Development charges for prime residential areas slashed as capital values drop

The market is unlikely to recover, experts say.

Developers will enjoy lower development charge (DC) rates from March to August this year, after the government’s move to reduce DC rates for four use groups.

The Ministry of National Development (MND) revealed on Monday that DC rates for commercial, non-landed residential, hotel/hospital and industrial use groups will be reduced.
The biggest reduction was seen in prime residential areas, where charges were reduced by an average of 4%. Christine Li, Director for Research at Cushman and Wakefield, said that the drop in DC rates in these sectors is reflective of the price correction in prime residential areas.

She noted that non-landed resale prices fell to $1,539 psf in the third quarter of 2015 and $1,580 psf in the fourth quarter of 2015, down by 6% and 3.5% respectively from the second quarter.

“Together with increasing vacancy rates, softening rents, and a relatively high volume of unsold units (6,394 unsold units in the Core Central Region (CCR)), the prime residential market is unlikely to recover in the near term with various government cooling measures still in place,” Li said.

Meanwhile, commercial land have decreased by 2% on average, with the biggest drop seen in the prime office market.

“The decreases in Sectors 1-6 and 11 (Raffles Place, City Hall/Marina Centre, Bugis, and Marina Bay) were likely due to the deterioration of the CBD rental market (Grade A rents declined by 10% y-o-y as at 4Q2015) in the past six months leading to a decline in office capital values,” Li said.

The development charge is a tax that is levied when planning permission is granted to carry out development projects that increase the value of the land. DC rates are reviewed on a half-yearly basis.