Tough calls in next property DC revision

August 6, 2008
Tough calls in next property DC revision
Recent land sales point to cuts, but some disagree
By KALPANA RASHIWALA

(SINGAPORE) The next revision of property development charge rates is
barely a month away. So what can the market expect?

Recently a few 99-year leasehold condo sites at Woodleigh, West Coast
and Choa Chu Kang were sold at prices below land values implied by
current development charge (DC) rates, and this could provide
evidence for a downward revision in DC rates come Sept 1.

But some property market watchers suggest that the government may
leave DC rates largely unchanged for most use groups.

Any drastic cut in DC rates at this point may be seen as the
government taking a bearish view on the Singapore property market and
lead to a further nosedive in sentiment.

DC rates are payable for enhancing a site's use or for building a
bigger project on it. They are revised twice a year - on March 1 and
Sept 1 - and are specified according to use groups and location. The
revisions are made by the National Development Ministry in
consultation with the Chief Valuer, who takes into account current
market values.

In June, a condo plot at Woodleigh Close was sold at a state land
tender for $270 psf per plot ratio. This is 43 per cent below the
land value implied by the March 1, 2008, DC rate for non-landed
residential use for that location. Two sites at West Coast Crescent
and Choa Chu Kang Drive were also sold in March and May at $305 psf
ppr and $203 psf ppr, 24 per cent below the respective land value
implied by current DC rates.

However, Jones Lang LaSalle's S-E Asia research head Chua Yang Liang
argued that these instances are 'not statistically significant'
compared to the entire market activity over the past six months and
that neither a drop nor rise in DC rates is warranted.

Even in Woodleigh, West Coast and Choa Chu Kang where there is land
sales evidence to justify a reduction in DC rates, the cuts are
likely to be moderate, 'possibly not more than 10 per cent as the
accompanying message of a downward revision in DC rate is likely to
cause a further dive in market confidence', said Colliers
International director of research and advisory Tay Huey Ying.

Agreeing, JLL's Dr Chua said: 'This round of DC revision is being
watched closely by developers and other property players as it may
provide a hint of the state's view/confidence in the property market
over the next nine to 12 months.'

DTZ executive director Ong Choon Fah, too, reckons that 'where there
is compelling evidence, they may trim DC rates. But where the
evidence is not strong, they may say it's an aberration and keep DC
rates (unchanged) for six months before the next review'.

Another property consultant takes a different view as to why there
may be no rush to reduce DC rates: 'DC rates are a revenue-generating
tool. They tend to go up quickly, but usually tend to come down more
slowly.'

The government may also be reluctant to trim DC rates just yet as
that may be read as a proxy for its assessment of land values, and
could in turn create pressure for the state to accept lower land bids
at state tenders in coming months. 'That's not too good for the
coffers,' an analyst quipped.

Offering a contrarian view, Knight Frank managing director Tan Tiong
Cheng predicts DC rates will fall. 'Selling prices of private homes
have either stagnated or are slowly declining while construction
costs are going up, so land values have come down, as seen in recent
government land tender results.'

Mr Tan also disagreed with the view that any cut in DC rates would be
confined to locations with sales evidence of low land prices. 'After
all, the Chief Valuer does not take into account just land sales but
the property market in general,' he reasoned.

He does not think that any drastic cuts in DC rates will send the
wrong signal to the market and further depress sentiment. 'The Chief
Valuer has a duty to keep the public informed of reality,' he said.

Colliers expects average DC rates to stay unchanged come Sept 1 for
landed residential, commercial, industrial and hotel use but to be
cut 0.5 to 1.5 per cent for non-landed residential use.

DTZ forecasts that average DC rates will generally remain unchanged
except for industrial use, which may see an increase of a few per
cent. For non-landed residential use, some areas in the prime
districts may see a slight decrease in DC rates on the back of softer
home prices in these locations.

JLL, too, expects DC rates for all use groups except industrial to
remain flat. 'A rise in industrial DC rates can be attributed to
rising demand for cheaper office alternatives.'

Putting things into perspective, CB Richard Ellis executive director
Jeremy Lake said: 'Previously, DC rates were eagerly watched to gauge
the impact on land values especially for collective sale sites with a
significant DC component.

'The collective sales market is so quiet now. There have been no
private residential sites sold recently that will have exposure to
DC. Most developers that have sites with DC exposure would already
have locked in DC rates. And if they haven't, they'll find that DC
rates probably won't change much.'