http://www.businesstimes.com.sg/real...aution-sets-in

Developers keep residential land bids in check as caution sets in

Further declines in land prices are expected for the rest of this year in the face of falling selling prices for projects, say consultants

By Lynette Khoo

[email protected] @LynetteKhooBT

6 Apr


CAUTION about the local residential market has kept developers' bids for state land tenders this year in check, marking a reversal from the bidding fever more than a year ago that stoked fears of land costs outpacing fundamentals.

Winning bids for residential sites sold under the Government Land Sales (GLS) programme this year have come down by a broad range of 3-24 per cent in prices relative to comparable sites sold in 2013 or 2014.

These exclude the tender for the Sturdee Road site that closed last week where there was no close comparable after 2011, and commercial sites which tend to come with certain specific requirements.

While several factors affect land bids - for instance, hungrier players that face depleting landbank would bid more aggressively - lingering caution has crimped bidding fervour, consultants say. They are projecting a further slide in land prices this year, with the exception being choice sites that could still garner strong interest.

JLL national research director Ong Teck Hui noted that developers are anticipating further declines in selling prices for their projects and have hence become more cautious in bidding for new land sites.

"While residential selling prices are still declining, it is expected that tender bids for residential land would also continue to trend downwards," he said.

Christine Li, research head at Cushman & Wakefield, said she is expecting a further price fall in the winning bids for upcoming land tenders relative to comparable sites tendered in recent years in light of prolonged cooling measures and impending interest rate hikes.

"I think winning bid prices could fall by another 5-8 per cent this year in view of higher construction costs," she said. "But some developers could put in defensive bids so as to avoid being undercut by future developments by competitors."

A case in point is the recent site released in Jurong West Street 41 (Parcel B). MCL Land - which is developing 696-unit Lakeville at Parcel A that it snapped for S$651 per square foot per plot ratio (psf ppr) - won Parcel B for a slightly lower bid of S$630 psf ppr. MCL Land chief executive Koh Teck Chuan has proposed that the project at Parcel B will have close to 600 units with a higher proportion of around 65 per cent being smaller one and two-bedders to complement the remaining three and four-bedder units in Lakeville.

Judging from the winning bids for private condo sites this year, developers had apparently taken "a considered view" of the market, Mr Koh told BT. Land prices for EC sites have come down even more, reflecting a more challenging market amid a shrinking pool of eligible new EC buyers.

But there is a limit to how much land prices can fall given the limited residential land supply. "Developers also have to think of inventory; they can't keep staying out of the market," Mr Koh said.

Developers are also saying that with a decrease in efficiency (saleable area as a percentage of gross floor area) of new projects and requirements for more productive technologies and prefabrication to be used, the drop in land prices may not fully translate into lower residential prices.

"Land costs will generally be lower in the region of 5-8 per cent this year but we are mindful of the construction costs, which are quite uncertain now because of labour shortage," said Cheang Kok Kheong, CEO of development and property at Frasers Centrepoint Limited. "For productive technologies which many players are deploying for the first time, these consume a lot more electricity than the conventional methods. Construction costs can be on the rise even this year and next year."

As a ballpark estimate, land costs typically make up 50-60 per cent of overall costs, and construction costs account for the second largest share of 30-40 per cent.

With the residential market tipping over to a situation of oversupply, developers' demand for land is seen softest in the northern region such as Sengkang.

Sim Lian, a development cum construction company, lodged S$280 psf ppr for the latest EC site at Sengkang Anchorvale Crescent in February, 24 per cent below what SingHaiyi Group paid for a neighbouring site that is being developed into The Vales EC. Sim Lian's bid was also 15 per cent lower than what Qingjian Realty coughed out for another Anchorvale Crescent site in May 2013 where it is building Bellewaters. Qingjian has sold 220 of 651 units at Bellewaters since its launch in November.

Last August, residential sites Parcels A and B at Fernvale Road in Sengkang saw winning bids at 16-18 per cent lower than Parcel C along Fernvale Close, where Frasers Centrepoint Limited launched Rivertrees Residences early last year. There were also fewer bidders for Parcel A and B.

According to the Urban Redevelopment Authority, 24,796 residential units (including ECs) are expected to be completed this year and another 25,717 units next year. Consultants estimate that over 6,000 new completions over these two years are located in Sengkang.

"In the current market, demand for prime location sites and mediocre suburban sites seems to have weakened more significantly," Mr Ong said. "However, suburban or city fringe sites with good attributes have been able to command stronger interest from bidders."

Ms Li noted that there is no lack of participation in choice sites, reflecting developers' healthy appetite for land bank, though they have become more price-sensitive amid margins compression.

A plum residential site nestled in a city-fringe location at Sturdee Road near City Square Mall, Farrer Park MRT Station and other amenities drew a whopping 16 bids last month with an average bid of S$603 psf ppr. Sustained Land's top bid of S$787 psf ppr for the site was higher than United Engineers' S$774 psf ppr in April 2011 for the Kallang Whampoa site where it is building the 862-unit Eight Riversuites.

DTZ research head Lee Nai Jia noted that in today's lacklustre market, smaller sites are more attractive given the difficulty developers face in moving a large stock.

The cumulative impact of cooling measures began hitting demand from buyers in 2013, before prodding developers towards lower bids last year, he said. "We expect bids to be lower at least for the next two quarters, especially with the new completions (of homes) coming up, unless the government do something drastic."

Among upcoming residential sites on the GLS confirmed list, Lorong 6 Toa Payoh/Lorong 4 Toa Payoh is seen as highly popular. Mr Ong said its central location, "strong convenience factors" and the lack of private residential projects in recent years in Toa Payoh could perk up interest for the site. "Mediocre bidding could be expected for Tampines Avenue 10 (Parcel D) and Dundee Road as there are substantial unsold units at Santorini and Commonwealth Towers," Mr Ong said.

While the commercial cum residential site at Holland Road on the reserved list looks attractive if it is triggered for tender, bidding is likely to be limited to the bigger boys given its sizeable 59,715 sq m of maximum gross floor area and the high capital outlay required, he added.