End of school holiday is start of race to launch new projects

Wed, Jun 26, 2019


IT MAY be the June school holiday lull period for property launches but developers in Singapore are quietly getting ready to release a slew of projects within the next few months.

These include Singhaiyi Properties' 1,468-unit Parc Clematis condo along Jalan Lempeng in the Clementi area; and UOL Group, United Industrial Corporation and Kheng Leong's 1,074-unit Avenue South Residence in Silat Avenue.

Some niche projects are also expected to be rolled out such as City Developments' 188-unit Haus on Handy near Dhoby Ghaut interchange station; and Fragrance Group's 36-unit Jervois Treasures.

According to one school of thought, developers should pace their launches to avoid creating a glut of projects on the market.

Already, CBRE's analysis of Urban Redevelopment Authority (URA) data on developers' housing sales numbers as of May 2019 shows that none of the 40 projects (with at least 50 private residential units each) that have been put on the market since June last year has been fully sold out. The percentage of units sold to total units in the 40 projects ranges from 0.9 per cent to 78.3 per cent. The top scorer was Park Colonial, followed by The Tre Ver (75.4 per cent) and Riverfront Residences (69 per cent).

However, the preferred strategy for residential developers at this juncture seems to centre on speed, that is, put their projects on the market as quickly as possible to mop up motivated buyers in various locales before the competition does.

Market conditions are such that the probability of private home prices falling further is higher than a rebound. No doubt the prospect of interest rates falling is good news for home buyers but this may be overshadowed by the grim news flow on the economic front due to trade tensions. The risk of an economic slump materialising in Singapore is high given its open economy. Last July's cooling measures have affected home buying sentiment especially for property investment.

The writing is on the wall; developers are realising that if they do not launch their residential projects now they stand to lose more because the market is unlikely to improve in the short term.

Those saddled with high land cost will still try to launch and sell, even at a nominal margin to breakeven cost. Here the developer's strategy would be to try and clear some stock while waiting, and hoping that it will be compensated later on if the remaining units can fetch higher prices when confidence returns. This strategy of pricing low to move units and raising prices for more desirable units subsequently may enable it to achieve a decent overall margin for their project.

In the current environment, buyers have many choices. The success rate of projects tends to be patchy - depending on pricing, location, design and quality, among other factors.

Developers will also benefit if their project is in a location with a growth story, for instance, riding on plans announced in the Urban Redevelopment Authority's draft Master Plan 2019. Examples include Greater Southern Waterfront, Jurong Lake District, the Rail Corridor, and places such as Dakota Crescent and Farrer Park for which there are rejuvenation plans.

Similarly the announcement of a feasibility study for a new rail line which could run from Woodlands to the Greater Southern Waterfront, as well as plans to build new MRT stations on existing lines under the Land Transport Authority's Master Plan 2040 also provides opportunities for developers to ride on the growth story theme when marketing projects in the locations that will benefit from the improved connectivity.

Major property agencies ERA Realty Network and PropNex expect developers to move around 7,500-8,500 and 8,500-9,000 private homes, respectively, this year. These estimates are not very far off from the 8,795 new units sold last year.

So the upcoming launches are likely to result in a surfeit of available units. The number of unsold units in launched private residential projects had increased to 3,491 as at the end of the first quarter of this year, from 1,066 units a year earlier in Q1 2018, going by data from URA.

On the bright side, there will still be buyers who view things more positively, including foreign buyers. For instance, high-end and luxury property prices in Singapore are considered attractive relative to, say, Hong Kong and even some Chinese gateway cities. Foreigners may also be drawn by blue skies, clean air, safety and political stability in Singapore.

As developers jostle to find buyers for new launches as well as unsold units from earlier launches, a key beneficiary will be property agents. Owing to the consolidation in the property agency business leading to a handful of big players, they are in a stronger position to demand higher commissions from developers, of as much as 5 per cent for a new project launch and even higher rates in some cases for clearing units in older projects.

Paying agents high commission rates has its downside, with some agents giving a cut of their commission to buyers. This practice is against guidelines stipulated by the Council for Estate Agencies but some agents have got around this by giving the kickback via a relative or friend of the buyer to avoid detection, market watchers say.

In their defence, some agents claim the kickbacks help them to convince marginal buyers who find themselves financially stretched following the 5-percentage point cut in loan-to-value limit last July by the authorities to cool the property market.

When developers pay higher commission rates to motivate agents to close deals with buyers, the additional expense is captured under cost of sales, and does not affect the headline price they have to report on their housing sales each week to the URA.

Developers are very resourceful indeed.