Why are development charge rates cut?

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Property developers got some modestly welcome news yesterday.

Taxes they pay to change the use of a site or develop it more intensively were cut across large swathes of the real estate market in recognition of weakening values.

Development charge (DC) rates, revised half yearly, were trimmed for four of the five major use groups: commercial, non-landed residential, hotel or hospital uses and industrial use. Rates for landed residential use were unchanged.

"While this could be some encouragement for en bloc sales, the general market is stymied by economic and financial concerns that are so overwhelming, the marginal reduction in DC rates becomes moot," said Savills Singapore research head Alan Cheong.

And home hunters should not expect this to lead to lower home prices, for example, as developer margins are already very thin, he added. Upcoming executive condo also include The Visionaire EC, Wandervale EC, Parc Life EC while existing ones include The Terrace EC,Brownstone EC , Waterwoods EC, Signature at Yishun, Skypark Residences, The Vales EC, The Criterion EC, Bellewaters EC, Bellewoods EC.

Rates for commercial use sites fell by 2 per cent on average after staying unchanged six months ago.

Office capital values have not fallen much. In fact, CPF Building, for example, sold for $550 million late last year, more than the $450 million expected, said Cushman & Wakefield research director Christine Li.

But the largest DC rate falls of 5 per cent in the Central Business District (CBD), including Raffles Place, Bugis and Marina Bay, were probably caused by the weakening CBD rental market. Grade A office rents fell 10 per cent year on year in the fourth quarter, she noted.

Rates for non-landed residential use, previously also unchanged, fell by 1 per cent on average. They have been generally falling since September 2014 in a sign of underlying weakness in the residential market, noted Dr Chua Yang Liang, JLL research head for South-east Asia.

This time, rates were up to 4 per cent lower in the prime residential areas including Bukit Timah Road, Cairnhill Road, River Valley Road and Sentosa - reflecting price softness in the core central region.

Yet the slight rate decline is "not going to move the needle and make an unviable en bloc sale a viable one," said JLL international director Karamjit Singh. DC rate as a component of the entire land price is usually less than 10 per cent, he noted. "While some developers are beginning to sense that land prices are inching to the bottom and are prepared to acquire, we would see en bloc sales return when land prices start moving up - which we do not expect to take place as yet."

Rates for industry use fell by 3 per cent on average, with the largest decline - a surprising 16 per cent - for a sector that includes Boon Lay, Jurong West, Tuas and Sungei Kadut.

These areas have the largest concentration of industrial property supply, noted an industry veteran. For example, just about half of B2 projectAce@Buroh has been sold, according to caveats.

It was the second straight DC rate correction for industrial property, which has been buffeted by oversupply and a shrinking manufacturing sector. Prices for the segment eased last year while rents fell for a second straight year.

DC rates for hotels and hospitals fell for all sectors except for two, by 2 to 3 per cent - unsurprising as just one major sale took place in this segment over the past half year, that of BIG hotel, noted Dr Chua of JLL.

The latest DC rates apply from today till Aug 31.
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