New Reporter
20-05-24, 11:24
Hard landing ahead for Singapore’s residential collective sale market
May 20, 2024
IT HAS been a tough time for Singapore’s residential en bloc sale market, with one unsuccessful attempt after another. Earlier this month, Pine Grove condominium found no takers at its S$1.95 billion asking price for the 99-year leasehold site, in its fifth bid at a collective sale.
A flood of supply from the government’s land sales programme will continue to divert developers’ attention and resources away from the private land sale market.
And with property players turning more risk-averse, condo owners’ high asking prices will be even harder to match, market watchers told The Business Times.
According to a Colliers report published in April, residential investment sales fell by 47.6 per cent quarter-on-quarter in the first quarter of 2024 to S$1.8 billion.
Even then, the property consultancy noted that sales were mainly boosted by three Government Land Sale (GLS) sites, which brought in around S$400 million each.
The current GLS programme for H1 2024 will see the release of land that will yield 5,450 private homes. This is 5.6 per cent more than the 5,160-unit supply for H2 2023, and is the highest supply on the confirmed list since 2013.
Michael Tay, CBRE’s head of capital markets, reckons that the bigger pool of state land available bodes well for developers, who have reasons to prefer to restock land banks with GLS sites rather than collective sale sites.
“The GLS programme (has) greater certainty of deal completion and pricing discretion compared to the collective sale process, which can face many potential complications,” said Tay.
“Such uncertainty adds an additional layer of complexity especially since developers have already turned cautious amid economic weakness, tighter financing conditions, and elevated inflation.”
Land prices of 99-year-leasehold state land parcels are also starting to come down, compared to valuations seen in previous years. Some plots have sold for up to 30 per cent less than the last state land site sold in the same area.
https://i.imgur.com/t7Un1tF.png
Changing market dynamics have made the commitment to a GLS site a less risky proposition for developers than an en bloc site.
While collective sales provide a source of valuable, well-located, freehold land, some sites carry a reserve price that would require a breakeven price at “above current market clearing prices for the respective locations”, said Alan Cheong, Savills Singapore’s research and consultancy executive director.
“In a few instances, GLS sites have been sold for much lower than the reserve price of collective sales sites in the vicinity,” he said.
The “big difference” is that private land prices are set by owners, while that of GLS sites are “more market-driven”, said Jeremy Lake, managing director of investment sales and capital markets at Savills Singapore.
Owners take reference from GLS sites and other private land sales in the vicinity, explained Tay Liam Hiap, ERA managing director of capital markets and investment sales.
“However, once the reserve price is set and owners sign the collective agreement, it is difficult to adjust (the price) downwards even if GLS prices dip,” he said.
In the case of Pine Grove, the condo’s S$1.95 billion asking price translated to a land price of S$1,434 per square foot per plot ratio (psf ppr).
An attempt was made to lower the reserve price by 8.7 per cent to S$1.78 billion or S$1,335 psf ppr, since prices for recent GLS sites in the area had also eased.
A nearby plot at Pine Grove (Parcel B) was sold in November 2023 for S$692.4 million or S$1,223 psf ppr, at a price that was itself around 7 per cent less than the winning bid for the next-door Parcel A sold in June 2022.
However, the attempt failed to get the consensus required to reduce the price on the offer.
https://i.imgur.com/kN2QhzW.png
Still, Edmund Tie chief executive Desmond Sim pointed out that buying land via the en bloc route is the only way for developers to acquire freehold or 999-year leasehold land today, especially larger sites in attractive locations.
Collective sales also remain a crucial catalyst to “drive private-led urban regeneration” in Singapore, Sim said.
On the other hand, GLS sites offer nice “bite-sized developments ranging from 300 to 750 units”, which are more palatable for developers, said Savills’ Cheong.
“In today’s market, where buyers are spoilt for choice, a site that is too small may not gain traction with buyers and agents may not be willing to devote resources to hype that project,” he said.
“For very large sites, however, the issue is the risk of not selling out the entire project within five years of award and thus incurring Additional Buyer’s Stamp Duty (ABSD) for the developer.”
Selling high
Sellers, on their part, have their reasons for sticking to high reserve prices.
