New Reporter
29-12-23, 16:59
En blocked: Collective sales at standstill while commercial deals stir interest
Residential sites face resistance at high prices, but pockets of activity to open up in 2024
Dec 26, 2023
THE collective sales market had a fairly quiet year in 2023, with just eight successful deals out of 32 properties put on the market, as high land acquisition costs kept developers at bay.
Data consolidated by real estate consultancy CBRE showed S$2.17 billion worth of deals concluded as at Nov 26 – 40 per cent less than that for the whole of 2022.
Residential collective sales totalled S$574.3 million, down 69 per cent, while sales of mixed-use and commercial deals slipped 15 per cent to S$1.53 billion.
https://i.imgur.com/Pl9Al9G.png
Market players told The Business Times that this impasse is likely to remain in the coming year, with challenges ranging from a mismatch of price expectations between buyers and sellers to overall uncertainty and inflation.
Still, spots of activity are expected, particularly in the commercial sector. Developers may also turn their eyes towards small to medium-sized residential developments, or those with greater redevelopment potential.
Jeremy Lake, Savills Singapore’s managing director of investment sales and capital markets, noted that the “extremely low success rate” of recent years has persisted since 2018.
This year, the market had a dismal success rate of 25 per cent. In 2022, about 33 per cent of deals were completed, with 12 en bloc sale sites sold out of 36 put on the market.
Of the eight successful deals this year, three were for residential sites and three, commercial. The remaining two were industrial sites.
Completed deals included Meyer Park condominium, which was sold for S$392.18 million in February; Far East Shopping Centre for around S$910 million in September; and a freehold property within Tai Seng Industrial Estate for S$81.18 million in November. Shenton House was also sold in November, for S$538 million.
“Residential collective sales volumes have definitely plunged due to (the) mismatch in price expectations between buyers and sellers,” said Tricia Song, head of research for Singapore and South-east Asia at CBRE.
The rise in private home prices – up by around 30 per cent since the fourth quarter of 2018 – has resulted in owners hiking their asking prices for collective sales, so that they can afford a replacement property. This is likely to continue in 2024, with sellers setting reserve prices that are “too high and mostly out of reach for developers”, said Savills’ Lake.
This is the case for commercial deals too, highlighted Tang Wei Leng, Colliers’ head of capital markets.
The two exceptions were Far East Shopping Centre, with a transacted price that “exceeded expectations” due to its central location and freehold tenure, and Shenton House, which was a “special buy given the strategic benefit that IOI Properties saw in (its acquisition) to complement its two other assets in the proximity”, she said.
Michael Tay, CBRE’s head of capital markets, added that the doubling in Additional Buyer’s Stamp Duty (ABSD) for foreign buyers also disincentivised this group from participating in collective sales. “The cost of buying a replacement property has risen to a level that may not be viable in relation to their gains from the collective sale. This factor may have a longer-term impact on (the) rejuvenation of older properties.”
Meanwhile, developers have grown selective in land acquisition due to the government’s cooling measures and the current high interest rate environment, said Cushman & Wakefield research head Wong Xian Yang. These include high ABSD fees if developers do not complete selling a project within five years.
The government’s harmonisation of floor area definitions, effective from June this year, has reduced the amount of saleable area, giving developers less “bang for their buck”, said Desmond Sim, Edmund Tie’s chief executive.
While the change also applies to Government Land Sales (GLS) sites, the process of developing a project on a GLS site is much shorter, Sim noted. It will not require owners’ consensus – which could take months to years – and there is no demolition involved.
The government has made available “more attractive land sites” under its land sales programme, diverting attention away from the en bloc market, said CBRE’s Song.
The latest GLS programme for the first half of 2024 will see the release of enough land for 5,450 private homes, including executive condos, up 5.6 per cent from the 5,160-unit supply for H2 2023. This is the highest supply on the confirmed list since H2 2013’s 5,960 units.
Bright spots ahead
While the heyday of the collective sales market may be over, it is not all doom and gloom, analysts said.
“Developers continue to show interest in (the) land bank, though they are placing their bets strategically,” said Cushman’s Wong.
This may include a preference for sites within the suburban Outside Central Region, which have less market competition and relatively low land acquisition costs, said Low Choon Sin, Singapore Realtors Inc’s (SRI) head of capital markets.
