It comes as no surprise to me that the government adjust the residential development charges upwards in response to the outperforming residential sector.

Development charge is a fee that the developer has to fork out if he wants to intensify the land use. For example, there will be a fee to be paid if the developer wants to redevelop the recent industrial park to residential development at 6 Ampas road with the new plot ratio of 2.8. Development charge is considered an useful and flexible tool by the Government to stabilise the market forces. They are reviewed and realesed every March and September by the National Development Ministry. In this case, the increase in DC will add to developers’ cost and could affect collective sales and the conversion of office/industrial buildings to residential use.

To me, the use of development charge is also seen as the partake of the Government in the improving property market when the prices of residential development shoot up.

The government has increased the development charge rate for both non-landed and landed residential homes. Analysts said this is in line with the strong rebound in home sales and prices over the last six months.

The rise in non-landed residential DC rates, in particular, is expected to add on to developers’ land banking cost.

Private homes were hot property in 2009. Some 6,300 units have been sold in the last six months.

And market watchers said the upward revision in development charge for residential homes is widely expected.

A development charge is the tax payable by the developer when a property site is developed into more valuable project.

This allows the government to have a share of the gains from the enhanced value.

The DC Rate for non-landed home will go up by eight per cent on average with prime areas like Orchard Road, Sentosa and Cantonment seeing double-digit increase.

The DC rates for suburban locations like Paya Lebar, Eunos, Bedok North and Tampines also went up .

Some observers said the upward revision could have a marginal impact on developers’ land banking plans.

Dr Chua Yang Liang, head of Research, Southeast Asia, Jones Lang LaSalle, said: “The DC rate revision will have some bearing on potential developers looking at en bloc deal especially those which have an increase in plot ratio, it might have some effect.”

DC rates for landed residential homes will also go up by an average 12 per cent.

The largest increase of 17 per cent will apply to developments in Sentosa, Tanglin and Holland and even Hougang, Toa Payoh and Ang Mo Kio.

In contrast, the levy for commercial sites will fall by two per cent on average.

Sites in Raffles Quay and Shenton way will see a 13 per cent reduction.

Sentosa is the only sector in the Commercial category to see an uptick in DC rate by 12.5 per cent.

Mr Chua believes the opening of the Integrated Resort and its retail spaces has put an upward pressure to close the gap between sectors like Sentosa and World Trade Center where Vivocity is located.

With this revision, the gap has narrowed from S$1,750 to S$1,400.

Some said this reduction could have an unintended effect.

Dr Chua added: “If you look at DC rate between residential and commercial, residential continues to rise in the downtown areas, whereas the office market, office use, continue to contract.

This means there will be a wider gap between these two land use groups suggesting redevelopment into office use rather then conversion into residential.”

The change in DC rate will take effect from March 1 and will last for six months. – CNA/vm