Development Charge average rate for landed residential sector rose 4.8% after previous 6.3% increase

The Ministry of National Development (MND) has released its half-yearly revision to the Development Charge (DC) rates across multiple property groups.

Imposed on property developers, Development Charges are revised every six months and apply on a per square metres basis based on geographical sector and property group type. Based on MND’s and URA’s release, there are 118 geographical sectors and 9 Property Group Types.

For example, if you cross-reference the two on the Development Charge rates table, you’ll find that landed residential developments (Group B1) in Sector 67 has a revised DC rate of S$15,400 per sqm. Previously, it was $14,000 per sqm.

DC rates are advised by the Chief Valuer (CV) of the Inland Revenue Authority of Singapore (IRAS), based on whether the land value has increased and is subjected to this tax. Assessed half-yearly, revision updates across all sectors are usually announced every 1st March and September.

Do DC rates affect property prices?

If you’re wondering if Development Charges affect property prices, the immediate answer is an indirect yes. As developers’ land banks diminish, their tender submissions in government land sales or en bloc bids may rise. For competitive parcels like these GLS parcels, the bid amounts could skyrocket or reach record-highs.

If this goes unchecked, higher land sale prices may translate into higher per square foot pricing for residents and landlords. While DC often move in parallel with property prices, it is not always directly related, so it may sometimes be used as a way for the government to rein in developers from over-bidding and creating a pricing bubble, which will impact homebuyers as development costs trickle down.

Not only that, DC also applies to developed projects, particularly those undergoing renovations or extensions. This usually applies to situations where an additional floor area or annexe wing needs to be added or the 99-year lease needs to be topped up.

Landed residential

In the latest DC rate revision, while most property types like commercial and non-landed residential saw average rate increases between 0.3-0.7 per cent compared to six months ago, landed residential registered an average 4.8 per cent rise (following an average 6.3 per cent rise in September 2021).

Within the landed residential group, Sector 67 ( Cluny Road , Napier Road, Tanglin, Anderson Road, Stevens Road and Dalvey Road ) saw a jump of 10per cent (on the heel of a +18.3 per cent jump between September 2021-February 2022).

This is followed by Sectors 47 ( Oxley ), 63 ( Whitley, Malcolm, Chancery), 64 ( Mount Pleasant, Caldecott ) and 91 (Mountbatten, Meyer, Broadrick) with a 9.1 per cent increase each. So basically, landed home developments in primarily the central or GCB regions continue to see the most increases in DC rates.

One reason for the consistent DC rate rise is due to strong demand in the Good Class Bungalow sector, or just the overall landed residential sector for that matter.

We’ve reported a few like crypto billionaire Zhu Su’s Yarwood Avenue purchase , the six semi-detached houses purchased by a Singaporean in his early 30s, the various freehold bungalows recently purchased by three different companies around the same period, Fragrance Group’s James Koh’s recent bungalow purchases and Mediacorp’s plans to develop 15 99-year-leasehold GCB plots on its former Caldecott Broadcast Centre site.

“The increase is largely within expectations,” shared Ms. Tricia Song (宋明蔚), Head of Research, Southeast Asia, CBRE, “with the strong activity observed in the GCB market which was boosted by fresh demand from digital economy entrepreneurs, key executives and continued demand from new citizens, amid Singapore’s recovering economy, ample liquidity and the low-interest-rate environment.

“DC rates in Sectors 63 (Chancery Lane, Dunearn Road, Whitley Road) and 64 (Lornie Road, Thomson Road) also saw an increase of 9.1 per cent. There were a healthy number of transactions along Lornie Road in Caldecott Hill GCB Estate. Notably, 118 Lornie Road was sold for S$26.8 million at a record unit price for the area of $2,545 psf.”

Non-Landed residential

It is also interesting to note that for non-landed residential properties, the average rate increase is a modest 0.3 per cent.

In the previous half – between September 2021 and February 2022 – this group saw an average increase of 10.9 per cent, with the highest increase of 19 per cent in two sectors:

• Sector 16 ( Cantonment Road / Eu Tong Sen Street/ Cross Street/ Chinatown Area / Duxton Area / Peck Seah Street/ Kee Seng Street)

• Sector 107 (Lentor Avenue/ Springleaf Area / Upper Thomson Road/ Upper Peirce Reservoir/ Pan-Island Expressway/ Lornie Road/ Marymount Road / Ang Mo Kio Avenue 6)

Notably, these are areas with popular interest and amenities, particularly for EC (some outskirts), potential mixed-use condo developments and high en bloc potential for existing properties.

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With the latest rate rise of 0.3 per cent, it could be a signal that there will be an expected easing in bullish sentiment on home prices, thanks in part to the Dec 16 cooling measures .

In this round, the sector with the highest DC rate increase of 15 per cent is Sector 92 (Guillemard Road, Mountbatten Road, Old Airport Road, Dunman Road, Tanjong Katong Road, Haig Road and Geylang Road ), followed by 7.7per cent for Sector 50 (Tanjong Rhu, Rhu Cross, Kampong Arang, Jalan Batu and Stadium). Six out of 118 sectors had rate increases between 3-15per cent.

“This is supported by the en bloc sale of Thiam Siew Avenue , which was sold for $815 million or ($1,440 psf ppr, assuming 7 per cent bonus balconies) and the strong outcome of GLS site Jalan Tembusu which was awarded for $1,302 psf ppr. Sector 50 (Tg Rhu, Kampong Arang) also saw an increase of 7.7 per cent in DC rates, which could have been boosted by the collective sale of La Ville, which sold for S$1,477 psf ppr,” said CBRE’s Song.

For the other sectors, the DC rate averaged increases are 0.7 per cent (commercial) and 2.2 per cent (industrial). DC rates remain unchanged for other groups such as place of worship/civic and community institutions, open spaces, agricultural land and roads/railways. For hotel/hospital group, the DC rate has decreased by an average of 0.7 per cent.

“Besides a protracted pandemic situation, the weaker-than-expected outcome of the Marina View GLS site tender, which included a significant hotel component, evidenced continued poor sentiment for hospitality in the city centre,” shared Song with regards to the hotel/hospital group.

“Twenty-five out of the 118 sectors had a reduction in DC rates ranging from 2 per cent to 10 per cent, with the largest decrease of 10 per cent in Sector 11 (Shenton Way/ Straits Boulevard/ Marina Boulevard/ Raffles Quay).”

This article was first published in 99.co.