Bullish land bids offer value proposition in existing projects

By Feily Sofian

/ The Edge Property |

July 16, 2017 9:00 AM SGT

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Sentiment in the residential market has been boosted by the bullish bids put in by developers for recent state tenders. In the latest tussle, Chip Eng Seng, Heeton and KSH jointly submitted a top bid of $700.7 million for a plum residential site next to the Woodleigh MRT station. The bid works out to $1,110 psf per plot ratio (ppr).

A higher land price would mean that the average development cost will be elevated and, under normal circumstances, this would translate into higher selling prices for new launches. Based on the top bid, the break-even price for the Woodleigh site is estimated to be $1,600 psf, which is likely to translate into a launch price of above $1,800 psf.

Prices of existing projects, as a result, become a value proposition among buyers looking to ride on future launch prices for capital appreciation. Following the sale of the Margaret Drive residential site in December, sales at Commonwealth Towers spiked from an average of six units a month in 2016 to 44 units a month between January and June this year. This takes the sales tally at Commonwealth Towers to 709 units at an average price of $1,684 psf.

The Margaret Drive site fetched $998 psf ppr, 13% higher than the $883 psf ppr paid for the Commonwealth Towers site in February 2013. In May, Logan Property Holdings and Nanshan Group outbid 12 developers to clinch a site on Stirling Road, in the vicinity of Commonwealth Towers, for slightly over $1 billion, or $1,051 psf ppr.

Developers have submitted bullish bids in state tenders since mid-2016 in response to tighter land supply released under the Government Land Sales (GLS) programme. Nearly 30 private housing sites were launched for sale in 2011, excluding executive condo sites. In comparison, fewer than 10 private housing sites were launched for sale in 2016. The lower supply of state land has also revived collective sale activities as developers pursue alternative land sources.

In February, China Construction paid $592 psf ppr for a private housing site on West Coast Vale, 7% higher than the $551 psf ppr that EL Development paid for its Parc Riviera site next door. An average of 86 units were sold each month in Parc Riviera between February and June this year.

An average of 86 units were sold each month in Parc Riviera between February and June this year

Separately, Tampines Avenue 10 (Parcel C) was sold in May for $565 psf ppr, a 17% premium to the $483 psf ppr paid for The Alps Residences site in May 2015, but on a par with the $562 psf ppr fetched by The Santorini site in July 2013. The Santorini was the bestselling project in June, with 75 units sold at an average price of $1,030 psf, which brings the takeup rate for the 597-unit project to nearly 90%.

Aside from the bullish land bids, the price premium at recent launches has also spurred sales at existing projects. Following the launch of Park Place Residences at PLQ next to the Paya Lebar MRT station in March, sales at Tre Residences, next to the Aljunied MRT station, picked up to between 18 and 35 units a month from March to June this year. There were only four transactions for the whole of 2016 and in January and February this year. In the vicinity, sales at Sims Urban Oasis averaged 44 units a month between March and June this year, up from 17 a month between January 2016 and February 2017.

Spike in resale volume

The value proposition is more pronounced for completed projects in similar microsegments. Three units at Blossoms @ Woodleigh, a freehold condo near the Woodleigh MRT station, changed hands at an average price of $1,230 psf this year. The project was completed in 2007.

Developer sales at delicensed projects have also gathered momentum. After a lone sale in 2016, CapitaLand moved 15 units at Sky Habitat this year, based on URA caveat record. The units were transacted at an average price of $1,452 psf. The project, located within walking distance of the Bishan MRT station and Junction 8 shopping mall, is renowned for its bold step-pyramid architecture, the brainchild of world-acclaimed architect Moshe Safdie.

Sky Habitat was completed in 2015 and has been delicensed. A residential project may be delicensed if it has obtained a Certificate of Statutory Completion and if individual strata titles have been issued to buyers. Developers of delicensed projects are not required by law to submit weekly sales data to URA. In addition, they have more flexibility to launch creative marketing schemes. Catalysing the sales at Sky Habitat is the stay-then-pay programme that CapitaLand rolled out early this year. The programme allows Singaporeans and permanent residents to make a 10% upfront payment, stay in the property and pay the remaining 90% one year later. For foreign purchasers, the upfront payment is 15%.

Resale transactions for private non-landed homes jumped 50% y-o-y to 2,730 in 2Q2017, up from 1,822 in 2Q2016, based on URA caveat record as at July 12. Developer sales surged 41% y-o-y from 2,141 to 3,009 over the same period.

Fifteen units at Sky Habitat were transacted this year at an average price of $1,452 psf

Source: CapitaLand

Three units at Blossoms @ Woodleigh, a freehold condo next to Woodleigh MRT station, changed hands this year at an average price of $1,230 psf

Defensive assets

The trend of optimistic land bids is likely to continue as the government sticks to its calibrated approach in releasing land under the 2H2017 GLS programme. The supply of 2,840 housing units on the Confirmed List is just slightly higher than 1H2017’s 2,330 units. Meanwhile, the supply of 5,285 units from the Reserve List is also close to the 5,135 units from the 1H2017 Reserve List.

While recent land sales and transaction volumes paint a rosier picture for the Singapore residential market, macroeconomic uncertainties, elevated supply and weak rental market persist. When the market relays mixed signals, defensive assets offer a safe haven for investors. For capital appreciation, consider projects with a competitive entry price and early-mover advantage. Separately, projects with an MRT station and a shopping mall on their doorstep score high in rental resiliency.

A case in point is A Treasure Trove, which is located a stone’s throw away from the Punggol MRT station. Capital appreciation in the project was among the highest island-wide between 2011 and 2016, bolstered by pricier projects launched in subsequent periods and the completion of a new mall in the vicinity.

In the rental segment, monthly rents for 800 to 900 sq ft units at Bedok Residences held firm at $3,300 on average between 2Q2016 and 2Q2017, while a majority of rental units remain mired in challenges. Bedok Residences is a 583-unit project that sits atop Bedok Mall and is located next to the Bedok MRT station. At A Treasure Trove, monthly rents slipped by a modest pace of 3.6% y-o-y for 700 to 800 sq ft units and 2.4% for 1,000 to 1,100 sq ft units in 2Q2017. In comparison, the URA rental index for private non-landed homes in Outside Central Region fell 5.2% y-o-y in 1Q2017.

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