The oft-cited reason, as ERA’s Tay pointed out, is that the cost of buying a replacement property has increased quite substantially for owners. Between Q1 2019 and Q1 2024, for instance, the Urban Redevelopment Authority’s overall price index grew by a staggering 37.5 per cent.
Owners now face higher Buyer’s Stamp Duty and ABSD, bringing down the “collective sale premium to a level (that) might not motivate” them, added Tay of CBRE.
“In some cases, owners are willing to look at a smaller premium of perhaps 30 per cent whereas historically it had to be at least 50 per cent,” said Lake from Savills. If the reserve price is deemed too low, some owners may therefore prefer to sell their unit on the open market instead of through a collective sale.
Meanwhile, developers face higher construction costs, still-high interest rates, as well as the land betterment cost (LBC) payable on redevelopment projects and hefty ABSD for big sites, said ERA’s Tay.
For Pine Grove, an estimated LBC of S$1 billion for the intensification of land use and lease upgrade for the huge 893,218 sq ft site would have raised the effective acquisition cost close to a whopping S$3 billion.
“At the moment, both (owners and developers) have good reasons to justify their respective prices and the standoff will continue,” said Lake.
Based on Cheong’s calculations, a “reasonable price” that a developer would like to see for large projects of more than 700 units in the city fringe or suburbs is “perhaps a breakeven of S$1,750 to S$1,900 psf” for its net saleable area.
Current selling prices are over S$2,000 psf and likely to stay entrenched at those levels, but buying at the initial launch has clustered around smaller, less expensive units, he said.
With higher ABSD rates and still-high mortgage rates dampening housing demand, “developers have turned very selective, with (even) recent public land tenders seeing less participation and bid prices below or at the lower range of expectations,” said CBRE’s Tay.
Cheong added that “the dragnet was drawn on mischievous schemes”, such as the “99-to-1” tax avoidance arrangement, that “sought to squeeze blood out of rocks to generate more demand for residential real estate”.
“Developers also have to be cognisant of the fact that each time a Merdeka or Gen X dips into their pool of savings, there is one less buyer in the market for new launches priced at record or close to record prices,” he said.
“That pool of buyers left is unknown and developers must build in that risk when they bid for land.”
https://www.businesstimes.com.sg/property/hard-landing-ahead-singapores-residential-collective-sale-market
May 20, 2024
IT HAS been a tough time for Singapore’s residential en bloc sale market, with one unsuccessful attempt after another. Earlier this month, Pine Grove condominium found no takers at its S$1.95 billion asking price for the 99-year leasehold site, in its fifth bid at a collective sale.
A flood of supply from the government’s land sales programme will continue to divert developers’ attention and resources away from the private land sale market.
And with property players turning more risk-averse, condo owners’ high asking prices will be even harder to match, market watchers told The Business Times.
According to a Colliers report published in April, residential investment sales fell by 47.6 per cent quarter-on-quarter in the first quarter of 2024 to S$1.8 billion.
Even then, the property consultancy noted that sales were mainly boosted by three Government Land Sale (GLS) sites, which brought in around S$400 million each.
The current GLS programme for H1 2024 will see the release of land that will yield 5,450 private homes. This is 5.6 per cent more than the 5,160-unit supply for H2 2023, and is the highest supply on the confirmed list since 2013.
Michael Tay, CBRE’s head of capital markets, reckons that the bigger pool of state land available bodes well for developers, who have reasons to prefer to restock land banks with GLS sites rather than collective sale sites.
“The GLS programme (has) greater certainty of deal completion and pricing discretion compared to the collective sale process, which can face many potential complications,” said Tay.
“Such uncertainty adds an additional layer of complexity especially since developers have already turned cautious amid economic weakness, tighter financing conditions, and elevated inflation.”
Land prices of 99-year-leasehold state land parcels are also starting to come down, compared to valuations seen in previous years. Some plots have sold for up to 30 per cent less than the last state land site sold in the same area.
https://i.imgur.com/t7Un1tF.png
Changing market dynamics have made the commitment to a GLS site a less risky proposition for developers than an en bloc site.
While collective sales provide a source of valuable, well-located, freehold land, some sites carry a reserve price that would require a breakeven price at “above current market clearing prices for the respective locations”, said Alan Cheong, Savills Singapore’s research and consultancy executive director.
“In a few instances, GLS sites have been sold for much lower than the reserve price of collective sales sites in the vicinity,” he said.
