Property 2006
Published October 12, 2006

Buying up a storm

Luxury condo prices are rising as developers snap up prime sites in a bullish collective sale market, notes JEREMY LAKE

THE collective sale market started its third and most intensive wave of activity in 2004 and its pace has accelerated since then. (See chart)

The two previous waves were from 1994 to 1997 and 1999 to 2000. So far this year, there have been 49 collective sales with a total market value of just over $6 billion. This is more than the 36 sales worth almost $2 billion for the whole of 2005.

Hot bids: (above) Habitat 2 on Ardmore Park was sold for $876 psf ppr last year while sales of the recently soft launched Ardmore II (next) have been brisk.

The collective sale market has been very active on the back of bullish sentiment particularly at the luxury end of the residential market. Developers have been keen to acquire very prime sites and participate in the recovery in property prices. This has been fuelled by strong foreign buying and to a lesser extent selective local buying of new luxury condominiums which has led to prices returning, and even exceeding, the 1996 peak. The Tate and The Ardmore II were both soft launched recently and have exceeded $2,000 per sq ft for multiple units.

It is noteworthy that the pool of developers buying sites this time around is much larger and broader-based than it was in the last collective sale boom in 1999/2000 when a small number of developers were most active. We have seen new entrants like Bukit Sembawang, Pontiac Land, Kajima and Hotel Properties buying prime sites. In addition, property funds and financial partners have joined in and teamed up with contractors and developers to buy sites, eg Lehmans and Citadel. The latter is a US-based hedge fund.

While most developers have bought at least one site, most are still on the lookout to add more sites to their landbanks and we do not sense that budgets are drying up. However, developers are becoming more choosey which is to be expected with the flood of sites now on the market.

The bidding intensity has been diluted. A year ago we often received more than five tender bids when a tender closed. Now, we are receiving more letters from developers expressing their interest to negotiate a private treaty sale rather than actual tender bids. Developers are inclined to overlook sites which are fundamentally less attractive or are over-priced. Over-pricing is quite common now as many owners have expectations which have overshot the market. This has been compounded in some cases by the recent hike in development charge (DC) rates which have made many sites more expensive.

The positive sentiment, rising condominium prices and competitive bidding among developers has led to prime land values rising by just over 50 per cent in the last 12 months or so. For example, Habitat 2 on Ardmore Park was sold for $876 psf per plot ratio (ppr) in September last year and Pin Tjoe Court, which is almost opposite Habitat 2, was sold for $1,358 psf ppr in September this year.

Jeremy Lake is the executive director of Investment Properties at CB Richard Ellis