Prudent approach to land sales

Jul 29, 2018

Christine Li

Although the residential market has been the star performer since the beginning of the year - before the latest property cooling measures were introduced - the Government saw no immediate need to inject additional residential supply through its half-yearly Government Land Sales (GLS) programme announced in the last week of June.

The Government may have considered that demand for residential land could slow, as many developers have already secured at least one site during the collective sale boom over the last 21/2 years.

According to the announcement, there are 2,705 units on the GLS programme's confirmed list. This is similar to the 2,775 units released in the first half of the programme this year.

It is not surprising that more residential land was not released as the Government had expressed concerns that new private residential units built on land from the collective sale market would be entering the market from 2021 onwards.

Releasing more land through the confirmed list would only exacerbate a potential supply glut.

Furthermore, there was no reserve site triggered from the GLS list in the first half of this year. It suggested that developers have ample options from the collective sale market alone. A sizeable number of projects launched at collective sale sites have been sold.

The Government has been adopting a watch-and-wait stance, releasing only a few sites on the confirmed list, while keeping most of the land supply on the reserve list.

About 66 per cent of land supply is through the reserve list system. On this list, sites are put out to tender only if sufficient interest is shown.

Although the latest cooling measures could have dampened sentiment in the private residential market, we expect healthy developers' interest for choice sites with favourable location attributes.

Notable sites on the confirmed list include Kampong Java Road, Middle Road and the Pasir Ris white site. A white site means the developer has the flexibility to change the use, or define a mixture of uses of the land, at no extra charge. On the reserve list, Tan Quee Lan Street is likely to attract interest from developers.

Developers have shown keen interest in sites in the traditional prime districts, as evidenced by the recent new launches and collective sales. For instance, Park House in Orchard Boulevard was transacted during a collective sale at a historical high of $2,910 per square foot per plot ratio (psf ppr). Prices of recent transactions at New Futura in Leonie Hill Road, which was launched in January, have exceeded $3,500 psf.

However, developers could turn cautious in land acquisition as they are now subject to a new, non-remissible 5 per cent Additional Buyer's Stamp Duty when they buy residential development sites.

Having said that, we still expect the 1.16ha prime site in Kampong Java Road to be well received because of its relatively palatable quantum of less than $500 million, and limited new launches in the Newton vicinity in the last five years.

The sites in Middle Road and Tan Quee Lan Street would benefit from the ongoing gentrification of the Bugis precinct. The completion of South Beach and DUO integrated developments, together with the upcoming Beach Road mixed-use development site won by GuocoLand, would inject vibrancy to the area.

The Pasir Ris white site could see interest from the big boys or consortiums. Historically, major mixed developments near MRT stations have seen interest from developers and buyers alike. For example, a site in Upper Serangoon Road drew 12 bidders and was sold for $1,181 psf ppr, a benchmark for the upcoming Bidadari area.

On the supply front for commercial properties, even though the market is not expecting any material impact from the recent developments surrounding the High-Speed Rail project linking Singapore to Kuala Lumpur, the Government appears to be taking a more cautious stance by not launching any commercial site in the Jurong Lake District.

Despite the strong rental growth of prime grade-A offices in the Central Business District over the last five consecutive quarters, the Government has not launched any commercial site in the CBD. It suggests the existing supply is sufficient to meet occupier demand.

Interestingly, it has re-introduced a Marina View site through the reserve list three years after it was removed. However, it is now a white site with a hotel/residential component. It used to be a predominantly office site before it was removed from the reserve list.

The writer is the senior director and head of research at Cushman & Wakefield Singapore.