Collective sales hit $2.65b, but face speed bump

Grace Leong
Senior Business Correspondent

20 December 2021

SINGAPORE - The collective sale market has defied the trials and tribulations of the pandemic over the past 12 months but the road ahead just got a lot bumpier, thanks to a new round of property cooling measures.

The numbers underscore the fact that 2021 has certainly had its moments: 10 collective sale sites worth around $2.65 billion have been sold to developers so far this year, compared with deals totalling just $127.3 million last year, JLL noted.

This month alone - two District 9 properties accounted for more than $1.2 billion, or nearly half of the year's total transaction volume.

The $650 million sale of mixed-use project Peace Centre/Peace Mansion - the largest deal by quantum this cycle - augurs a brightening outlook for commercial properties.

And on Dec 9, the freehold High Point condominium in Mount Elizabeth was snapped up by Hong Kong's Shun Tak Holdings for about $556.7 million.

While collective sale activity has certainly revved up this year, it still falls far short of the blockbuster cycle in 2018 when transaction volumes worth about $10 billion were racked up, while 2017 accounted for $8.1 billion.

Developers were hamstrung by the 2018 cooling measures, plus rising construction costs as a result of pandemic-induced disruptions.

They also have to factor in larger minimum unit sizes for new private apartments in projects outside the central area, from 70 sq m to 85 sq m, and in some areas, to 100 sq m. These guidelines apply to development applications for projects submitted on or after Jan 17, 2019, and affect pricing as larger units typically imply lower per sq ft prices, analysts say.

This triple whammy has kept developers on a tight rein, resulting in smaller and more realistically priced collective sale plots selling faster than mega sites so far.

But any hopes of collective sale activity continuing to gather steam crashed last Thursday (Dec 16), when a new round of property curbs kicked in.

These include higher additional buyer's stamp duty (ABSD) rates - up by 5 to 15 percentage points - for all entities except Singapore citizens and permanent residents buying their first residential property. The total debt servicing ratio threshold and the loan-to-value limits for Housing Board loans were also tightened.

This bolt from the blue will likely slow the collective sale market's momentum as development risks have further heightened, with the remittable ABSD rate for developers jacked up from 25 per cent to 35 per cent.

That means if a developer fails to complete the project and sell all its units within five years of acquiring the site, it will have to pay 35 per cent ABSD with interest. On top of that, developers are still subject to a 5 per cent non-remittable ABSD.

"Developers are likely to be even more selective and cautious. But small to medium-sized sites with good location attributes and little competition from GLS (Government Land Sales) sites can still find buyers, if asking prices are realistic," noted CBRE research head (South-east Asia) Tricia Song.

JLL executive director Tan Hong Boon said mid-size collective sale sites with 100 to 300 units that are marketed at between $200 million and $500 million are "in a sweet spot" due to their palatable sizes.

But Cushman & Wakefield research head Wong Xian Yang warned that the higher ABSD rates, coupled with construction uncertainties and uncertain demand owing to the new property curbs, have increased development risks for large-scale projects.

"Interest in the CBD Incentive Scheme would also cool, given current challenges and risks in the hospitality and private residential markets," he added.

The CBD Incentive Scheme aims to encourage the conversion of older and predominantly office developments in the Central Business District into mixed-use buildings.

Nonetheless, many collective sale hopefuls may go ahead with their launches, and developers still have to buy land amid dwindling unsold inventory.

There were only 17,165 unsold private residential units as at the third quarter this year, 12 per cent lower than in the second quarter, and a 55 per cent plunge from a high of 37,799 units in the first quarter of 2019, Mr Wong said.

The Government hopes to ensure market stability by raising the supply of private homes from sites on its confirmed list for the first half of next year by about 40 per cent to 2,785 units, compared with the 2,000 for this current half.

Confirmed list sites are launched according to schedule, regardless of demand.

Analysts say this increase is relatively modest and collective sale sites, in comparison, can offer freehold tenure in popular city-centre locations.

"But as GLS sites offer more certainty on deal completion and timing, developers would prefer land acquisition via the GLS route in uncertain times, which is what happened after the 2018 cooling measures," Ms Song noted.

Still, tender participation and bid prices are expected to moderate following the new property curbs, said Mr Ong Teck Hui, senior director of research and consultancy at JLL.

And larger GLS sites which require a higher capital outlay may find fewer bidders and less optimistic bidding, given the higher risk, Mr Ong said.



https://www.straitstimes.com/busines...e-speed-bump-0