Is there a symbiotic relationship between development charges (DC) rates and property prices? Now that the government as raised the former, will the latter rise as well?
Rise of DC rates timely
Development charge is a tax the government levies on developers when developers request for permission to intensify or change the use of the land.
For example, developers who buy over older condominiums with fewer units may want to increase the number of units eventually built on the land. Thus it is no surpass that the increase of DC rates may have come at the back of rising land prices, often bid up in collective sales.
The Government raised DC rates on March 7 for the period between March 1 and August 31 to possibly reflect the chief valuer’s idea of land prices based on past market transactions.
Will this, however, translate to higher property prices in the future? While it is too early to say, market forces seem to guide it that way. What is more of a concern is perhaps the magnitude of the increase since the rate of increase for development charges is significant.
For residential non-landed projects, the average hike was at 12% to 38%. DC rates for commercial uses was raised 4% to 16%.
Higher property prices? Not yet but perhaps soon.
In districts where bidding for collective sale sites or governmental and sale sites were particularly heated, the DC rates rose the highest. Add on the new buyer’s stamp duty (BSD) rates implemented on Feb 19, and developers will find themselves delving more into their margins.
The effects of these changes on property prices is yet established, but with the property market in recovery, higher property prices could be very likely. It could be just a matter of when.