SINGAPORE (EDGEPROP) - The Ministry of National Development has revised development charges (DC) for the period of March 1 to Aug 31.
The DC rate is revised every six months. It is a tax levied by the government when planning permission is granted for development projects that increase the value of the land, for instance through rezoning to a higher value use, or an increase in plot ratio, or both. This is done in consultation with the Chief Valuer.
For non-landed residential developments or redevelopments, DC rates have increased by an average of 0.3%. Sectors 97 and 98 witnessed the highest increase of 6.3%, which could be attributed to the sale of the Government Land Sales sites at Tanah Merah Kecil Link where bidding was hotly contested, notes Catherine He, associate director of CBRE Research.
Additionally, Tay Huey Ying, head of research and consultancy, Singapore, says that the upward adjustment “has likely been fuelled by the robust 3.0% q-o-q rise in the URA’s residential non-landed PPI in 4Q2020, and developers’ growing appetite for residential development land in 2H2020”.
For landed residential, DC rates have been increased by an average of 1.5% since holding flat from March 2018. “This is likely to have been underpinned by the 2.1% y-o-y increase in URA’s landed residential property price index (PPI) in 2H2020,” says Tay.
She also observes that although the landed residential PPI fell 1.6% q-o-q in 4Q2020, the index surged 3.7% q-o-q in 3Q2020. The landed residential rates were kept unchanged in August 2020. March’s upward adjustment in landed residential DC rates reflects the market movements.
From March 1, DC rates for commercial developments will be revised downwards by a further 1.5%, after they were lowered for the first time in four years in September 2020. The current downward revision was due to the “lower level of commercial transactions taking place”, says CBRE’s He. 60 out of the 118 registered a decline in DC rates, ranging from 2% to 3%.
This is in line with the market trends for the office and retail property markets, both of which are still facing headwinds from the impact of the Covid-19 pandemic, notes JLL’s Tay.
The largest decrease of 3% was applied to sectors in the central region, and He believes that this will motivate the redevelopment of older buildings in the central area, especially those that qualify for the Strategic Development Incentive and CBD Incentive Scheme.
JLL’s research also reveals that Grade-A CBD office rents stayed on the downtrend in 4Q2020, falling 2.7% q-o-q, notes Tay.
On the upside, Tay says that investment grade office and retail properties continue to garner investors’ interest in spite of the short-term challenges. She shares that based on data compiled as of Feb 26, some $4.37 billion worth of commercial assets were transacted during the DC review period between September 2020 and this February, which is about 57% higher than the $2.78 billion attained in the previous six months.
The hotel sector is hardest hit by the pandemic, with falling tourist numbers and revenues. DC rates have remained unchanged after a large downward adjustment of 7.8% on average previously.
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Industrial DC rates remained unchanged, after being trimmed by an average of 0.9% in September 2020. Tay says that this could be because the Chief Valuer considered the “thin interest seen for industrial GLS plots during the DC review period”, where there was only one successful tender for 20-year leasehold parcel at 160 Gul Circle.
CBRE’s He expects that occupier and investor sentiments will improve, which could lead to a recovery in real estate activity, especially in the residential and commercial sectors. As a result, there might be more transaction activity, leading to greater adjustments to DC rates.