ANALYSIS: Cautious response to Jalan Tembusu GLS amid new regulations
By Elizabeth Choong
/ EdgeProp Singapore |
The Jalan Tembusu GLS site was awarded to Sim Lian Group last month. (Image: EdgeProp LandLens)
SINGAPORE (EDGEPROP) - A land parcel at Jalan Tembusu was awarded to Sim Lian Group for $828.8 million ($1,069 psf ppr) in August. The site was on the confirmed list for the government land sale (GLS) program for 1H2023. Only two bids were received when the tender for the site closed.
In this article, we examine possible reasons for the lukewarm response in interest level for the recent Jalan Tembusu GLS. We will also use the bid for the Tembusu Grand site for comparison purposes and analysis.
The attributes of the site are one of the key factors
The Jalan Tembusu GLS site has a site area of 221,438 sq ft and a maximum GFA of 775,040 sq ft, while Tembusu Grand has a site area of 210,623 sq ft with a maximum GFA of 589,749 sq ft. The Jalan Tembusu GLS site is larger and has a higher maximum GFA, which translates to higher capital outlay and development risk for the developer.
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The Jalan Tembusu GLS site is located beside a future nursing home, which could be viewed negatively by some buyers. In contrast, a road separates Tembusu Grand from the nursing home.
The tender documents for the Jalan Tembusu GLS site also state that the successful tenderer must create a 0.52-ha public park beside the subject site and retain nine rain trees in the park. The park must comply with the requirements of NParks and URA. The creation of the public park would add to the development cost for the site. In contrast, the developer for Tembusu Grand does not have to create a nearby public park.
Demand dampened by higher ABSD rates
The government introduced a slew of regulations between the tender closure dates for both sites, which had a significant impact on demand from buyers.
In February, the government increased Buyer’s Stamp Duty rates for higher-value properties. Two months later, rates for Additional Buyer’s Stamp Duty (ABSD) were increased. The higher ABSD was particularly impactful on foreign buyers because the rate for this group of buyers doubled from 30% to 60%. ABSD rates were also increased for Singaporeans and Singaporean permanent residents (PRs) who purchase more than one residential property. There was significantly weaker demand from foreign buyers after the introduction of the higher ABSD rates.
From January to April, foreign buyers accounted for 5.9% to 8.7% of the total number of condo units transacted in Singapore during the respective months. However, the proportion dropped to a mere 1.5% to 3.2% from May to August.
The proportion for PRs remained largely unchanged. They accounted for 14.4% to 21.4% of total condo sales for the first four months of this year and 14.7% to 20.0% from May to August. Singaporean buyers made up a higher percentage of total sales after the increase in ABSD, increasing from 71.4% to 79.3% between January and April to 77.8% to 83.7% from May to August.
If we delve into condo sale transactions for only District 15, April and May each saw 10 foreign buyers per month, which marked the highest monthly number for this year. Thereafter, the number of condo units in District 15 purchased by foreign buyers plummeted to only one unit in June and eight units in July. Foreign buyers did not buy any condo units in District 15 last month.
The weaker demand from foreign buyers has had a dampening effect on overall price growth for newly launched condos in Singapore. The average price for islandwide 99-year leasehold new condos dipped by 7.0%, from $2,472 psf in May to $2,300 psf in August. The average prices for their counterparts in District 15 proved to be more resilient, inching up by 2.1% from $2,468 psf to $2,519 psf over the same timeframe.
Harmonisation of GFA definitions
In June 2022, URA released a circular announcing that new harmonized floor area definitions will be adopted by URA, the Singapore Land Authority (SLA), the Building and Construction Authority (BCA), and the Singapore Civil Defence Force (SCDF). The different government agencies had been using different definitions of floor area, so harmonizing these definitions would reduce confusion for property owners and save real estate professionals time when preparing documents for the various government agencies. The new definitions took effect on June 1.
