reporter2
01-03-22, 11:45
Large residential en-bloc sites can work despite cooling measures
A larger site offers a bigger canvas for creative developers to develop a leading-edge product that caters to Covid-endemic home owners
Mar 01, 2022
AMID strong demand for homes, activity in the collective sales market started picking up in the latter part of 2021. According to real estate consultancy JLL, a dozen projects worth around S$2.19 billion - 9 residential and 3 mixed-use sites (based on proposed use) - were transacted in 2021.
But momentum in the residential en-bloc market may be snuffed out by the property cooling measures that kicked in on Dec 16, 2021.
Among the measures affecting potential home buyers were a tightening in the total debt servicing ratio threshold and an increase in additional buyer's stamp duty (ABSD) for all buyers except Singapore citizens and permanent residents buying their first home.
The rate of ABSD for housing developers rose from 30 per cent to 40 per cent. Of this, 35 per cent can be remitted upfront subject to various conditions, including completing and selling all homes within 5 years from the acquisition date. If any conditions are not met, developers will have to pay the remitted ABSD amount plus interest.
The cooling measures could hit large residential en-bloc sites particularly hard. With softer demand for homes expected, the risk that a project with many units fails to clear its inventory in time is high. Conversely, projects with few units to sell may have lower risk of not selling out in time.
Also, a developer of a larger site pays more in ABSD should it fail to clear all its residential inventory in time. Large en-bloc sites could benefit if the government tweaks the formula of land ABSD to be based on unsold units as suggested by the Real Estate Developers' Association of Singapore.
Still, developers who are studying large en-bloc sites will be encouraged by the healthy sales chalked up by large new projects such as Treasure at Tampines and Normanton Park, which are being built on sites that were bought in the en-bloc market.
Based on the Urban Redevelopment Authority's data on private homes sold by developers for January, Treasure at Tampines and Normanton Park have sold over 99 per cent of 2,203 homes and around 85 per cent of 1,862 homes respectively.
Perhaps developers need not fear redeveloping large existing developments such as Mandarin Gardens in the East Coast or Braddell View into new projects that can have over 2,000 homes each.
Developers sold 13,027 and 9,982 private homes excluding executive condominiums in 2021 and 2020 respectively. In perspective, selling 2,400 units over 4 years works out to 600 units a year or around 5 per cent of total annual sales by developers if total sales is around 11,000-12,000 units.
A mega en-bloc site may cost S$2-3 billion in land costs and S$4-5 billion in gross development cost. But there are deep-pocketed developers and strong lenders. Groups can also share risks by partnering up to undertake mega projects.
Condo demand
The share of resident households living in private homes rose from 17.6 per cent in 2010 to 21.7 per cent in 2021, helped by growth in the number of condominium dwellers.
While the recent property cooling measures weaken the investment case for buying homes, many people aspire to live in condominiums.
Going forward, developers may need to sharpen their focus on meeting the needs of locals, who are buying homes for own stay, with highly liveable developments. New projects can differentiate with sustainability features and unit layouts that are ultra efficient and flexible.
Size helps too - a project built on a large site can offer better amenities and abundant green spaces.
A big project may also be more competitive in its sales and marketing. Large sales agencies may devote more attention to big projects as the pool of sales commission available is sizeable. A large marketing budget can help a project generate more buzz.
With lower demand due to the cooling measures, more supply of land for housing by the government and higher ABSD rates, developers will be very cautious in buying en-bloc residential sites.
Some may choose to buy en-bloc commercial sites as commercial property is unaffected by the recent cooling measures. Last week, it was announced that Tanglin Shopping Centre, which sits on a freehold site that is zoned for commercial use, was successfully sold via a collective sale for S$868 million.
Selective developers
Still, there are developers who will seek sites to build new homes. Demand for homes has not been disrupted by growing digitalisation or the ongoing Covid-19 pandemic. The need for high quality homes will likely rise as people spend more time at home.
Also, selling new homes off-plan, with sales launches taking place around the time construction starts, is attractive to developers as capital can be quick recycled.
Developers though will be picky on what to buy. For potential en- bloc candidate Mandarin Gardens, the large frontage it enjoys on to the sea is a major selling point.
The long initial land lease tenure of 999 years of Cashew Heights, which sits on a land parcel of slightly under 1 million square feet, can be appealing.
In successful en-bloc residential sales, there are often a majority of strata owners rejoicing as they cash out probably at a large premium over what they can realise by selling their units individually. There may also be some strata owners who feel aggrieved at having to sell and move out of homes filled with memories that are just right for their needs.
Invariably, there will be mixed reactions from homeowners in potential en-bloc developments to the slowing down in the housing en- bloc market. But the recent cooling measures need not kill the prospect of developers snaring big sites.
Big is beautiful in many areas of business where mergers and acquisitions is a major theme. Big can be beautiful too for en-bloc residential sites. A larger site offers a bigger canvas for creative developers to develop a leading edge product that caters to Covid-endemic home owners.
