Tuesday, September 1, 2009

Another round of trimming for development charge rates

Sharp cuts for commercial DC rates at Raffles Place; no change for landed residential, industrial uses

(SINGAPORE) The government has again trimmed development charge (DC) rates for some sites - though the cuts on average are smaller than those made six months ago.

The changes were largely in line with market expectations. Some industry watchers felt that the continued cuts reflect the government's caution in dealing with the property market when the economy remains shaky.

Developers have to pay DC for enhancing the use of some sites, and the market monitors these rates closely as they reflect land values. As part of a half-yearly review, the National Development Ministry (MND) announced yesterday a 2 per cent drop in the average DC rate for non-landed residential use. This is far below the 15 per cent chop in February.

MND also reduced the average DC rate for hotel and hospital use by 4 per cent. This is again smaller than the previous 10 per cent cut.

The average DC rates for commercial and business zone commercial uses each fell 4 per cent. For these use groups, the percentage change was the same as that six months ago.

MND left DC rates for landed residential and industrial uses unchanged - just as it did in February. Yesterday's revision will apply from today onwards to February 28 next year.

The DC rate changes were 'generally within expectations' and show the government's 'cautious stance with regard to the outlook for the property market, in view of the still uncertain economic outlook,' said Colliers International research and advisory director Tay Huey Ying.

She cited cuts to non-landed residential DC rates as an example. Although developers have chalked up record sales for private homes and are putting in bids for sites once again, the government still took a 'conservative approach' and shaved DC rates for many areas.

According to Jones Lang LaSalle's (JLL) analysis, non-landed residential DC rates fell across 22 geographical sectors by 2.7 to 16.7 per cent. Sentosa's DC rate saw the largest clip, while the Newton area's slid 15.8 per cent. The River Valley area also experienced a 14.1 per cent decrease in DC rates.

Commercial DC rates fell by 4.3 to 13 per cent across 68 sectors. The sharpest declines were in the Raffles Place, Philip St, Marina Centre and Fullerton areas.

'The decline in the DC rate for this use group was largely expected, as fundamentals for this property type are still weak and the overall interest in developing commercial properties is limited,' said CBRE Research executive director Li Hiaw Ho.

JLL's head of investment Stella Hoh also reckoned that the Chief Valuer 'is likely to be adjusting the DC rates cautiously in view of mixed market sentiments and economic outlook'. The commercial property sector has had a few rough quarters - prime office rents have plunged almost 50 per cent from their peak last year.

Hotel DC rates dropped by between 2.4 and 11.1 per cent across 53 sectors. The steepest falls were seen in the Selegie, Princep St, Waterloo St and Mount Emily areas. DC rates in the Orchard and Sentosa areas also weakened.

'Tourist arrivals are still on the decline and have yet to recover,' Mr Li noted. According to him, the average islandwide occupancy rate for hotels has suffered, falling from 82.8 per cent in H1 2008 to 71.9 per cent in H1 2009.

DC rates for non-landed residential uses were closely watched when the collective sales market was at its peak. This time round, the rates may not have much impact on the market as most deals are only in the early stages of preparation, said Credo Real Estate managing director Karamjit Singh. The next round of DC rate revision would probably be 'more consequential', he added.

Source: Business Times, 1 Sep 2009

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