Amid waning interest in private residential developments sites following last July's cooling measures, development charge (DC) rates for non-landed residential use have been lowered for the first time in three years.
In contrast, DC rates for hotel and commercial use - areas that have been hotbeds of investor interest - continue to rise.
In particular, the rates for the use group that includes hotels and hospitals have been jacked up 45.6 per cent on average, based on latest DC rates announced by the government.
Effective for the next six months, they follow the 11.8 per cent increase imposed last September.
Developers pay DC for the right to enhance the use of some sites or to build bigger projects on them.
The latest DC rates are for the period March 1 to Aug 31.
The Ministry of National Development (MND) revises the rates on March 1 and Sept 1 each year, in consultation with the taxman's chief valuer (CV).
DC rates are based on the CV's assessment of land values and take into consideration recent land sales. They are stated according to "use groups" across 118 geographical sectors across the island.
DC rates for commercial use have been increased by 9.8 per cent on average, after having been hiked 8.3 per cent in September last year.
In contrast, DC rates for non-landed residential use have been lowered by 5.5 per cent on average - contrasting with the 9.8 per cent rise during the previous DC rate revision last September.
MND said DC rates remain unchanged for landed residential, industrial and place of worship/civic and community institution uses as well as for three other land-use groups - nature reserves, agricultural land, drains, roads, railways and cemeteries.
ZACD Group executive director Nicholas Mak said the 45.6 per cent average increase in DC rates for hotel use is the sharpest increase for the use group in 20 years.
"The large increase could be due to the recent slew of hotel land transactions."
Agreeing, CBRE's head of research for Singapore and South-East Asia, Desmond Sim, cited as examples the collective sale sites of Golden Wall Centre and Waterloo Apartments, which were bought late last year with the intention of conversion to hotel use.
The geographical sectors in which these two properties are located saw their respective DC rates for hotel use go up by 73.9 per cent and 66.7 per cent respectively.
Based on JLL's analysis, the respective per square foot per plot ratio (psf ppr) prices at which Golden Wall Centre and Waterloo Apartments were transacted reflect premiums of 118 per cent and 95 per cent above the land values implied by the then-prevailing Sept 1, 2018 DC rates for hotel use for the two sectors.
The geographical sector where a hotel development site in Club Street was sold at a state tender in January too saw a 52.8 per cent jump in hotel-use DC rate.
Some developers have for now diverted their attention to opportunities in the hotel sector, given the current lukewarm outlook for residential.
Colliers International's head of research for Singapore Tricia Song, points out that in contrast, the outlook for the Singapore hospitality market is rosier amid tight supply of new hotel rooms and stronger tourism performance.
JLL Singapore's head of research and consultancy Tay Huey Ying noted that the upward revision in DC rates for the commercial use group is well supported by investors' optimism over the prospects of the office property market (on the back of a healthy set of demand and supply fundamentals), and to some extent, the robust shophouse market.
"Some of the sectors that saw big increases in commercial-use DC rates are places with conservation shophouses - such as the CBD/Chinatown, Kampong Glam and Little India," she added.
For non-landed residential use, DC rates have been reduced in 94 out of 118 geographical sectors by between 4 per cent and 13 per cent.
ZACD's Mr Mak said: "The reduction in DC rates would be welcomed by developers, especially those who have purchased residential land but have not locked in their DC rates yet. However, the reduction in DC rates would be insufficient to breathe new life or reignite the residential en bloc sale property market, as many developers are not as hungry for land as they were in 2017 and early 2018."
Moreover, the average 5.5 per cent cut in non-landed residential DC rates is not enough to offset the 5 per cent non-remissible Additional Buyer's Stamp Duty (ABSD) on the price of the land that developers must pay for new residential land acquisition - introduced as part of the July 2018 cooling measures, he added.
Christine Li, head of research at Cushman & Wakefield, highlighted that the increase in average unit size for non-landed residential projects Outside the Central Area (OCA) from 70 sq m to 85 sq m which took effect earlier this year will also "cripple developers' ability to increase selling prices over the medium term".
"Residential en bloc hopefuls might have to continue reducing their asking prices to attract serious buyers in this increasingly challenging residential market," she said.
In similar vein, Ms Tay of JLL said: "The reduction in DC rates for the non-landed residential use group is unlikely to reinvigorate the collective sales market as the mismatch in buyers and sellers' price expectations remains."
Adapted from: The Business Times, 1 March 2019