“The increase in development charge (DC) rates across the commercial, non-landed residential, hotel/hospital and industry uses announced on 31 August was largely expected, with the exception of the hotel/hospital segment. We believe the outcome of the latest round of DC rates revision generally reflected the improved sentiment and robust investment sales activities in the Singapore property market the past six months. 

Development charges – with rates revised on a half-yearly basis - are payable when planning permission is granted to carry out development projects that increase the value of the land for example, rezoning to a higher value use and/or increasing the plot ratio.

Hotel/Hospital
The DC rates for hotel/hospital use saw the sharpest increase, by 11.8% on average. This is the first increase since March 2017, and the highest pace of growth in the segment since March 2014’s 13.4%. 

The increase was across-the-board – 116 out of 118 sectors have increases from 8-23%. Sectors 3 & 5 (Stamford Road / Bras Basah Road / North Bridge Road / Beach Road / Nicoll Highway / Temasek Boulevard / Temasek Avenue / Raffles Avenue / Raffles Boulevard), Sector 6 (Collyer Quay), and Sector 11 (Shenton Way / Raffles Quay / Marina Bay Financial Centre) saw the highest jump, rising by 23%. These locations have not seen any hotel sales or redevelopments recently. The hike could be due to the rise in interest in hotel assets of late. Of note, 41-room boutique Wangz Hotel at Outram Road transacted in August for SGD46 million and 29-unit Wanderlust Hotel at Dickson Road was sold for SGD37 million in July. Earlier this year, 15 Hill Street was sold for SGD118 million with a view to redevelop into a 300-room luxury hotel.

Non-Landed Residential
Against a backdrop of healthy public land tenders and a vibrant collective sale market (prior to the July 06 cooling measures), it comes as no surprise that DC rates for non-landed residential use headed north. On average, DC rates for the segment is due to rise by 9.8%, with Sector 43 (Tanglin Road /Cuscaden Road / Orchard Blvd / Grange Road) and Sector 67 (Dalvey Road / Stevens Road / Anderson Road / Orange Grove Road / Tanglin Road / Napier Road / Cluny Road) seeing the sharpest hike of 33%.

The increase in non-landed residential DC rates in Sector 43 was probably driven by the collective sale of Park House in June which was sold for SGD2,910 psf ppr, a record for any residential land; as well as the Cuscaden Road GLS site which was awarded in May for SGD2,377psf ppr, also a record for a residential GLS land. 

DC rates for the non-landed residential segment have now risen consecutively in every revision exercise since Sep 2016, indicative of the turnaround in the Singapore residential property market owing mainly to stronger land sales. That said, we think the latest figures which tracked market developments in the March to August period may not fully reflect the current climate, particularly the more cautious sentiment following the July 06 property cooling measures. 

We expect developers, especially those looking at en bloc sites, to potentially hold back on land acquisition in the near-term. Given that there is a lag between DC rate changes and market shifts, the next revision in March 2019 could be more muted and may present a truer picture of the non-landed residential property market. 

Commercial
Meanwhile, DC rates for commercial use have risen by 8.3% on average, with the largest increase of 17% in Sector 110 (Commonwealth Avenue West / North Buona Vista Road / Holland Road / Ulu Pandan Road / Clementi Road Area). We believe the GLS tender for the mixed-use site in Holland Village – awarded to Far East-led consortium for SGD1.2 billion or SGD1,888 psf ppr - likely triggered this round of revision in DC rate in Sector 110. 

Industry
DC rates for industry use rose for the first time since September 2013, increasing by 2.1% on average. There was an upward revision in DC rates for 26 of the 118 sectors - perhaps an indication of patchy recovery and the gradual stabilisation in the industrial property market as supply risk tapered. 

We note the increases were mainly in the more centralised locations. The largest increase in DC rates for industry use of 11% was seen in Sector 101 (Paya Lebar Road / Ubi Area / Macpherson Road / Eunos Link / Aljunied Road / Sims Avenue / Jalan Eunos Area); Sector 102 (Macpherson Road / Aljunied Road / Geylang Road / Guillemard Road / Mountbatten Road / Sims Way / KPE / Jalan Kolam Ayer); and Sector 103 (Thomson Road / Marymount Road / Braddell Road / Bartley Road / Upper Paya Lebar Road / Lorong Ah Soo / Hougang Avenue 3 / Kim Chuan Road / Airport Road / Macpherson Road / Jalan Toa Payoh / PIE). These could have stemmed from the recent tender close of the Braddell Road Industrial GLS site (30-year leasehold, Business 1) which saw eight bidders with a top bid of SGD205 psf ppr; as well as Pei Fu Industrial Building, located in the Upper Paya Lebar area, which was sold in via collective sale in April.

We note that investment interest in industrial properties has picked up selectively, on the back of the more positive economic outlook and brighter manufacturing sector performance.”