In the latest half-yearly review of Singapore’s development charge (DC) rates by the Ministry of National Development in consultation with the Chief Valuer, the rates applicable for the period from 1 September to 28 February 2018 for the commercial, non-landed and landed residential use groups have been revised upwards while those for the remaining use groups have been kept unchanged. 

This exercise reflects the Chief Valuer’s optimistic outlook for the Singapore property market over the next six months, and gives strong hint of what are to come and can be expected for the growth areas of Paya Lebar, Jurong Lake District, Jurong Innovation District, Woodlands North Coast and Kallang River/Kallang.

With the exception of the industrial use group, the Chief Valuer has generally taken cue largely from actual transactions in adjusting the DC rates in this latest review. Most of the DC sectors with actual transactions done at above their imputed DC equivalent land price saw upward adjustments in their DC rates in this half-yearly review.

A few sectors saw their DC rates adjusted upwards significantly in spite of the lack of land transactional evidence, but they closely mapped the designated growth areas identified by the Government i.e. Paya Lebar (Sector 101), Jurong Lake District (Sectors 112, and 113), Jurong Innovation District (Sector 114), and Woodlands North Coast (Sector 115), as well as areas for which revitalisation plans have been announced (Kallang River and Kallang Basin).

Commercial
The DC rates for commercial use have been raised by a steeper average of 3.8 per cent, compared to the 1.3 per cent upward revision in March 2017. 

In spite of the thin level of land transactional evidence, we are of the view that the steeper increase in commercial DC rates is justified on account of the rise in development/redevelopment activities on the back of the turnaround in Grade A CBD rents and capital values. This is on top of the continued sustained investor interest in prime enbloc commercial assets which led to the successful sale of One George Street (an office development in DC Sector 2) for SGD 2,650 psf on net lettable area (NLA) and Jurong Point (a retail mall in DC Sector 114) for SGD 3,342 psf on NLA, just to name a few.

JLL’s research showed that Grade A CBD rents and capital vales rose 0.6 per cent and 2.2 per cent, respectively, on a quarter-on-quarter basis in 2Q17 for the first time in eight and seven quarters, respectively.

The recovery in the office market is reigniting development/redevelopment activities again. During the review period, the Beach Road Government Land Sales Reserved List site for commercial development was triggered and its sales tender launched while the redevelopment of the Golden Shoe Carpark, Afro-Asia Building and Hub Synergy Point were also announced/confirmed.

However, what surprised was the DC sectors that saw the steepest increase of 11% in DC rates.  These are namely sectors 101, 113, 114 and 115 .  The surprise stemmed from the fact that the increase in their DC rates are not backed by an exceptional improvement in the leasing nor investment sales markets during the review period.

Nonetheless, these four sectors closely mapped the designated growth areas of the government : Sector 101 - Paya Lebar Central, Sector 113 - Jurong Lake District, Sector 114 - Jurong Innovation District, and Sector 115 - Woodlands North Coast.

In subjecting their DC rates to the steepest upward adjustments in this review, the  government is sending a strong signal of their intention to step up development plans/activities for these areas in the near term which can be expected to have a positive impact on their land values. 

Non-Landed Residential
The DC rates for the non-landed residential use group have been raised by a significant 13.8 per cent, the steepest upward adjustments since the first increase took place in September 2016.

This is within our expectations as there has been a spike in demand for residential development land. Year-to-date, over SGD 7 billion worth of residential development sites in the public and private domains have changed hands, surpassing the SGD 4.32 billion amassed for the whole of 2016.  The active collective sales market over March to August 2017 was a key contributing factor, accounting for almost two-fifth of the over SGD 7 billion accumulated thus far in 2017.

Arising from this intense competition for land, the prices achieved for these sites have consistently exceeded their corresponding land values derived from the March 2017 DC rates by 10 per cent to 79 per cent.

For example, the highest premium of 79 per cent was recorded for the collective sales of Eunosville (DC Sector 101) which was transacted at an estimated SGD 910 psf ppr, inclusive of estimated fees for land use intensification and lease upgrading. The DC rate for this sector was raised by 28%, the second highest adjustment rate in this latest review.

In another instance, DC sector 100 saw the steepest raise of 29 per cent.  This is backed by the sale price achieved for the Rio Casa collective sale site.  The estimated land price of SGD 709 psf ppr, inclusive of fees for land use intensification and lease upgrading, was 66 per cent above the implied land value for the sector.

However, the fact that DC Sectors 51 and 52 are amongst the sectors that saw the steepest raise in DC rates for non-landed use (up 25 per cent) was a surprise due to the lack of transactional evidence.  Nonetheless, this could have been motivated by the revitalisation plans for the Kallang River and Kallang Basin locality announced in late March, which are expected to have a positive impact on home prices.  

Landed Residential 
The DC rates for the landed residential use group have been raised by a marginal 0.3 per cent on average after remaining unchanged for the last six revisions. The uptick has come about in spite of the URA’s landed property price index remaining soft, correcting 0.3 per cent q-o-q correction in 2Q17. Nonetheless, this was the mildest correction since the downtrend started in 4Q13.

Additionally, several development sites were transacted at a premium to the land price imputed from their March 2017 DC rates during the review period. 

Specifically, One Tree Hill was collectively sold for SGD1,664 psf over land area or 28 per cent higher than its implied land value for DC Sector 44.

The Lorong 1 Realty Park GLS site attracted 11 bidders and a top bid of SGD526 psf over land area or 11 per cent above its implied land value for DC Sector 100.

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