reporter2
26-08-13, 12:27
http://www.straitstimes.com/archive/friday/premium/money/story/smaller-developers-teaming-bids-20130823
Smaller developers teaming up for bids
Tie-ups boost tender chances and help cut building costs, but there are risks
Published on Aug 23, 2013
By Cheryl Ong
STEEPER building costs and stiff competition from established property players are forcing smaller developers to join forces to lodge bids for development sites, analysts said.
Property giants like Far East Organization and Frasers Centrepoint often form consortiums to bid, but these days smaller players also see strength in numbers.
Property consultancy Chestern Singapore managing director Donald Han said smaller players are banding together because of the need to raise more funds, "unlike bigger listed developers who have access to a myriad of financing facilities and sources of funds".
The trend was seen in the recent tender for an executive condominium plot in Yuan Ching Road.
The top bid, which smashed price records at $418 per sq ft per plot ratio, was lodged by a consortium of smaller developers and construction companies - Evia Real Estate, BBR Development, CNH Investment and OKP Land.
These tie-ups may sometimes occur only after the tender has been awarded.
Oxley Holdings, for example, recently announced partnerships with construction firms to develop KAP Residences and Midtown Residences after winning bids for the sites.
Analysts said that smaller developers have been finding it harder to win tenders on their own.
In the period from January to July this year, only three sites were won by smaller players acting alone, OrangeTee research head Christine Li said. Last year, seven sites were secured in the same period.
International Property Advisor chief executive Ku Swee Yong added: "If smaller developers are on their own, they can bid only at a price that the bank is willing to lend them", which reduces their chances of winning tenders.
As a result, no smaller developer acting alone in the period from January last year to July this year lodged a bid that exceeded $300 million, OrangeTee's Ms Li noted.
"For land sites that are cheaper, from $100 million to $200 million, smaller developers usually bid on their own," she said.
As some consortiums comprise construction firms and property developers, the partners can bring their expertise to improve the development process and reduce costs, experts said.
However, although pooling resources will help to mitigate the risk of high land and development costs, these consortiums might only be as strong as their weakest link, said Mr Ku.
If a big player like Poh Lian Construction has had to apply for judicial management and give up construction of a few projects, smaller players would be even more susceptible, he said.
"Individually, these companies are small, and they have credit lines and interest payments on other existing projects," he added.
"If one project causes a firm's cash flow to jam up, it will have a domino effect on the other companies and it might take some time for the partners to unwind themselves from the situation."
[email protected]
Smaller developers teaming up for bids
Tie-ups boost tender chances and help cut building costs, but there are risks
Published on Aug 23, 2013
By Cheryl Ong
STEEPER building costs and stiff competition from established property players are forcing smaller developers to join forces to lodge bids for development sites, analysts said.
Property giants like Far East Organization and Frasers Centrepoint often form consortiums to bid, but these days smaller players also see strength in numbers.
Property consultancy Chestern Singapore managing director Donald Han said smaller players are banding together because of the need to raise more funds, "unlike bigger listed developers who have access to a myriad of financing facilities and sources of funds".
The trend was seen in the recent tender for an executive condominium plot in Yuan Ching Road.
The top bid, which smashed price records at $418 per sq ft per plot ratio, was lodged by a consortium of smaller developers and construction companies - Evia Real Estate, BBR Development, CNH Investment and OKP Land.
These tie-ups may sometimes occur only after the tender has been awarded.
Oxley Holdings, for example, recently announced partnerships with construction firms to develop KAP Residences and Midtown Residences after winning bids for the sites.
Analysts said that smaller developers have been finding it harder to win tenders on their own.
In the period from January to July this year, only three sites were won by smaller players acting alone, OrangeTee research head Christine Li said. Last year, seven sites were secured in the same period.
International Property Advisor chief executive Ku Swee Yong added: "If smaller developers are on their own, they can bid only at a price that the bank is willing to lend them", which reduces their chances of winning tenders.
As a result, no smaller developer acting alone in the period from January last year to July this year lodged a bid that exceeded $300 million, OrangeTee's Ms Li noted.
"For land sites that are cheaper, from $100 million to $200 million, smaller developers usually bid on their own," she said.
As some consortiums comprise construction firms and property developers, the partners can bring their expertise to improve the development process and reduce costs, experts said.
However, although pooling resources will help to mitigate the risk of high land and development costs, these consortiums might only be as strong as their weakest link, said Mr Ku.
If a big player like Poh Lian Construction has had to apply for judicial management and give up construction of a few projects, smaller players would be even more susceptible, he said.
"Individually, these companies are small, and they have credit lines and interest payments on other existing projects," he added.
"If one project causes a firm's cash flow to jam up, it will have a domino effect on the other companies and it might take some time for the partners to unwind themselves from the situation."
[email protected]