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Some of the latest increases are the biggest in 6 years

Significant increases in development charge (DC) rates to enhance land use could affect collective sales and the rejuvenation of the old Central Business District, property consultants say.

Some of the increases - announced yesterday - are the biggest in six years. Leading the hikes are rates for non-landed residential use, which are up by an average of 9.3 per cent from today. Landed DC rates are up 4.8 per cent on average.

The average DC rate for commercial use has gone up 5.9 per cent, and that for hotel use 1.6 per cent. Industrial DC rates remain unchanged, according to a Jones Lang LaSalle analysis.

For non-landed residential use, actual increases by location range from 1.5 per cent in the Nassim area to a whopping 37.5 per cent on Sentosa.

The rate increase for many prime districts - the hotbed for collective sales - varies from about 7 per cent in Oxley and Leonie Hill/St Thomas area to 19 per cent in the Ardmore/Draycott area.

Some industry observers are especially taken aback by the Chief Valuer’s decision to raise non-landed residential DC rates for much of the Central Business District by 20 to 33.3 per cent. Such a steep hike could discourage owners of ageing office blocks to redevelop them for residential use.

JLL’s regional director and head of investments Lui Seng Fatt noted yesterday that the significant DC hikes follow a recent increase in private-sector rejuvenation plans to redevelop old office blocks into housing projects - for example, NatWest Centre and 1 Shenton Way.

And CB Richard Ellis executive director Soon Su Lin said: ‘The authorities should weigh the overall objective of urban renewal of an area where some of the buildings are 30 years old against a tax on redevelopment.’

DC rates - revised every six months, on March 1 and Sept 1 - are widely tracked in property circles because they reflect values and affect the breakeven costs of developers seeking to redevelop sites.

DC rates are specified according to use across 118 locations throughout Singapore.

As for the impact of DC rate rises on collective sales, JLL’s Mr Lui said: ‘A 10 per cent rise in DC rates in the prime districts translates to a roughly 6 per cent increase in breakeven cost for a redevelopment. Someone has to pay for the lunch. It depends on who has more bargaining power.

‘In a rising market, there’s a good chance that the cost will be passed on to the eventual buyers of the end-units in the new project. But if en bloc sale sites continue to increase until the market is flooded and developers have more choice of sites, part of the DC rate hike may have to be partly absorbed by the land sellers.’

Commercial DC rates have gone up most in the vicinity of the two prime Orchard Road sites sold by the state recently. At Orchard Turn, the rate has been raised 24.2 per cent. And for the former Glutton’s Square site, it has gone up 25 per cent.

The rate for the World Trade Centre area - with coming attractions like Vivocity mall and the nearby Sentosa integrated resort - has been raised 25 per cent. And in the New Downtown location - home to the Business & Financial Centre and Marina Bay integrated resort - the rise is 22.9 per cent.

JLL’s analysis shows that Sentosa led the rate hikes for landed and non-landed residential use, with gains of 29 per cent and 37.5 per cent respectively. This is not surprising given the ever-increasing prices being achieved for bungalow and condo sites at Sentosa Cove.

Source : Business Times - 1 Mar 2006