Pasir Ris 8 excitement increases policy risks for developers even as they eye margins

Price increases in this OCR (Outside Central Region) segment, which deals with a lot of HDB upgraders, may spark authorities to introduce property cooling measures

Jul 29, 2021


THE Pasir Ris 8 project launched for sale merely last weekend offers fresh evidence of continuing strength in the Outside Central Region (OCR) segment for private residences.

Yet with sales behind this project hitting fever pitch - alongside a marketing method that had units offloaded at unusually quick and large price jumps in a single day - some questions will be stirred on the level of froth in the property market.

Developers along with new project launches are likely to weigh opportunity for richer margins against policy risks.

Over the weekend, 415 units at Pasir Ris 8 - or 85 percent of the total supply of 487 apartments - were purchased.

Prices of units sold ranged from S$ 1,400 per square foot (psf) to S$ 2,000 psf, with the average price being close to S$ 1,600 psf as at Sunday.

There were six rounds of price hikes for the units on Saturday. A two-bedroom, 721 square feet unit on the fourth floor was understood to have been going for S$1.459 million by Sunday, which works out to more than S$2,020 psf - a pricing that is typically commanded by homes in prime districts.

This breathless chase for a property in the eastern-end of Singapore comes as prices of non-landed properties in the OCR segment rose at a quicker pace than the overall private-home market in the second quarter.

Private home prices in Singapore rose 0.8 per cent in Q2 this year, slowing from 3.3 per cent in the previous quarter, data from the Urban Redevelopment Authority (URA) showed.

But prices of non-landed properties in the OCR rose 1.9 per cent. The pace was also stronger than the 1.1 per cent gain in the previous quarter, and is likely supported by HDB upgraders.

The frenzy at Pasir Ris 8 could possibly be due to some unique selling points. The 99-year leasehold site at Pasir Ris Central, on which this project is being developed, was put up for sale by the HDB in August 2018 using the concept and price revenue tender system.

For this site, HDB was looking for a commercial and residential development that would be integrated with a bus interchange, a polyclinic and a town plaza. Quality development concepts with seamless integration of amenities and well-designed public spaces would be shortlisted, before looking at tender pricing.

Two bids were shortlisted with the joint venture of Allgreen Properties and Kerry Properties prevailing at a price of S$684.5 psf per plot ratio (ppr).

Pasir Ris 8 comprises one to four bedroom units that sit on top of a new three-storey shopping mall.

Perhaps the draw of an integrated development that is directly connected to Pasir Ris MRT station, Pasir Ris bus interchange and a shopping mall proved irresistible to buyers, be it for owner occupation or investment.

The timing of the launch was also good. Singapore recently saw the return of Phase 2 (Heightened Alert) in its fight against the Covid-19 pandemic, but this did not dampen demand by developers for residential sites.

The close of tenders for an executive condominium and a private condominium site on July 22 drew nine bids each, with bullish top bids, which shows developers are positive on the outlook for the home market.

GuocoLand submitted the top bid of S$1,204 psf ppr for a 99-year leasehold plot next to the upcoming Lentor MRT station that is designated for private housing development with commercial space at first storey. Analysts estimate the potential selling price of residential units for the future development at S$1,950-S$2,000 psf.

All this positive news flow likely buoyed buying sentiment at Pasir Ris 8's launch.

But should the developer have hiked prices multiple times - and at such large quantums - on one day? Was this fair to potential buyers?

Private home developers do not face regulatory restrictions on setting of prices. It is not unheard of for prices of projects to gradually rise as inventory of unsold units declines. Potential buyers can say no if they do not like the pricing even if their agents try to dissuade them.

Might Allgreen and Kerry have underestimated the demand for Pasir Ris 8 and underpriced the units initially?

Good residential developers would be expected to work hard to meet customer needs by delivering high quality finished products. But as a business, developers would seek to maximise financial returns including by raising selling prices so long as these price increases can be absorbed by the market.

Historically, developers have suffered when property cooling measures were introduced, so it is within reason to expect developers to be opportunistic in pushing higher selling prices when the going is good.

The pace and scale of infrastructure development in Singapore has improved the attributes of many locations in the OCR. The low interest rate environment coupled with confidence that Singapore can rebound from the pandemic support buying interest in homes here.

The sale performance of Pasir Ris 8 will likely boost sales momentum of other new projects and present opportunities for other developers to raise selling prices.

But the frenzy at Pasir Ris 8, especially if followed by aggressive moves by other developers, could up the ante on the government to introduce property cooling measures.

The OCR segment of the private home market, which caters to many HDB upgraders, is after all likely to be very closely monitored by authorities.

Notably, in a statement to BT, URA said prices of properties sold are determined by developers based on market conditions. But the authority said too that it monitors the marketing and sale practices of developers and "when necessary, adjusts its policies to ensure that the interests of property purchasers are protected".

Marketing materials for new homes can be compelling. Anxiety as well as greed can come to the fore in a rising private home market.

When seeming to buy that new dream apartment unit, prospective buyers will need to stay risk-free by doing their sums and remain financially sensible. They have to be prepared to walk away if need be - all easier said than done.