A big and great new project can shine despite tough cooling measures.
A larger site offers a bigger canvas for creative developers to develop a leading-edge product that caters to Covid-endemic home owners
Mar 01, 2022
AMID strong demand for homes, activity in the collective sales market started picking up in the latter part of 2021. According to real estate consultancy JLL, a dozen projects worth around S$2.19 billion - 9 residential and 3 mixed-use sites (based on proposed use) - were transacted in 2021.
But momentum in the residential en-bloc market may be snuffed out by the property cooling measures that kicked in on Dec 16, 2021.
Among the measures affecting potential home buyers were a tightening in the total debt servicing ratio threshold and an increase in additional buyer's stamp duty (ABSD) for all buyers except Singapore citizens and permanent residents buying their first home.
The rate of ABSD for housing developers rose from 30 per cent to 40 per cent. Of this, 35 per cent can be remitted upfront subject to various conditions, including completing and selling all homes within 5 years from the acquisition date. If any conditions are not met, developers will have to pay the remitted ABSD amount plus interest.
The cooling measures could hit large residential en-bloc sites particularly hard. With softer demand for homes expected, the risk that a project with many units fails to clear its inventory in time is high. Conversely, projects with few units to sell may have lower risk of not selling out in time.
Also, a developer of a larger site pays more in ABSD should it fail to clear all its residential inventory in time. Large en-bloc sites could benefit if the government tweaks the formula of land ABSD to be based on unsold units as suggested by the Real Estate Developers' Association of Singapore.
Still, developers who are studying large en-bloc sites will be encouraged by the healthy sales chalked up by large new projects such as Treasure at Tampines and Normanton Park, which are being built on sites that were bought in the en-bloc market.
Based on the Urban Redevelopment Authority's data on private homes sold by developers for January, Treasure at Tampines and Normanton Park have sold over 99 per cent of 2,203 homes and around 85 per cent of 1,862 homes respectively.
Perhaps developers need not fear redeveloping large existing developments such as Mandarin Gardens in the East Coast or Braddell View into new projects that can have over 2,000 homes each.
Developers sold 13,027 and 9,982 private homes excluding executive condominiums in 2021 and 2020 respectively. In perspective, selling 2,400 units over 4 years works out to 600 units a year or around 5 per cent of total annual sales by developers if total sales is around 11,000-12,000 units.
A mega en-bloc site may cost S$2-3 billion in land costs and S$4-5 billion in gross development cost. But there are deep-pocketed developers and strong lenders. Groups can also share risks by partnering up to undertake mega projects.
Condo demand
The share of resident households living in private homes rose from 17.6 per cent in 2010 to 21.7 per cent in 2021, helped by growth in the number of condominium dwellers.
While the recent property cooling measures weaken the investment case for buying homes, many people aspire to live in condominiums.
Going forward, developers may need to sharpen their focus on meeting the needs of locals, who are buying homes for own stay, with highly liveable developments. New projects can differentiate with sustainability features and unit layouts that are ultra efficient and flexible.
Size helps too - a project built on a large site can offer better amenities and abundant green spaces.
A big project may also be more competitive in its sales and marketing. Large sales agencies may devote more attention to big projects as the pool of sales commission available is sizeable. A large marketing budget can help a project generate more buzz.
With lower demand due to the cooling measures, more supply of land for housing by the government and higher ABSD rates, developers will be very cautious in buying en-bloc residential sites.
Some may choose to buy en-bloc commercial sites as commercial property is unaffected by the recent cooling measures. Last week, it was announced that Tanglin Shopping Centre, which sits on a freehold site that is zoned for commercial use, was successfully sold via a collective sale for S$868 million.
Selective developers
Still, there are developers who will seek sites to build new homes. Demand for homes has not been disrupted by growing digitalisation or the ongoing Covid-19 pandemic. The need for high quality homes will likely rise as people spend more time at home.
Also, selling new homes off-plan, with sales launches taking place around the time construction starts, is attractive to developers as capital can be quick recycled.
Developers though will be picky on what to buy. For potential en- bloc candidate Mandarin Gardens, the large frontage it enjoys on to the sea is a major selling point.
The long initial land lease tenure of 999 years of Cashew Heights, which sits on a land parcel of slightly under 1 million square feet, can be appealing.
In successful en-bloc residential sales, there are often a majority of strata owners rejoicing as they cash out probably at a large premium over what they can realise by selling their units individually. There may also be some strata owners who feel aggrieved at having to sell and move out of homes filled with memories that are just right for their needs.
Invariably, there will be mixed reactions from homeowners in potential en-bloc developments to the slowing down in the housing en- bloc market. But the recent cooling measures need not kill the prospect of developers snaring big sites.
Big is beautiful in many areas of business where mergers and acquisitions is a major theme. Big can be beautiful too for en-bloc residential sites. A larger site offers a bigger canvas for creative developers to develop a leading edge product that caters to Covid-endemic home owners.
A big and great new project can shine despite tough cooling measures.