The “big difference” is that private land prices are set by owners, while that of GLS sites are “more market-driven”, said Jeremy Lake, managing director of investment sales and capital markets at Savills Singapore.
Owners take reference from GLS sites and other private land sales in the vicinity, explained Tay Liam Hiap, ERA managing director of capital markets and investment sales.
“However, once the reserve price is set and owners sign the collective agreement, it is difficult to adjust (the price) downwards even if GLS prices dip,” he said.
In the case of Pine Grove, the condo’s S$1.95 billion asking price translated to a land price of S$1,434 per square foot per plot ratio (psf ppr).
An attempt was made to lower the reserve price by 8.7 per cent to S$1.78 billion or S$1,335 psf ppr, since prices for recent GLS sites in the area had also eased.
A nearby plot at Pine Grove (Parcel B) was sold in November 2023 for S$692.4 million or S$1,223 psf ppr, at a price that was itself around 7 per cent less than the winning bid for the next-door Parcel A sold in June 2022.
However, the attempt failed to get the consensus required to reduce the price on the offer.
https://i.imgur.com/kN2QhzW.png
Still, Edmund Tie chief executive Desmond Sim pointed out that buying land via the en bloc route is the only way for developers to acquire freehold or 999-year leasehold land today, especially larger sites in attractive locations.
Collective sales also remain a crucial catalyst to “drive private-led urban regeneration” in Singapore, Sim said.
On the other hand, GLS sites offer nice “bite-sized developments ranging from 300 to 750 units”, which are more palatable for developers, said Savills’ Cheong.
“In today’s market, where buyers are spoilt for choice, a site that is too small may not gain traction with buyers and agents may not be willing to devote resources to hype that project,” he said.
“For very large sites, however, the issue is the risk of not selling out the entire project within five years of award and thus incurring Additional Buyer’s Stamp Duty (ABSD) for the developer.”
Selling high
Sellers, on their part, have their reasons for sticking to high reserve prices.
The oft-cited reason, as ERA’s Tay pointed out, is that the cost of buying a replacement property has increased quite substantially for owners. Between Q1 2019 and Q1 2024, for instance, the Urban Redevelopment Authority’s overall price index grew by a staggering 37.5 per cent.
Owners now face higher Buyer’s Stamp Duty and ABSD, bringing down the “collective sale premium to a level (that) might not motivate” them, added Tay of CBRE.
“In some cases, owners are willing to look at a smaller premium of perhaps 30 per cent whereas historically it had to be at least 50 per cent,” said Lake from Savills. If the reserve price is deemed too low, some owners may therefore prefer to sell their unit on the open market instead of through a collective sale.
Meanwhile, developers face higher construction costs, still-high interest rates, as well as the land betterment cost (LBC) payable on redevelopment projects and hefty ABSD for big sites, said ERA’s Tay.
For Pine Grove, an estimated LBC of S$1 billion for the intensification of land use and lease upgrade for the huge 893,218 sq ft site would have raised the effective acquisition cost close to a whopping S$3 billion.
“At the moment, both (owners and developers) have good reasons to justify their respective prices and the standoff will continue,” said Lake.
Based on Cheong’s calculations, a “reasonable price” that a developer would like to see for large projects of more than 700 units in the city fringe or suburbs is “perhaps a breakeven of S$1,750 to S$1,900 psf” for its net saleable area.
Current selling prices are over S$2,000 psf and likely to stay entrenched at those levels, but buying at the initial launch has clustered around smaller, less expensive units, he said.
With higher ABSD rates and still-high mortgage rates dampening housing demand, “developers have turned very selective, with (even) recent public land tenders seeing less participation and bid prices below or at the lower range of expectations,” said CBRE’s Tay.
Cheong added that “the dragnet was drawn on mischievous schemes”, such as the “99-to-1” tax avoidance arrangement, that “sought to squeeze blood out of rocks to generate more demand for residential real estate”.
“Developers also have to be cognisant of the fact that each time a Merdeka or Gen X dips into their pool of savings, there is one less buyer in the market for new launches priced at record or close to record prices,” he said.
“That pool of buyers left is unknown and developers must build in that risk when they bid for land.”
https://www.businesstimes.com.sg/property/hard-landing-ahead-singapores-residential-collective-sale-market