Development charge rates raised for first time since 2019

Development charge (DC) rates have been raised for the first time since March 2019 for residential, commercial and industrial use for the six months starting today.

This comes on the back of a broad-based recovery in Singapore's property market, except for the hotel segment, which is still weighed down by the pandemic.

Developers pay DC to the State for the right to enhance the use of some sites or to build bigger projects on them.

After three straight rounds of reductions since September 2020, the Ministry of National Development has raised DC rates for commercial use by 0.7 per cent on average.

Healthy industrial investment sales helped drive up DC rates for industrial use by 2.2 per cent on average, after remaining unchanged for several revisions.

The growth in DC rates for both landed and non-landed residential use has tapered following the latest round of cooling measures, but non-landed use has seen a much smaller rise.

In this round, DC rates are up an average of 4.8 per cent for landed residential use, and up just 0.3 per cent for non-landed use. This compares with a 6.3 per cent increase for landed use and a 10.9 per cent jump for non-landed use in the previous revision.

For landed residential use, the increase in DC rates in all 118 sectors was between 1 per cent and 10 per cent.

Ms Tricia Song, head of research for South-east Asia at CBRE, said this was driven by robust good class bungalow activity due to "demand from digital economy entrepreneurs, key executives and new citizens amid Singapore's recovering economy, ample liquidity and the low interest rate environment".

On the other hand, the modest hike in DC rates for non-landed residential use is a relief to a market still sizing up the impact of the cooling measures last December, said Ms Tay Huey Ying, head of research and consultancy for JLL.

Only six sectors saw DC rate increases, of 3 per cent to 15 per cent, while it was unchanged for the remaining 112 sectors.

"The largest increase of 15 per cent came from the Guillemard Road, Mountbatten Road, Old Airport Road and Dunman Road area, which could be due to the sale of land parcels in Thiam Siew Avenue for $815 million, or $1,488 per sq ft per plot ratio (psf ppr), to a joint venture between Hoi Hup Realty and Sunway Developments in November last year," said Mr Wong Xian Yang, Singapore research head at Cushman & Wakefield.

Mr Lee Sze Teck, senior research director at Huttons Asia, noted that "flattish DC rates mean costs to intensify land use stay unchanged, and developers may be more willing to look at the collective sale market to replenish their land bank".

Meanwhile, commercial investment sales could be more active than residential collective sales, ERA Realty head of research and consultancy Nicholas Mak noted.

"The marginal 0.7 per cent rise in DC rates for commercial use will not hinder collective sales of commercial properties," he said.

Mr Wong noted that the increase in commercial DC rates was concentrated in city centre areas such as Raffles Place, Tanjong Pagar, where DC rates rose by about 2.6 per cent to 3.2 per cent. DC rates at most suburban and city fringe areas remained flat, he added.

DC rates for hotel/hospital use were cut by 0.7 per cent on average, due in part to a lack of tourist arrivals and reduced occupancy rates.

Knight Frank's head of research Leonard Tay noted that 25 sectors out of 118 recorded declines in DC rates, with the largest drop of 10 per cent in the Shenton Way, Straits Boulevard, Marina Boulevard and Raffles Quay area.

"This was probably due to the Marina View site being awarded at $1.5 billion, or $1,379 psf ppr, in September 2021 to the one sole bidder who had triggered the site launch."

Meanwhile, DC rates remain unchanged for all the other use groups: place of worship/civic and community institution; open space; agriculture; and roads/railways.