Most sites that were sold in recent years were located within prime districts, such as District 9 (Orchard, River Valley), District 10 (Tanglin, Holland), District 11 (Novena, Newton) or District 15 (East Coast, Marine Parade), he said.
Tang of Colliers noted that the consultancy has received more enquiries for small to medium-sized freehold sites priced between S$100 million and S$300 million.
CBRE’s Song said mixed-use and commercial activities have picked up in the last two months “to the market’s surprise”, with the sales of Far East Shopping Centre and Shenton House bridging the gap with 2022’s volumes. “Office, retail and hospitality occupier demand has been strong, and these trends are gradually translating into capital market transactions after a pause due to high financing costs negating the tight yields.”
Buying momentum is expected to recover as investors adjust to the interest rate environment, focusing on higher asset performance that delivers more value, added Tang.
Developers will eye projects that are of good quality with environmental, social and governance compliance, she said. “(This will drive) strategic investments and give a notable increase in transaction volumes from the second quarter of 2024 onwards.”
“There might also be more interest in commercial assets with redevelopment or asset enhancement potential in the search for higher returns over the elevated cost of capital,” Tang said.
Savills’ Lake noted that there are some key collective sale assignments on Orchard Road worth in excess of S$1.3 billion launching in the near future. This includes two commercial sites in the Orchard area, which will be marketed by Savills – the freehold Delfi Orchard and 99-year leasehold Concorde Hotel and Shopping Centre.
Some developments with a few failed en bloc attempts may relaunch with more “reasonable pricing and expectations” in the coming year, said SRI’s Low.
But for now, Sim from Edmund Tie believes that the “Mexican stand-off” between buyers and sellers will remain. “I don’t see any reason sellers will go down on prices, given the high replacement costs, and if developers can’t afford it, they’ll simply turn to GLS sites.”
Still, he emphasised that collective sales will never go out of fashion.
While the market may not reach the heights of 2007, en bloc sales will remain relevant as one of the few ways for developers to obtain freehold land in mature estates or other “built-up attractive locations”, said Sim. “It is a catalyst to spur private-led urban renewal in Singapore.”
https://www.businesstimes.com.sg/property/en-blocked-collective-sales-standstill-while-commercial-deals-stir-interest
Residential sites face resistance at high prices, but pockets of activity to open up in 2024
Dec 26, 2023
THE collective sales market had a fairly quiet year in 2023, with just eight successful deals out of 32 properties put on the market, as high land acquisition costs kept developers at bay.
Data consolidated by real estate consultancy CBRE showed S$2.17 billion worth of deals concluded as at Nov 26 – 40 per cent less than that for the whole of 2022.
Residential collective sales totalled S$574.3 million, down 69 per cent, while sales of mixed-use and commercial deals slipped 15 per cent to S$1.53 billion.
https://i.imgur.com/Pl9Al9G.png
Market players told The Business Times that this impasse is likely to remain in the coming year, with challenges ranging from a mismatch of price expectations between buyers and sellers to overall uncertainty and inflation.
Still, spots of activity are expected, particularly in the commercial sector. Developers may also turn their eyes towards small to medium-sized residential developments, or those with greater redevelopment potential.
Jeremy Lake, Savills Singapore’s managing director of investment sales and capital markets, noted that the “extremely low success rate” of recent years has persisted since 2018.
This year, the market had a dismal success rate of 25 per cent. In 2022, about 33 per cent of deals were completed, with 12 en bloc sale sites sold out of 36 put on the market.
Of the eight successful deals this year, three were for residential sites and three, commercial. The remaining two were industrial sites.
Completed deals included Meyer Park condominium, which was sold for S$392.18 million in February; Far East Shopping Centre for around S$910 million in September; and a freehold property within Tai Seng Industrial Estate for S$81.18 million in November. Shenton House was also sold in November, for S$538 million.
“Residential collective sales volumes have definitely plunged due to (the) mismatch in price expectations between buyers and sellers,” said Tricia Song, head of research for Singapore and South-east Asia at CBRE.
The rise in private home prices – up by around 30 per cent since the fourth quarter of 2018 – has resulted in owners hiking their asking prices for collective sales, so that they can afford a replacement property. This is likely to continue in 2024, with sellers setting reserve prices that are “too high and mostly out of reach for developers”, said Savills’ Lake.
