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Thread: Question mark over sustainability of land bids

  1. #1
    Join Date
    Oct 2011

    Default Question mark over sustainability of land bids

    Question mark over sustainability of land bids

    Oct 5, 2017

    Redas chief sounds warning even as Amber Park sets freehold sale record of $906.7m

    Annabeth Leow

    Freehold condominium Amber Park fetched $906.7 million yesterday in a collective sale, the latest of several big-money transactions, but industry bigwigs are at odds over whether the residential market is heading for a major rebound.

    The record sale for a freehold site, clinched by City Developments Limited, comes on the heels of a string of large collective sale deals, including Tampines Court at $970 million.

    On Monday, GuocoLand secured a commercial site with the old Beach Road Police Station at $1.622 billion, setting a record unit price.

    And there could be more on the way, with the tender for Normanton Park closing today after owners launched a second collective sale bid in August with an $800 million reserve price.

    But Real Estate Developers' Association of Singapore (Redas) president Augustine Tan said yesterday that land acquisitions at these higher prices are "not sustainable".

    Developers are replenishing land banks in a risky fashion, he noted, because slower economic and population growth means that "we do not see a runaway demand in sales transaction volume and property prices in the next few years".

    Mr Tan, executive director of Far East Organization, said at the association's Mid-Autumn Festival lunch that buyers remain price-sensitive in the light of the tepid economic climate and slow jobs market.

    With interest rates on the rise, "many, including displaced sellers from en bloc sales, may downgrade to public housing", he said.

    Demand for new private homes may well soften in that case, despite positive market sentiment and bullish land acquisitions lately.

    There were 15,000 unsold private homes in the pipeline in the middle of this year, Mr Tan noted. Various collective sales and government land sales could yield almost 24,000 new units by the year end. He said: "If the prevailing bullish appetite for residential land persists and demand is not sustained, it will hasten the compounding effects of increasing supply and high vacancy."

    But others in the industry felt the market would still bite as higher land bids send break-even prices climbing, as third-quarter flash estimates showed private home prices reversed 15 quarters of decline to rise by 0.5 per cent.

    Oxley Holdings deputy chief executive Low See Ching told a briefing on Tuesday that fears of a bubble may be overplayed, even as property consultancy CBRE's Mr Desmond Sim warned against reading too much into one quarter's result.

    Roxy-Pacific Holdings chief executive Teo Hong Lim, whose company inked a $33.5 million deal on Monday for residential sites in Guillemard Lane, told The Straits Times: "I think the market should be stable, and the good thing is that buying interest has improved."

    He added: "The Government a few years ago took measures to contain the debt level for Singapore buyers, and I think a lot of liquidity has been locked away. Singapore buyers are not overstretched."

  2. #2
    Join Date
    Oct 2011

    Default Unsustainable to increasingly buy land at higher prices, warns Redas chief

    Unsustainable to increasingly buy land at higher prices, warns Redas chief

    Runaway demand for private homes unlikely, given cooling measures, slow population growth and buyers' price sensitivity, he says

    Oct 05, 2017

    Kalpana Rashiwala

    THE head of the developer's body on Wednesday cautioned that the trend of land-hungry developers increasingly buying private residential sites at higher prices has "many significant associated risks".

    "Notably, it is not sustainable to continue at this rate. With property measures in place, slow growth in Singapore's population and manpower curbs, we do not see runaway demand in sales transaction volume and property prices in the next few years," said Augustine Tan, president of the Real Estate Developers' Association of Singapore (Redas).

    Interestingly, Mr Tan made this point on the same day that City Developments announced that it and Hong Realty had been awarded the Amber Park collective sale site at what is seen as an eye-popping S$1,515 per square foot per plot ratio (psf ppr). This is a record price for freehold residential land in the Katong/East Coast area.

    In his speech at the Redas Mid-Autumn Festival Lunch, Mr Tan noted that private home buyers are price sensitive. With slow economic and jobs growth, "many, including displaced sellers from en-bloc sales, may downgrade to public housing", he said.

    "Hence, if the prevailing 'bullish' appetite for residential land persists while demand (for end units) is not sustained, it will hasten the compounding effects of increasing supply and high vacancy." Interest rates will continue rising, he added.

    "As developers, we value stability in the property market," he said.

    Mr Tan also said that despite the recent upturn in the Urban Redevelopment Authority's (URA) private home price index, "private housing rents are still falling and vacancies remain high even as new completions are adding to current inventory at a time when MNCs are either downsizing or recruiting headcount at a cautionary pace".

    Based on URA's data, the vacancy rate for private homes stood at 8.1 per cent as at end-Q2 2017, unchanged from the previous quarter. The URA will release the full Q3 private residential property market data later this month. Its third-quarter flash estimate on Monday showed that its private home price index rose 0.5 per cent over the previous quarter, the first increase after the index shed 11.6 per cent over 15 quarters.

    Mr Tan went on to highlight that the supply pipeline is set to grow from the sales of residential sites through private-sector channels such as collective sales, as well as through the Government Land Sales (GLS) Programme.

    In conclusion, Mr Tan said: "While the residential property market appears to be on the mend and developers are aggressively replenishing their land bank to sustain their business, the length and amplitude of this new cycle is uncertain."

    The downside risks of geopolitical uncertainty, global economic activity and monetary policy tightening, coupled with domestic structural challenges to the economy and elevated unemployment rate, are ongoing concerns.

    Knight Frank Asia-Pacific president Tan Tiong Cheng said the Redas president's speech "is a somewhat sombre reminder to the government - not that it needs reminding - as well as potential private home buyers that, although prices seem to have reached an inflexion point, the usual downside risks are still ongoing concerns".

    Industry players estimate CDL and Hong Realty's breakeven cost for a new project on the freehold Amber Park site at around S$2,200 psf - higher than what a new project on the site would command today. In April, Frasers Centrepoint launched the 99-year leasehold Seaside Residences, which will have unblocked sea views, at close to S$1,700 psf on average. "Clearly developers are buying land on future pricing and their view of future home prices seems bullish," said a seasoned analyst.

    In anticipation of the nascent price recovery gaining strength next year, some developers who bought sites before the surge in land prices that began in the later part of 2016, are said to be considering pushing back the launches of their new projects on these sites to the first half of next year.

    A few developers that had launched their projects earlier have stopped selling and closed their showflats, with plans to reopen only next year. "Developers that still have some time before the government deadline to complete and sell out their project - know that time is on their side. Prices are turning; by delaying their launches by a few months, they stand to capitalise on rising prices. And don't forget, right now the market is undersupplied, especially in the suburbs," said the analyst.

    But at least one developer is going ahead to launch its project next month - a Sing Holdings-Wee Hur tie- up that is developing the 735-unit Parc Botannia in Fernvale Road.

    When contacted, Lee Sze Hao, chief executive of Sing Holdings, said: "Sentiment has improved in H2 this year as evidenced by increased volume of homes sales. This is the result of some pent-up demand; and as developers sold down their existing projects, they need to replenish their land bank. Therefore land prices have climbed.

    "There are many other factors at play, but it is obvious that the private residential market is turning around. As a developer, it may well be a very good time for us to launch the project now."

    Agreeing with this strategy, Mr Tan of Redas said: "If you hold on to your project, and if the market turns down again, then you lose the window."

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