The main changes can be summarized as follows:
- 1. Floor areas will be measured to the middle of the wall
- 2. All strata areas will be included as gross floor area (GFA)
- 3. All void spaces will be excluded from strata area
- 4. BCA and SCDF will adopt an aligned definition for statistical GFA
Prior to adopting the new definitions, aircon ledges and void spaces were not included in the total GFA of a development but were included as part of the saleable area of a unit. The new definitions mean that these areas will now be included as part of the total GFA for the development, which could spell the end of oversized aircon ledges and void spaces, benefiting buyers. On the flip side, the reduction in saleable GFA could negatively impact the profit margins of developers. Market observers estimate that a 5% reduction in saleable GFA.
Since the new definitions apply only to development applications received on or after June 1, they did not apply to Tembusu Grand. However, developers of the Jalan Tembusu GLS site will be subject to the new definitions. This could have affected developers’ level of interest for the site and put downward pressure on their bid prices.
Read also: Stately opulence at Grand Dunman
Significant competition from nearby developments
In addition to Tembusu Grand, there are two other new condos within a 1km radius of the Jalan Tembusu GLS site namely, Dunman Grand and The Continuum. The aforementioned developments were popular with buyers during their launches.
Tembusu Grand was launched in April, and 53% of its 638 units were sold at an average price of $2,465 psf. The 99-year leasehold development has achieved a cumulative take-up of 57.7% and an average price of $2,357 psf.
Grand Dunman is sited on a 99-year leasehold GLS plot that was awarded to SingHaiyi Group for $1.284 billion ($1,350 psf ppr) in June last year. The 1,008-unit condo saw a take-up of 54.6% and an average price of $2,500 psf when it was launched in July. Cumulative take-up has since increased to 56.3%, and the average price has also edged up to $2,564 psf.
During its launch in May, 26.5% of the 816 units in The Continuum were sold at an average price of $2,732 psf. Cumulative take-up has increased to 32.6%, while the average price has risen to $2,744 psf for the freehold development.
Collectively, Tembusu Grand, Grand Dunman, and The Continuum have 2,462 units. Of these, an estimated 1,201 units have been sold, which translates to an overall take-up rate of 48.8%.
After the tender closed for the Jalan Tembusu GLS site, Lam Chern Woon, Head of Research and Consulting at Edmund Tie commented that “…the muted bidding interest is attributed to the fact that homebuyers would be spoilt for choice between the upcoming project (which can yield about 840 housing units) and three other recently launched large projects in the vicinity: The Continuum, Tembusu Grand and Grand Dunman.”
The lacklustre response from developers for the Jalan Tembusu GLS site could also be attributed to the limited number of remaining potential buyers for the future development on the site. Buyers interested in purchasing a condo unit in the neighbourhood would probably have purchased a unit in the three developments that have already been launched.
Developers keeping their powder dry
There are eight residential sites in the confirmed list of the GLS program for 2H2023, which can yield an estimated 5,160 residential units (including 560 executive condo units). In comparison, the GLS confirmed list for 1H2023 features five residential sites with an estimated 2,715 units and two white sites with an estimated 1,375 residential units.
Of the five residential sites in the previous confirmed list, all the land parcels are in the heartlands. However, the list for the second half of this year features more compelling sites, with several of them in prime or central locations. Their better locational attributes are expected to generate more interest from developers.
Commenting on the tender closure for the Jalan Tembusu GLS site, Eugene Lim, Key Executive Officer of ERA Realty Network said “…considering the scale of this large project which is estimated to encompass an estimated 840 units, it is reasonable to expect developers to exercise caution and perhaps also reserve their funds for other sites that will be launched over the following months.”
One of the sites on the GLS list for 2H2023 is located beside the Orchard Boulevard MRT Station and can yield an estimated 270 units. The site's excellent locational attributes and the rarity of residential GLS sites in Orchard is expected to attract numerous tender bids.
The GLS confirmed list features two other sites in central locations, namely Zion Road (Parcel A) and Lorong 1 Toa Payoh, which can yield an estimated 955 and 775 residential units, respectively. In addition, there is a site in the Bukit Timah planning area, namely Pine Grove (Parcel B), that can yield an estimated 565 units. Finally, Zion Road (Parcel B) with an estimated 605 units and Holland Drive with an estimated 680 units are on the reserve list.
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