This is the case for commercial deals too, highlighted Tang Wei Leng, Colliers’ head of capital markets.
The two exceptions were Far East Shopping Centre, with a transacted price that “exceeded expectations” due to its central location and freehold tenure, and Shenton House, which was a “special buy given the strategic benefit that IOI Properties saw in (its acquisition) to complement its two other assets in the proximity”, she said.
Michael Tay, CBRE’s head of capital markets, added that the doubling in Additional Buyer’s Stamp Duty (ABSD) for foreign buyers also disincentivised this group from participating in collective sales. “The cost of buying a replacement property has risen to a level that may not be viable in relation to their gains from the collective sale. This factor may have a longer-term impact on (the) rejuvenation of older properties.”
Meanwhile, developers have grown selective in land acquisition due to the government’s cooling measures and the current high interest rate environment, said Cushman & Wakefield research head Wong Xian Yang. These include high ABSD fees if developers do not complete selling a project within five years.
The government’s harmonisation of floor area definitions, effective from June this year, has reduced the amount of saleable area, giving developers less “bang for their buck”, said Desmond Sim, Edmund Tie’s chief executive.
While the change also applies to Government Land Sales (GLS) sites, the process of developing a project on a GLS site is much shorter, Sim noted. It will not require owners’ consensus – which could take months to years – and there is no demolition involved.
The government has made available “more attractive land sites” under its land sales programme, diverting attention away from the en bloc market, said CBRE’s Song.
The latest GLS programme for the first half of 2024 will see the release of enough land for 5,450 private homes, including executive condos, up 5.6 per cent from the 5,160-unit supply for H2 2023. This is the highest supply on the confirmed list since H2 2013’s 5,960 units.
Bright spots ahead
While the heyday of the collective sales market may be over, it is not all doom and gloom, analysts said.
“Developers continue to show interest in (the) land bank, though they are placing their bets strategically,” said Cushman’s Wong.
This may include a preference for sites within the suburban Outside Central Region, which have less market competition and relatively low land acquisition costs, said Low Choon Sin, Singapore Realtors Inc’s (SRI) head of capital markets.
Most sites that were sold in recent years were located within prime districts, such as District 9 (Orchard, River Valley), District 10 (Tanglin, Holland), District 11 (Novena, Newton) or District 15 (East Coast, Marine Parade), he said.
Tang of Colliers noted that the consultancy has received more enquiries for small to medium-sized freehold sites priced between S$100 million and S$300 million.
CBRE’s Song said mixed-use and commercial activities have picked up in the last two months “to the market’s surprise”, with the sales of Far East Shopping Centre and Shenton House bridging the gap with 2022’s volumes. “Office, retail and hospitality occupier demand has been strong, and these trends are gradually translating into capital market transactions after a pause due to high financing costs negating the tight yields.”
Buying momentum is expected to recover as investors adjust to the interest rate environment, focusing on higher asset performance that delivers more value, added Tang.
Developers will eye projects that are of good quality with environmental, social and governance compliance, she said. “(This will drive) strategic investments and give a notable increase in transaction volumes from the second quarter of 2024 onwards.”
“There might also be more interest in commercial assets with redevelopment or asset enhancement potential in the search for higher returns over the elevated cost of capital,” Tang said.
Savills’ Lake noted that there are some key collective sale assignments on Orchard Road worth in excess of S$1.3 billion launching in the near future. This includes two commercial sites in the Orchard area, which will be marketed by Savills – the freehold Delfi Orchard and 99-year leasehold Concorde Hotel and Shopping Centre.
Some developments with a few failed en bloc attempts may relaunch with more “reasonable pricing and expectations” in the coming year, said SRI’s Low.
But for now, Sim from Edmund Tie believes that the “Mexican stand-off” between buyers and sellers will remain. “I don’t see any reason sellers will go down on prices, given the high replacement costs, and if developers can’t afford it, they’ll simply turn to GLS sites.”
Still, he emphasised that collective sales will never go out of fashion.
While the market may not reach the heights of 2007, en bloc sales will remain relevant as one of the few ways for developers to obtain freehold land in mature estates or other “built-up attractive locations”, said Sim. “It is a catalyst to spur private-led urban renewal in Singapore.”
https://www.businesstimes.com.sg/property/en-blocked-collective-sales-standstill-while-commercial-deals-stir-interest