Bids likely to dip for small suburban en bloc sites

Developers to factor in lower selling prices with cap on shoebox homes

Published on Sep 06, 2012

By Esther Teo, Property Reporter

DEVELOPERS eyeing collective sale sites might have to redo their sums as the Government caps the number of homes that can be built in non-landed developments outside the central area.

Experts say the newly announced guidelines that discourage the fast-rising number of tiny "shoebox" homes will likely temper developers' bids, particularly for certain small suburban collective sale sites.

This is because shoebox homes - typically less than 50 sq m - can often be sold at higher per sq ft (psf) prices.

Bids for upcoming sites would have to factor in the larger average size of units mandated under the new rules, which are usually expected to feature lower psf selling prices.

The experts add that smaller collective sale land plots are likely to be the most affected by this change as small and mid-sized developers often churn out more units on such sites to claw back the land cost.

Mr Karamjit Singh, Jones Lang LaSalle's regional director and head of capital markets, said: "It's not a game changer... but owners will have to moderate their expectations by up to 5 per cent," he said.

Mr Shaun Poh, DTZ's head of investment advisory and services and auction, said that sites that do not have a gross plot ratio (GPR) of 1.4 and with a gross floor area of 30,000 sq ft to 80,000 sq ft will likely be the most affected.

The Urban Redevelopment Authority (URA) had previously limited the number of apartments that can be built on sites with a GPR of 1.4, so most such sites will be unaffected by the new rules. A ratio of 1.4 allows developers to build up to five storeys.

These other sites might see bid prices fall by about 3 per cent to 5 per cent as developers turn cautious and scale back their aggressive bids, Mr Poh said.

"Larger sites that cost more than $200 million are usually the target of bigger players who do not build just shoebox units, and so they might be less affected," he said.

UOB Kay Hian analyst Vikrant Pandey noted that developers keen on riding the shoebox wave will become less aggressive both in acquiring collective sale sites and in their land tender bids for suburban land parcels.

This is likely to result in a change in strategy for developers of small mass market projects such as Oxley Holdings and Roxy-Pacific Holdings, he said.

But experts point out that the impact of the rules has also been muted by an earlier change in guidelines last November that sounded a warning that the Government was closely watching the shoebox segment.

New rules then had set minimum plot sizes for apartment blocks and restricted the number of units that can be built on certain sites, ensuring that some ground will be free for landscaping or facilities.

URA has also been stricter in granting provisional permission. It has been known to throw back building plans with too many shoebox units, sending a signal to the industry that changes were at hand, an expert added.

Mr Teo Hong Lim, executive chairman of Roxy-Pacific Holdings, said all three suburban sites the firm holds have a plot ratio of 1.4. Two other sites in its land bank are in the central area.

"We look for certainty when we buy sites and we knew that these three were already subject to November's rules so they were unlikely to change.

"We also deliberately avoided the other areas - Joo Chiat and Kovan, for instance - that the Government had previously said were under review," he said.

With the new rules, to take effect on Nov 4, suburban projects with predominantly shoebox units are likely to be a thing of the past.

Natura @ Hillview and Parc Rosewood in Woodlands are two examples of suburban projects that have shoebox units making up between 53 and 67 per cent of the development's total.

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