Development charges revised for different property sectors

Development charges for the industrial property sector are unchanged while commercial and non-landed residential see revisions.

Non-landed Residential

The increase in development charge (DC) rates by an average of 8% for non-landed residential use is within market expectations.

With the 2009’s rebound in home sales and prices being driven by the mass market segment, developers land banked aggressively for sites in the suburban locations, either though government land sale (GLS) or in the private market. As such, these locations, such as Sectors 98 & 101 (Paya Lebar / Eunos / Bedok North / Simei / Tampines areas) and Sector 104 (Serangoon/Hougang), have seen comparatively-large upward adjustments in DC rates.

Non-landed residential sites in the prime and centrally-located areas, such as Sectors 42 to 47 (Orchard Road/Orchard Boulevard/Paterson Road), Sector 76 (Spottiswoode Park) and Sector 117 (Sentosa island), have also witnessed strong double-digit increases in DC rates. This is contributed by the pick up in home sale activities and home prices in these areas in late 2009/early 2010, as well as some recent land acquisition activities by developers at prices above the land costs imputed from the DC rates of their respective sectors.

Overall, the rise in non-landed residential DC rates is expected to add on to developers’ land banking cost – particularly for collective sales sites that require DC payment, which may hamper or derail their land banking plans.

Commercial
The commercial sector saw an average decline of 2%, which is likely to be deemed by the market as a welcome move from the Government – given the generally-subdued performance of the office sector, as well as muted commercial land transactions during the review period and a still-uncertain business environment, despite nascent signs of recovery.

Particularly within the CBD area, in the Raffles Place (Sectors 1 and 2), New Downtown (Sector 11), Shenton Way/Robinson Road (Sector 7) locations, DC rates are trimmed by the largest account – between 12.6% and 13.3% – which is similar to the magnitude of DC rate cuts in the last review.

These locations are expected to see the completion of some 2.2 million sq ft of office space in 2010, which makes up about 73% of the total potential supply of office space upcoming in the Republic during the year. A cut in DC rates in these locations will, hence, provide the necessary stabilizing effect to the market, amid daunting concerns about the potential supply.

Industrial
DC rates remained unchanged for the industrial sector in the current review period.

The market had expected some level of upward adjustments, in which developers’ sentiment in the industrial land market rode high in 2H 2009 – on the back of various feel-good factors including improved economic prospects and liquidity resulting from the stock market rally.

However, the Government’s decision to maintain DC rates is a welcome move as this will provide support to the nascent recovery of the manufacturing sector and the industrial property market.

This is also in line with JTC Corporation’s decision to maintain its JTC industrial land rents w.e.f. 1 January 2010.