2H2015 Government Land Sales Programme: Developers awakened

By Lee Nai Jia / DTZ, The Edge Property | November 30, 2015 10:00 AM SGT
With more completions coming up in 2016, steps have been taken to slow down the Government Land Sales (GLS) Programme to thwart a potential supply glut. With limited options, developers and local investors decided to venture overseas for opportunities. In 3Q2015 alone, about $4.34 billion was invested overseas by Singaporean developers and investors. In contrast, the total real estate investment in the city state only amounted to $2.6 billion.
However, recent state tenders have seen developers returning to Singapore. There was an increase in the number of bids received for GLS sites amid the weakened private residential market. The last tender of the mixed use site at Alexandra View next to the Redhill MRT station saw 10 bids. The top bid was by Tang Skyline, for $376.88 million or $850.81 psf per plot ratio. Likewise, the land parcel at Lorong Lew Lian received 11 bids through the state tender, with City Developments Ltd and joint-venture partners Hong Leong Holdings and TID submitting the top bid of $321 million, or about $710 psf ppr for the site.
There are several theories that can explain the increase in the number of bidders. First, some developers hope to replenish their landbanks through the state tenders and, subsequently, benefit from any market recovery over the medium-term horizon. While some have ventured overseas to explore new development options, they still want to have a presence in Singapore.
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Second, the cost of procuring land for development via an enbloc sale is too high. Not only do developers have to pay an extra 15% of Additional Buyer’s Stamp Duty if they fail to sell all units in the development within five years of the date of contract or agreement, they are subject to stringent regulations under the Qualifying Certificate. The time constraints of completing construction and selling the project are major concerns as developers are usually hampered by the time lag between the two — for example, dealing with the Strata Titles Board, moving out existing residents and demolishing the old development. The GLS programme, alternatively, provides a more transparent and predictable avenue to procure land parcels.
While the land parcels in the 2H GLS Programme received more offers, the bidding was more measured. For the Alexandra View site, the second-highest bid was about 4.5% less than the winning bid. The same bidding behaviour was observed during the site tender for the land parcel on Lorong Lew Lian; the top five bids were within a 4.8% margin. Developers are more discerning, too, as they are more willing to participate in state tenders for smaller sites at choice locations. As end-2015 draws near, bidding is expected to be competitive for the remaining land parcels in the GLS programme. Below is a short analysis of the residential sites in the confirmed list.
Clementi Avenue 1 site
Launched on Oct 23, the Clementi Avenue 1 site is likely to garner much interest among the developers because of its location. It has an area of 1.32 ha with a gross plot ratio (GPR) of 3.5 and can hold up to 460 units upon completion. The site is considered attractive as it will enjoy spillovers from the development of Jurong Gateway and the growing cluster of start-ups and high technology research and development institutions in one north. On its own, the site is close to many educational and academic institutions such as the National University of Singapore, NUS High School of Mathematics and Science, Singapore Polytechnic and Nan Hua High School.
The rental potential for the site is huge, as rents in the vicinity range from $2.70 to $4.40 per sq ft per month. Those who own cars can get into the CBD easily via the Ayer Rajah Expressway. But one of the drawbacks is that the site is at least 800m from the nearest MRT station. Another issue that the developers have to manage is noise pollution generated from an expressway nearby. According to Realis, prices for the newer private apartments in the vicinity range from$1,100 to $1,300 per sq ft, depending on the size of the unit. After adjusting for developers’ profit and construction costs, we anticipate the winning bid to range from $333 million to $358 million ($670 to $720 psf ppr).The site is likely to receive 10 to 16 bids, given its desirable location.
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Land parcel at Siglap Road
The land parcel at Siglap Road offers an interesting proposition to the developers as it is located near the Siglap MRT station on the Thomson East Coast line, which will complete in stages from 2019. The 1.93ha land parcel, which was recently launched, has a GPR of 3.5 and will yield 750 units when completed. Besides being close to East Coast Park, it is also within 2km of Victoria School and Ngee Ann Primary School. One of the downsides is the site’s leasehold tenure, as there are several competing projects in the area that are freehold. Prices for leasehold apartments in the vicinity range from $1,400 to $1,600 per sq ft. It is anticipated that the parcel will receive six to eight bids, with the winning bid ranging from $574million to $654 million ($790 to $859 psf ppr).
EC land parcel at Yio Chu Kang
The target market for the proposed development on the Yio Chu Kang executive condominium site is young families, given its proximity to Rosyth Primary School, Xinming Primary School and Xinming Secondary School. Even though the site is relatively far from the MRT stations, it is well served by public buses. However, the land parcel is also close to Bright Vision Hospital and several voluntary welfare organisations, which may be perceived as disamenities. With EC prices ranging from $650 to $800per sq ft in the same postal district, we anticipate the winning bid to range from $155 million to $178 million ($280 to $320 psf ppr). Given its lower quantum, the sale site is likely to attract interest from medium-sized developers.
Lee Nai Jia is associate director and regional head of research (Southeast Asia) at DTZ. He can be reached at naijia.lee@dtz.com.
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This article appeared in The Edge Property Pullout, Issue 705 (November 30, 2015) of The Edge Singapore.