Time to pay heed to weak participation in state land tenders

The government could explore ways to raise developers’ participation at these tenders

Apr 15, 2024.

THE authorities here work hard to maintain an adequate supply of homes and to ensure that prices do not run away.

Various measures have been imposed to keep speculation at bay, and to ensure financial prudence among home buyers, such as the loan-to-value ratio, total debt servicing ratio, mortgage servicing ratio, Additional Buyer’s Stamp Duty (ABSD) and Seller’s Stamp Duty.

On the public housing front, more Housing and Development Board (HDB) flats are being built to meet growing demand, and buyers of HDB flats in choice locations face tougher resale restrictions.

With private housing, the government ensures there is sufficient supply by putting up residential sites for sale in its Government Land Sales (GLS) programme.

However, while the government builds HDB flats, the building of private homes is left to private developers. What this means is that the supply of private homes may fall short of what the government envisages from its land sales programme.

In February, the Urban Redevelopment Authority (URA) rejected the sole bid for the white site in Marina Gardens Crescent, which had been launched for sale under the Confirmed List of the H1 2023 GLS Programme. The bid price for the site, slated for residential and commercial development with an estimated 775 private homes, was deemed too low.

Sole bids

In today’s market, it has become increasingly prevalent for GLS sites with residential components to draw sole bids instead of several. Each of the two Confirmed List sites with housing components, the tenders for which closed on Apr 4, also attracted only one bid.

A tie-up between City Developments Ltd : C09 0% (CDL) and Mitsui Fudosan was the sole bidder for a Zion Road site, which is to be used to build homes and long-stay serviced apartments; a GuocoLand : F17 0%-Hong Leong Holdings joint venture was the sole bidder for an Upper Thomson Road housing site.

Bid prices for both sites came in below market expectations.

The tender for the Jurong Lake District master-developer GLS site, which is to be used largely for offices and homes, drew interest from one consortium. CapitaLand Development, CDL, Frasers Property : TQ5 0%, Mitsubishi Estate and Mitsui Fudosan (Asia) submitted two joint bids with different concept proposals, for this site. The tender closed on Mar 26.



High construction costs and interest rates, coupled with uncertain demand, could be driving the negative sentiment among private housing developers.

Demand for homes in prime locations has been hit by the April 2023 raising of ABSD for Singapore citizens and permanent residents (PRs) buying multiple homes, and for non-PR foreigners buying any home. ABSD applicable to non-PR foreigners doubled from 30 per cent to 60 per cent.

Are the risks of state land tenders drawing top bids unacceptable to the government – or even drawing no bids at all – rising?

If the planned new private housing supply from Confirmed List GLS sites does not materialise, there could be inadequate private housing supply in a few years. This is especially so, given that activity in the residential en bloc sale market is muted, resulting in fewer redevelopment sites becoming available.

Any shortfall in housing completions would be difficult to rectify quickly because new homes take a few years to be built.

Having insufficient private homes may in turn trigger sharp rises in prices and rental rates. This affects driven young locals looking to buy private homes. And the foreign talents Singapore is seeking to attract may be deterred by the lack of suitable homes to lease.

The next government tender for a housing site closes on May 14, for a site on Holland Drive. The number of bids and bid prices may well be healthy for this tender.

Raising interest

Still, it might be timely for the authorities to explore ways to ramp up the level of interest of developers in Confirmed List GLS housing sites.

Concerns over private housing demand can be eased with the lowering of ABSD rates for locals, for PRs buying multiple homes and non-PR foreigners buying any home. Could going back to levying 30 per cent ABSD on non-PR foreign home buyers restrict – but not kill – demand, while still enabling the collection of revenue for the government’s coffers?

Or perhaps, tweak the way GLS sites are sold to help ensure better price discovery.

As it stands, developers bidding for housing sites in state tenders are typically asked to submit bids in sealed envelopes by a specific date and time. Sites are then generally awarded based on price alone.

One possibility is for interested parties in Confirmed List GLS housing sites to gather on a specified date and an appointed time for an open-bidding process.

Let representatives of interested parties raise their hands and announce their bids. Other parties are free to offer higher bids until there is a final bid. The government can then be given time to ascertain if that bid price is acceptable.

Doing it this way may encourage cautious developers to step forward to bid instead of refraining from bidding.

Today, the net profit margin on private housing developments could be around 10 per cent. On a risk-reward basis, such a return may be unattractive.

Consider also that the yields on many low-risk instruments have risen. Housing developers bear many risks, including seeing a hefty clawback of ABSD remission if the homes they built are not sold within prescribed timelines.

Consider as well that property groups have many choices on where to deploy capital, including non-residential properties here, as well as in overseas properties.

Various property groups can also afford to go slow on property development, as they have recurrent income from investment properties to help pay the bills. Getting into a loss-making project could undermine credibility as well as inflict major financial harm.

Yet, we need profit-driven developers to bravely step forward to build new homes to ensure a sufficient private housing supply. If developers are inactive, many residents will find it harder to realise their dreams of living the condo lifestyle.

The authorities should pay heed to weak participation in state land tenders for housing sites, and be prepared to act to drum up participation among developers at tenders.

https://www.businesstimes.com.sg/opi...e-land-tenders