Residential use development charges rates increased by 18.4%

Development charges rates or the period from 1 March 2011 to 31 August 2011 increased by 18.4% and 10.6% for use group B1 and B2 respectively.

According to Jones Lang LaSalle, this is the largest increase for B1 (Residential – Landed use group) since the series started in March 2000. These are generally in line with our expectations.

In the use group B1, sector 68, 69 and 108 saw the highest percentage increase in the development charge rates. Sector 108 saw an increase of 25.0% while the other two sectors witnessed a 23.5% increase. The three sectors are located along the major roads of Bukit Timah Road, Dunearn Road, Sixth Avenue, Holland Road, Farrer Road etc. In the previous revision of the landed residential development charges (September 2010), we saw sectors 103 and 104 increased by 20%, in part in response to the Circle Line. In this recent revision, we believe the high increase in these three sectors (68, 69 and 108) is merely a catch up with market values before these new MRT stations along the downtown line complete and firm up land values in the vicinity. These new MRT stations include, Farrer Road MRT, Botanic Gardens MRT and Stevens Road MRT.

In the use group B2, the highest increase was seen in Punggol/Teban, sector 100 at 16.7%. This is supported by the Government intention to develop the Punggol area as well as the recently completed sale of the Punggol Central/Punggol Walk site at $406 psf ppr.

Another point worth noting would be the continued strength of the growth in sector 103 and 104 (Bishan, Braddel, Potong Pasir). In the previous revision, the non-landed development charge rose by 15.6%. In the current revision, this trend continues as we saw a 15.4% increment for both sectors. This is driven by the presence of the Circle Line MRT and further crystallised by the recent successful government land sale of the Bishan site, along Bishan Street 14. The site is sold for a high price of $550.1 million, or $869 psf per plot ratio, indicating the developer’s confidence in the area’s potential.

From the commercial use group, the average increase was 12.7%. This is in sharp contrast to the 1% increase previously. The highest percentage jump was recorded by sector 9 (Tanjong Pagar), at 29.0%. The gap in the previous development charge value for that sector was evident in the government land sale of the site along Peck Seah Street, where the transacted value reflected an upside of 25% over the implied land value. The core-CBD areas also witnessed significant increases with sector 7 rising 23.1%, sector 1 and sector 2 rising 18.4%.

In the Industrial use group, the average DC rate saw an increase of 8.3%. The highest increase was seen in sector 114, where Tuas, Choa Chu Kang and Kranji are located. This is driven by strong activity in Government Land Sales as well as the positive outlook for the industrial market.

Dr Chua Yang Liang says “The recent DC revision clearly echoes the property market trends over the past six months. The rates of increase across the island are largely within what Jones Lang LaSalle had earlier predicted. In places where we saw strong Government Land Sales, DC rate revisions were also the strongest such as the commercial use group in Tanjong Pagar area and non-landed residential in Punggol.

The impact of this latest round of revisions is unlikely to neither dampen nor stir market sentiments. The DC rate is merely a reflection of the Chief Valuer’s assessment of the current land values in the various sectors based on past market evidence. Furthermore, DC charges are only payable for those projects where there is a change of use or where the intensity is higher than the current level, hence not every development project will be affected. Additionally, the DC charge is not a large proportion of the overall development costs, and therefore the impact on the eventual selling price will be muted.”

Dr Chua adds “Looking forward, there could be continual DC rates revision in areas where there are strong infrastructural development such as the new MRT stations and particularly if recent DC revision has not brought the DC rates in line with overall market values in the vicinity.”