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September 9, 2016

Singapore has raised taxes or so-called development charges (DC) on sites for commercial, non-landed residential and for hotel or hospital use.

The new rates will be effective between 1 September 2016 and 28 February 2017. Rates for landed residential, industrial, place of worship/civic and community institutions were unexpectedly left unchanged.

Charges for commercial sites up 0.6 percent
“The average 0.6 percent upward revision in DC rates for the commercial use group was likely to have been underpinned by recent improved sentiment seen in the office investment market as well as upbeat prices achieved or offered for some developments,” says Tay Huey Ying, Head of Research for JLL Singapore.

Earlier this year, Asia Square Tower 1 (DC Sector 11) in Singapore’s Central Business District was sold for S$3.4 billion or S$2,700 per-square-foot and the Straits Trading Building (DC Sector 1) for S$560 million or S$3,520 per-square-foot – the highest enbloc unit price for office space in Singapore. The city-state is divided into sectors and different charges apply for each sector.
The tender launch for the sale of the Central Boulevard Government Land Sales (GLS) white site (DC Sector 11) in Singapore’s Marina Bay area last month further reinforced the return of investor interest and confidence in office properties, particularly within the CBD, says Tay.

Non-landed residential rates up for first time in two years
The DC rates for the non-landed residential use group were raised for the first time in two years, by an average of 2.7 percent.

“The Chief Valuer had probably given due regard to improving market sentiment in the non-landed residential segment, reflected in the 60 percent quarter-on-quarter (q-o-q) increase in overall sales volume in the second quarter of 2016 and a moderate decline in the all-residential private property price index for three successive quarters since the last quarter of 2015,” says Tay.

In fact, Core Central Region’s non-landed residential price index turned around after 11 consecutive quarters of contraction to post two successive quarters of 0.3 percent q-o-q growth in the first and second quarter of this year. Singapore is classified into three broad regions — Core Central Region (CCR), the Rest of Central Region (RCR) and the Outside Central Region (RCR).
Rest of Central Region’s non-landed residential price index had also firmed, holding stable in the first quarter and posting a marginal 0.2 percent q-o-q growth in 2Q16.

“The fairly aggressive 2.7 percent average upward revision in DC rates for the non-landed residential use group was likely to have been fuelled by keen and bullish biddings seen for several GLS in the six months from March to August 2016,” says Tay.

In June, the Martin Place site (DC Sector 48) drew a total of 13 bids with the winning price of S$1,239 per-square-foot per plot ratio, representing the highest unit land price ever received for a pure residential GLS site, Tay explains.

The EC (Executive Condominium) site at Anchorvale Lane (DC Sector 100) drew a total of 16 bids with the top bid coming in at S$355 per-square-foot per plot ratio. The last time an EC site drew that huge a turnout was in 2013 for the Lake Life EC site. “Although the strong interest garnered for these two sites can be partially attributed to the scarcity of prime residential and EC sites, developers’ optimistic outlook played a key role too,” says Tay.

The DC rate for Sector 48 saw the heftiest upward adjustment of 12 percent. This is likely to have been fuelled by aggressive bids received for the Martin Place site (DC Sector 48). JLL’s analysis showed that the transacted price of S$1,239 per-square-foot per plot ratio was 42 percent above the land price based on the sector’s previous DC rate. Following this revision, the DC rate for this sector would better reflect market land value, says Tay.

Landed Residential and Industrial rates unchanged
DC rates for the landed residential use group have been kept unchanged, a move contrary to falling prices of landed homes, says Tay.

“According to URA’s private residential property price index, prices of landed homes have eroded by 12.5 percent since the fourth quarter of 2013, yet the DC rates for this use group have been left unchanged at March 2014’s rates,” says Tay.

Another surprise was the fact that DC rates for the industrial use group have been left unchanged despite evidence of weakening land prices amid the protracted manufacturing sector slump.

In DC Sector 100 in eastern Singapore, the S$50 per-square-foot ppr (per plot ratio) top bid received for the 20-year leasehold Plot 2 in March 2016 at Tampines Industrial Drive is 12.6 percent lower than the average S$57.60 per-square-foot ppr received for Plots 5, 7, 9 and 12 for which tender closed in the six months between September 2015 and February 2016.

Over in DC Sector 114, at Tuas South Link 2, the average 20-year leasehold land price of S$34.60 psf ppr for Plots seven and eight submitted in the six months between March and August 2016 was one percent below the S$34.90 per-square-foot ppr average submitted for Plots five and nine. “Some downward adjustment in DC rates for the industrial use group would better reflect the ongoing soft industrial market condition,” says Tay.

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Tay Huey Ying

Head of Research at JLL Singapore

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