En bloc sales are on the way: Analysts

by Ng Baoying [email protected]

11:55 AM Jun 17, 2009

SINGAPORE has not seen a single en bloc sale in over a year. But analysts said they would not be surprised if at least one takes place by year’s end, as developers are drawing down their inventories and may need to replenish their main raw material - land.

“At this stage, the market seems to be turning a corner. There seems to be a resurgence or confidence back in the market,” said Credo Real Estate managing director Karamjit Singh, whose firm is handling about five developments which are restarting or planning a collective sale.

“Quite a few developers have begun to clear substantial inventories to a point where they are very confident in the market tomorrow and day after, and are beginning to buy land today, or at least making enquiries about what’s available to buy.”

Recent buoyant private home sales spell lower stock for developers. Some 5,526 units were sold in the primary market from January to May, surpassing the 4,435 units sold in the whole of last year.

And analysts expect the uptrend to last through to December, which means more than 10,000 units will be sold this year - a significant number for a recession year compared to the record 14,811 units sold during the market’s peak in 2007.

Financially, home builders appear to be in a good place.

Said Ms Christina Sim, director of investment at Cushman and Wakefield: “I think once a developer sells more than 50 per cent of a development, they are basically on the home stretch already. So, whatever they make on the rest of the units is basically profits. Their cash flow position would be a lot better. So financially, it’s not as risky.”

The main source of development sites come from either the Government or private sales. Since there are few public sites available, developers are expected to turn to collective sale sites. Analysts say projects that stand a higher chance of being sold en bloc are smaller ones in prime locations.

Ms Lim is hoping for at least one en bloc sale this year to get the ball rolling. Credo is more bullish, expecting more than 10 sales by the year’s end.

Not all agree with this view. Real estate firms ERA Asia-Pacific and Colliers International said current action was mainly between developers, with larger ones buying over land plots from smaller firms that want to improve cash flows. And deals there may not translate into the en bloc market. Also, developers bought many sites before the property market was affected by the global financial crisis last year.

“A lot of developers have been keeping en bloc sites and renting properties to wait for market to recover. I think they’ll tread carefully,” said Ms Grace Ng, deputy managing director of agency and business services at Colliers International.

What the analysts and industry players agree on is that en bloc sellers will have to lower their expectations in the current climate.

“I expect they would have to scale down,” said Ms Lim. Her firm, Cushman and Wakefield, is marketing Meyer Place, whose land value was set in 2007, when high-end properties at East Coast went then for about $1,800 to $2,200 per square foot. Today, prices have fallen about 30 per cent.