Cautious land bids the litmus test of developers' reading of residential property market

Thu, Mar 19, 2020

KALPANA RASHIWALA


DESPITE the Covid-19 outbreak, a wave of positive vibes was generated in the residential property market last month from the relatively impressive take-ups at several project launches - The M along Middle Road, Luxus Hills (Contemporary Collection) landed homes in the Seletar Hills area, and Parc Canberra.

Many developers were toasting the successful launches of these projects, even if they were by their competitors, hoping the positive news would boost overall market sentiment.

Property consultants said the sales outcomes reflect Singaporeans' enduring affinity for property and that it is difficult for Singaporeans to resist visiting show flats if there is an attractive offering.

But the litmus test for developers' sentiment came at a state land tender that closed on March 3. The bidding results suggest that deep down, developers have turned cautious.

A seasoned property consultant whom BT had polled a few hours before the tender closed said he was expecting eight to nine bids for each of the two adjoining 99-year leasehold private housing sites near Canberra MRT Station on the North-South Line. The station had opened just four months earlier; the unveiling of MRT station locations and their actual opening in Singapore are often accompanied by buzz on the positive impact on surrounding properties. Instead, the smaller of the two plots in Canberra Drive, Parcel A, drew five bids, and Parcel B, just four bids.

Some analysts were expecting the top bids to be S$700 per square foot per plot ratio (psf ppr) if not more. The winning bid for Canberra Drive (Parcel A) came in much lower, at S$643.85 psf ppr and that for Parcel B, at S$650.44 psf ppr.

What was also interesting is that most of the bids were bunched up together, suggesting bidders had a similar reading of the market, one of caution.

Ultimately they fear that something major might come out of Covid-19 and hence they chose to bid for land conservatively, to leave more room for themselves in case the market does not turn out the way they would like it to.

For one, developers may have to clip their selling price expectations for the new projects on the two sites amid a weakening economy and jobs market and the global escalation of the Covid-19 outbreak.

Even before the outbreak, developers were already nervous about the substantial pipeline of private residential project launches.

And given the big plunge in global stock markets a few days after the tender closing, it was just as well that developers had tempered their selling price expectations in preparing their bids.

In addition, developers also need to cater for higher-than-expected construction costs given the increase in material costs due to the disruption in global supply chains.

This and the construction manpower crunch may also lead to delays in construction - and that could potentially eat into the five-year deadline stipulated for developers to finish building a residential project and sell all its units - from the acquisition of a site.

It is wise to bid more conservatively for land to leave some buffer to allow the project to be launched in, say, 10 to 12 months, at a price that would be attractive to buyers.

What is also noteworthy about the March 3 tender closing is the strategies of some bidders.

A UOL Group-led consortium emerged as the top bidder for Canberra Drive (Parcel B). It also bid, albeit unsuccessfully, for Parcel A, which went to a unit of boutique developer JBE Holdings Group.

In the past few years, UOL has been concentrating on city-fringe private housing projects catering to both property investors and owner occupiers.

The group could have decided that at this juncture, it may be prudent to focus on the entry-level, suburban mass-market segment of Singapore's private housing market.

This segment caters to those buying a home for their own occupation, be they first-time buyers or HDB upgraders - making this a more resilient business.

Interestingly, Frasers Property, which prior to March 3 no longer had any Singapore residential landbank, decided to go for an even safer market segment - executive condominium (EC) housing. A strong point which the EC market has going for it now is the low pipeline supply - unlike the private condo market.

Frasers Property, controlled by Thai billionaire Charoen Sirivadhanabhakdi, chose not to bid for either of the Canberra Drive private condo sites but instead zoomed in on an EC plot along Fernvale Lane in the Sengkang area offered at the same tender.

ECs are a public-private housing hybrid and cater to the sandwich class of Singapore citizen households whose incomes are too high to qualify them to buy a new public housing flat but who may find prices of private homes beyond their reach.

Frasers Property beat six competitors to clinch the Fernvale Lane EC plot for S$555 psf ppr. It plans to develop some 500 homes on the plot, which is across the road from shopping mall Greenwich V and near the Fernvale LRT station and The Seletar Mall.

The seven bids received for the site is the same as for the Anchorvale Crescent EC site sold in September 2018 and which is being developed into the Ola project.

Although Frasers Property's winning bid was within market expectations, it was 3.7 per cent lower than that of the Ola site.

Even in the most assured segment of the residential market open to private-sector developers, sentiment has turned cautious.