Bigger cuts of up to 20 percent in the development charges (DC) are being expected by property consultants from the authorities for the forthcoming revision effective 1 March. Several observers said the proportion of the development in land value, which proceeds to the state, may be lowered by the government.
Despite the lack of land transactions, larger cut rates in DC is still possible as there are enough evidences to prove that rentals and prices have fall down for condos, industrial and offices properties.
“Condo prices have come down; that can be measured quite accurately. On the other hand, construction costs have eased at a more modest rate. This implies land values have fallen more than sale prices of apartments”, says Tan Tiong Cheng, Knight Frank’s managing director, explicating the residual land valuation method.
Making an accurate assessment of property market conditions for the coming six months, where the approaching DC rates would still be applicable, is another challenge set for Chief Valuer, according to property analysts.
DC should be paid to build larger projects or enhance the use of sites on them. The DC rates are revised twice a year by the Chief Valuer, along with the Ministry of National Development (MND).
“We expect average DC rates for all major use groups to decline come March 1. Commercial and non-landed residential DC rates are likely to fall more, as prices and rents of these two major categories of properties have fallen more than the rest”, said Chua Chor Hoon, DTZ senior director for research.
Desmond Sim, associate director for research and consultancy at Jones Lang LaSalle, estimates a 20 percent cut rate for non-landed and landed residential uses. He also expects a 5-10 percent cut for industrial use.
There were up to 5 percent cut rate for landed hotel and residential uses, 15-20 percent for non-landed residential use, 5-8 percent for industrial, and 10-12 percent for commercial that has been forecasted by Colliers International. And because of the steeper fall in luxury home values, Colliers states that up to 25 percent reduction rate for non-landed residential use will be intended for luxury residential territories like Sentosa Cove, Tanglin, Cuscaden, Ardmore Park, Cairnhill and Orchard.
Tay Huey Ying, Colliers director for research and consultancy, suggests that larger cuts in commercial DC rates are likely to be in remote locations, since demands in spillover office to area outside CBD has recently cooled.
Ms. Tay estimates the biggest cuts of up to 12 percent for industrial DC rates would be in Woodlands, Kranji, Mandai, Jurong Industrial Estate and Kranji since these areas saw the largest downward adjustments in land prices of JTC Corp recently.
But whether the authorities will return in employing the past formula of determining DC rates is the theme of discussion that surrounds DC. Reinstating the earlier 50 percent formula is being considered by a number of consultants, but some seemed not to share the same outlook.
Mr. Sim said, “If they make a change now, it may be seen as a knee-jerk reaction. The change could eventually still come, but perhaps one or two revisions later”.
Meanwhile, Ms. Tay argues for restoration the 50 percent formula. Before 1985, the 70 percent formula was implemented in DC rates until the 50 percent formula was applied during the same year’s recession.