Development charges shoot up

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The Straits Times
Sep 1, 2011
Development charges shoot up

Industrial sector leads the charge with a hefty rise of 31% on average

By Esther Teo

HIGHER property prices have prompted the Government to raise development charges, with some areas and sectors hit particularly hard.

The new charges, which take effect today, were far higher than the market had expected but reflect the surging values across residential and commercial real estate sectors over the past six months.

Development charges are applied when the value of a site is increased because of re-zoning, or when a taller building can be erected following a change in the plot ratio.

Charges on commercial land have been hiked by 22 per cent on average, and 12 per cent for residential non-landed.

The biggest rise came in the industrial and warehousing sector, where rates have been lifted by an average of 31 per cent - the largest increase for the segment since September 2007.

Development charges for industrial land in Tuas, Jurong, Woodlands and Sembawang have gone up even more, with an average increase of 55 per cent.

Colliers International's director of research and advisory, Ms Chia Siew Chuin, said the hikes were probably partly the result of the 4 to 20 per cent increases in JTC Corporation's land rents for most areas since July.

Robust sales at industrial strata projects such as North Spring Bizhub and Oxley Bizhub have also drawn aggressive tender bids by developers, she added.

Some experts say the big rise in fees could add to development costs for some industrial projects, which could also lead to higher rents.

Mr Alan Cheong, Savills associate director of research and consultancy, said the 31 per cent rise in development charges could drive rents for industrial space up by more than 10 per cent in the medium term. He had expected the charges to be raised by about 20 per cent.

'This is worrying as some of these firms are already facing higher costs and challenges such as the strong Singdollar,' he noted.

While commercial land charges increased by an average of 22 per cent, Paya Lebar Central was hit with a 32 per cent hike. This is in line with the Government's push to decentralise the business district into the Jurong and Paya Lebar areas. Recent land sales in both areas have attracted increased interest from developers, say experts.

The average fee for landed homes rose 17 per cent, while that for non-landed residences gained 12 per cent - slightly higher than the 10.6 per cent jump during the last review in March. This is despite some recent land tenders showing signs of cooling demand. The increased charges may deter collective sales as developers will now have to fork out more to redevelop some of these sites.

Dr Chua Yang Liang, head of research at Jones Lang LaSalle South-east Asia, said the increases were higher than expected and 'although there is sufficient empirical evidence to support the increase, the inflationary pressure that is building up in certain sectors of the property market could be another reason'.

He added: 'The outflow of funds from the United States into Asia and localised policy shifts that drove investors into other non-residential sectors are probably enough reasons to warrant' higher charges.

Development charges are adjusted every six months and can run into the millions of dollars for individual projects.

They are set by the Chief Valuer based on recent land and property values. They apply at varying levels across 118 geographical sectors covering sectors such as hospitals and hotels, commercial, industrial and residential.

esthert@sph.com.sg
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
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