Development charge: Rates tweaked slightly in dull market

Source : Business Times - 30 Aug 2008

Bigger cuts in store if stronger evidence of falling property values emerges

Despite weaker property sentiment, the government has opted to leave development charge (DC) rates largely unchanged, except for an average 6.3 per cent cut for non-landed residential use.

There may not be sufficient evidence of declines in property values yet, market watchers said, but the rates could be cut at the next revision if stronger evidence emerges to show values are falling.

DC rates, which may be payable for enhancing the use of some sites, are revised twice yearly, on March 1 and Sept 1, by the Ministry of National Development in consultation with the Chief Valuer.

DC rates are stated across 118 geographical sectors. MND announced changes to boundaries affecting eight geographical sectors in three vicinities - the Race Course Road area (following the realignment of Race Course Road after the completion of Farrer Park MRT Station), Jurong Lakeside area (where there are plans under draft Master Plan 2008) and Pulau Brani (which has been moved out of the geographical sector that includes Sentosa).

Jones Lang LaSalle’s analysis shows that a site redesignated from one sector to another in the Jurong Lakeside area could see increases in DC rates of 35 per cent for landed residential use, 39 per cent for hotel use and 38 per cent for industrial use based on Sept 1, 2008 rates.

As for the minimal changes in DC rates for most use groups, CB Richard Ellis executive director Li Hiaw Ho said this was in line with the slow pace of public and private land transactions seen this year.

Knight Frank managing director Tan Tiong Cheng said: ‘For the commercial (office, retail) sector, we do not have direct evidence to show land values have dropped. For residential, the collective sales market has quietened but there has been evidence at recent state land tenders to show a decline in land values.’

That could account for the chops in DC rates for non-landed residential use.

Jones Lang LaSalle head of research (Southeast Asia) Chua Yang Liang too pointed to several cases of 99-year condo sites being sold at state land tenders recently at prices below their March 1, 2008 DC rate-implied land values.

DC rates for non-landed residential use were trimmed in 116 of the 118 locations. The cuts ranged from 3.8 per cent (in the Pasir Ris/Loyang and Punggol areas) to 10.8 per cent in the Balestier area. Recent transacted prices for non-landed projects like The Marque, Vutton and Pavilion 11 might have been the reason for the DC cut. The rate for Sentosa was trimmed 10.5 per cent, perhaps based on prices achieved recently at condos like Marina Collection and Turquoise at Sentosa Cove.

Two adjacent geographical sectors covering Ang Mo Kio/Bishan and Braddell/Potong Pasir, saw respective cuts of 10 per cent and 9.4 per cent. The cuts could be due to a 99-year condo site at Lorong 2/3 Toa Payoh near Braddell MRT Station being sold in April at 23 per cent below the price paid for a condo site next to Ang Mo Kio Hub in September last year.

DC rates for landed residential, commercial and hotel uses were completely untouched across the 118 geographical sectors. For industrial use, the rate was increased 11.1 per cent in the Paya Lebar/Eunos area but unchanged in the other 117 locations.

CBRE’s Mr Li said the latest DC rate revisions were ‘pretty much an academic exercise as there aren’t many en bloc sales or redevelopments of sites going on which would involve DC payments’.

‘Nobody is getting excited; there’s little practical effect.’