other Use Groups F, G and H.

The DC rates for Use Group B2 {Residential, (non-landed)} have decreased by 0.2% on average.  5 out of the 118 sectors have reduction in DC rates ranging from 3% to 7%.  Rates are unchanged for the remaining 113 sectors. The largest decrease of 7% applies to the following sectors:

• Sector 34 (Sophia Road / Upper Wilkie Road / Mackenzie Road / Niven Road / Kirk Terrace / Adis Road)
• Sector 35 (Cavenagh Road / Bukit Timah Road / Mackenzie Road / Upper Wilkie Road / Edinburgh Road / Buyong Road)

There are no DC rates change to the Use Groups Table and the Geographical Sector maps.

Commenting on the DC rates change, Colliers International said:

“Broadly, the revision in development charge (DC) rates for the commercial and residential (non-landed) property segments announced on 28 February 2020 was within expectation, reflecting the ongoing market sentiment and activity in the last six months.

The Ministry of National Development said that the DC rates for Use Group B2 {Residential, (non-landed)} have decreased by 0.2% on average. The largest decrease of 7% applies to sectors 34 and 35 which include areas such as Sophia Road, Upper Wilkie Road, Cavenagh Road, and Bukit Timah Road.

Meanwhile, the DC rates remain unchanged for Use Groups A (Commercial), B1 {Residential, (landed)}, C (Hotel/Hospital), D (Industry), E (Place of Worship / Civic and Community Institution), and 3 other Use Groups F, G and H.

Development charges – with rates revised on a half-yearly basis – are payable when planning permission is granted to carry out development projects that increase the value of the land for example, rezoning to a higher value use and/or increasing the plot ratio.

Hotels
DC rates for hospitality use are kept unchanged for the second consecutive review, after a sharp 45.6% increase in the March 2019 revision. We think keeping a statue quo on the hotel DC rate is appropriate at this time. Given the COVID-19 outbreak and potential 20-30% drop in the visitor arrivals in 2020, we see room for hotel DC rates to ease should transacted valuations fall.

Transactions in hotels have been relatively robust in late-2019, such as Andaz Hotel at Duo which was sold for SGD475 million or about SGD1.4 million per key in October 2019. W Singapore at Sentosa was similarly transacted at SGD1.35 million per key or SGD324 million in November 2019.

Commercial
The chief valuer has kept DC rates for commercial use unchanged – the first pause after seven consecutive increases since the September 2016 review. The DC rate for commercial use has increased by an average of 1.7% in the previous revision.

We believe the capital values have stabilised – as reflected in some transactions in late-2019 – which could explain why there was no change in the DC rate for commercial use. Recent large transactions included: Robinson Centre which was sold for SGD340 million or SGD2,568 psf in December 2019; and Bugis Junction Towers which was transacted at SGD547.5 million or SGD2,200 psf in October 2019.

Residential
Meanwhile, the DC rates for non-landed residential use have fallen by a marginal 0.2% on average, with five out of 118 sectors registering reduction in DC rates ranging from 3% to 7%.

This comes after a 0.3% decrease in DC rates during the September 2019 review and a 5.5% decrease in DC rates during the March 2019 review. We believe the cut in rates is reflective of the relatively muted Government Land Sales bidding and general slower economic outlook.

In addition, the trimming of the DC rates for non-landed residential use in this review should be modestly comforting for property developers who have had to grapple with more uncertainties following the roll-out of new cooling measures in July 2018 and now the COVID-19 outbreak.

The largest decrease was seen in Sector 34, which includes Sophia Road / Upper Wilkie Road / Mackenzie Road / Niven Road / Kirk Terrace / Adis Road), and Sector 35 (Cavenagh Road / Bukit Timah Road / Mackenzie Road / Upper Wilkie Road / Edinburgh Road / Buyong Road. This could be due to the collective sale of Casa Sophia in January 2020, which was sold for SGD29 million or SGD1,205 psf per plot ratio. That was below the implied land rate in sector 34 (SGD1,347 psf) before 28 February 2020.

Meanwhile, the DC rate in Sector 46 which includes Grange Rd/Irwell Bank Rd/Devonshire Rd declined 5.4%. This is reflective of the market sentiment as observed in the bid prices for the Irwell Bank GLS site tender which closed on 9 January. The top bid price of SGD1,515 psf per plot ratio was significantly below our expectations and also below the implied land rate in this sector (SGD1,719 psf) before 28 February 2020.”

Mr Paul Ho, Chief Mortgage Officer at iCompareLoan, said, “the DC rates change is a little bit if good news for developers as they could enhance the use of some of their sites to build bigger projects on them.”

In October 2018, the URA announced measures to deter excessive shoebox units development. URA said that the revised guidelines will deter developers from developing excessive shoebox units and will also help to manage potential strains on local infrastructure and safeguard the liveability of residential estates. Under new guidelines which will come into effect from January 17 next year, several heartland areas — including Marine Parade, Balestier and Loyang — will be subject to more stringent requirements.