Possible land supply crunch in 2021

By Lee Sze Teck,
Huttons Asia
/ EdgeProp Singapore |
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SINGAPORE (EDGEPROP) - The residential land sales market saw a stirring of interest in the past two months. Listed property developer Roxy-Pacific Holdings acquired 15 terraced houses in the Guillemard area for $93 million in November 2020. This makes it the largest collective sale in 2020 and brings the total number of reported collective sales this year to four, which is almost similar to 2019.
Just a month earlier, the first government land sales (GLS) tender at Tanah Merah Kechil Link after the lifting of the “circuit breaker” drew a whopping 15 bidders and a top bid of $930 psf per plot ratio (ppr). It was awarded to MCC Land on Nov 13 (Photo: Samuel Isaac Chua/EdgeProp Singapore)
Just a month earlier, the first government land sales (GLS) tender at Tanah Merah Kechil Link after the lifting of the “circuit breaker” drew a whopping 15 bidders and a top bid of $930 psf per plot ratio (ppr). It was awarded to MCC Land on Nov 13.
Putting aside the two-envelope system for the Holland Road GLS, the market has not seen such intense participation in a GLS tender since July 2017 where 15 bidders vied for a site at Woodleigh Lane. This is also the highest land bid for a GLS site in the Outside Central Region (OCR). It could be the palatable size and quantum, but the sheer number of bidders showed the hunger for land.

Reasons behind the acquisitions

Bearing in mind that we are currently in the midst of a pandemic and one of the worst economic crises since independence, there seems to be a disconnect between the property market and the economy.
Source: Huttons Research, URA
Developers sold an estimated 7,379 units in the first nine months of 2020, which is 1.2% lower than the same period in 2019. This trend is similar to what was observed during the SARS crisis when sales rebounded strongly. Pent-up demand notwithstanding, the Covid-19 pandemic has brought interest rates down as governments around the world inject funds to sup- port the economy and investors flock to stable assets which offer more predictable returns.
The surge in demand has led to dwindling unsold, uncompleted units in the market. Current unsold, uncompleted units stand at 26,483 and it has been trending downwards since 1Q2019. The last en-bloc cycle started in 2016 when the unsold, uncompleted units dropped to around 20,000 units. If the sales momentum continues in 1Q2021, the number of uncompleted, unsold inventory is likely to dip below 20,000 units.
Our analysis of projects with at least 700 units launched in 2018 showed that most of them are almost sold out within two years. Even the larger projects launched in 2019 have moved more than 60% of their units to date. This clearly shows the strong underlying de- mand for properties as people aspire to have a different lifestyle.
Source: Huttons Research, URA
There could be an increase in confidence among developers that the economy has seen its worst and will return to growth in 2021. The current Real Estate Sentiment Index compiled by the Institute of Real Estate & Urban Studies, National University of Singapore, improved from 3.1 in 2Q2020 to 5.3 in 3Q2020, and developers’ sentiment for the next six months has grown more optimistic.
In 3Q2020, the Singapore economy grew by 9.2% on a q-o-q basis and all segments of the economy also grew q-o-q. The Ministry of Trade and Industry expects the Singapore economy to grow between 4% and 6% in 2021. Another report by the Asean+3 Macro- economic Research Office highlighted that Singapore is set for a strong recovery in 2021, expanding by 7%.

Possible stumbling blocks

As developers’ inventory of unsold units continues to decline on the back of prospects of a strong economic recovery, their confidence has also increased. Consequently, they are on the lookout for suitable opportunities to replenish their landbanks.
Source: Huttons Research, URA
However, the path is not without obstacles. For one, the additional buyer’s stamp duty (ABSD) increases the risks and costs to developers and buyers alike. As developers have to stump up a 5% non-remissible ABSD, this forces them to reassess their options and cherry-pick the choicest sites.
The ABSD also impedes the redevelopment of larger sites such as Mandarin Gardens and may slow down the rejuvenation of our ageing stock. Allowing the subdivision of such mega-sites into palatable sizes with different ABSD dates may be one option to encourage redevelopment while ensuring that the aim of revitalising the area is achieved.
Second, the supply of land has been severely reduced in the wake of the cooling measures on July 6, 2018. Supply of land from the government has been on the decline since 1H2018. Based on the announced Confirmed List for 2H2020, there are only 755 private residential dwelling units. This is the lowest level since 1H2016. If the land supply from this source is not increased, developers may have to rely on the en-bloc market which has been anaemic since July 6, 2018.
Source: Huttons Asia, URA
The last en-bloc cycle started in 2016. Next year — 2021 — marks the fifth year since the cycle started, and most, if not all, developers would have sold out their units. Examples of projects reaching the five-year ABSD timeline in 2021 include Grandeur Park Residences, Seaside Residences, Martin Modern, Le Quest, Parc Botannia, Harbourview Gardens, Margaret Ville, The Tre Ver, Jui Residences and 3 Cuscaden.
Of these, Le Quest, Parc Botannia, Harbourview Gardens and Margaret Ville are already 100% sold, well ahead of the ABSD timeline.
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More supply of land required

There could be up to 30 new launches (including executive condominiums) in 2021 and perhaps a handful of new launches in 2022.
If the supply of land from the GLS programme or the en-bloc market is not increased to meet the strong demand, simple economic theory points to rising land prices which is something that nobody desires.
With unsold, uncompleted stock running low and stronger economic growth in 2021, it is timely to consider increasing the land supply under the GLS programme to ensure that there is a steady supply of residential units to meet demand.
Lee Sze Teck is the director of research at Huttons Asia (Credit: Huttons Asia)

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