Development charge (DC) is a tax that is levied when planning permission is granted to carry out development projects that increase the value of the land either through rezoning to a higher land use or the increase in plot ratio or both. The development charge rates are revised every six months on 1 March and 1 September, in consultation with the Chief valuer (CV) of the Inland Revenue Authority (IRAS).
DC rates are based on the CV’s assessment of land values taking into account the evidence of recent land sales. They are laid out according to the use groups of Commercial (A), Residential (B1- landed and B2- non-landed), Hotel/ Hospital (C), Industry (D), Place of Worship/ Civic and Community Institution (E) and three other use groups (F, G and H). The DC rates are then applied to use groups across the whole of Singapore which is divided into 118 geographical sectors.
In the latest exercise, the Ministry of National Development (MND) announced the revised DC rates on 28 February 2020 for the effective period of 1 March to 31 August 2020. Except for Use Group B2 (non-landed residential), the DC rates remained unchanged for all the other Use Groups.
The DC rates for B2 were decreased 3% to 7% for only five out of 118 sectors, thereby translating to a 0.2% decrease on the average. Although the DC rates for Use Group B1 (landed residential) have remained unchanged since 2018, this is the third time that the DC rates for Use Group B2 (non-landed residential) have been revised downwards: -5.6% from 1 March 2019, -0.3% from 1 September 2019 and now, -0.2% from 1 March 2020.
The two factors that contributed to the decline are firstly, fewer private residential land parcels have been sold since the cooling measures were implemented in July 2018. Residential en bloc sales are far and few in-between. Secondly, the slower sales momentum for the past 18 months is keeping developers watchful of their unsold inventory and mindful of the limited room for price growth.
The downward revision of DC rates will benefit developers who have sites in the affected sectors and who are in the process of submitting the proposed plans for the new projects. The lower rates will translate to cost savings for any additional Gross Floor Area (GFA) they need for the new projects.
Of the eight residential sites that were sold between September 2019 and 29 February 2020, only three are located within the sectors where the DC rates have been revised downwards, namely Jalan Bunga Rampai Road, Irwell Bank Road and Casa Sophia at Sophia Road. The prices of these sites were lower than the implied land value of the DC rates. As a result, the decline in the DC rates represents the corresponding savings to the developers if they apply for planning permission within the next six months, based on an enhanced GFA using the new rates.
That said, List SIR does not expect the latest revision of DC rates to stimulate more land sales or higher bids as developers have to take into account the larger scheme of things such as the economy, geopolitical issues and the impact of Covid-19.