Where have all the land buyers gone?

By
Alice Tan and Leonard Tay
,
Knight Frank Singapore
/ EdgeProp Singapore
|
March 12, 2021 6:44 AM SGT
Robin Road Condominiums - EDGEPROP SINGAPORE
The uncertainties caused by the pandemic-led recession had developers watching and waiting on the sidelines in the land sales market for the most of 2020 (Samuel Isaac Chua/The Edge Singapore)
SINGAPORE (EDGEPROP) - While the entire country went into recession in 2020, the private residential market in Singapore continued chugging right along, seemingly immune to the economic fallout of the Covid-19 pandemic.
In 2020, transaction volumes in both the primary and secondary sales market accounted for 9,982 units and 10,927 units respectively, edging out the new sales volume of 9,912 units and the resale total of 9,238 units in 2019. It is ironic that a year characterised by a pandemic-induced recession would perform better when compared against what would largely be considered as an ordinary one.
Nonetheless, while brisk sales were grabbing all the headlines, the uncertainties caused by the pandemic-led recession had developers watching and waiting on the sidelines in the land sales market for the most of 2020, reticent on committing to acquiring development land, especially when Covid-19 appeared to be out of control, ravaging economies in Singapore and all over the world. As a result, five private residential and two executive condominium (EC) sites were awarded under the Government Land Sales (GLS) Programme in 2020, making for a mere total of about 2,625 future units. Compared to the seven private residential sites and two EC sites that were awarded in 2019, the likely numbers of units that can be developed from GLS sites bought in 2020 is 37.4% less than the potential of 4,195 units from GLS sites sold in 2019.
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Fairhaven-Sophia-Ville-JLL - EDGEPROP SINGAPORE
There were only three collective sales in 2020 from the smallish developments of Yuen Sing Mansion, Advance Apartment and Sophia Ville and Fairhaven (combined, pictured) accounting for a total of about $103.7 million (Photo: JLL)
Things were quieter on the collective sales market front. There were only three collective sales in 2020 from the smallish developments of Yuen Sing Mansion, Advance Apartment and Sophia Ville and Fairhaven (combined), accounting for a total of about $103.7 million. This was about 73.4% less than the total volume of collective sales in 2019 estimated at $390.5 million, even though the number of collective sales in 2019 was considered miniscule compared to the enbloc heydays of 2017 and 2018.
In essence, 2020 was a gap year for acquiring land sites for private residential development while home sales remained buoyant. The unsold inventory (taking into account all stages of development, from planned to completed units) at end-2020 totalled 27,437 units, about 3.9% lower than the 28,557 units registered as at end-2016 — just before the collective sales run of 2017 and 2018. The biggest culprit contributing to the diminished unsold inventory — the lowest in more than 10 years — was the number of units in the planning stage without prerequisites for sale. At 9,921 units by end-2020, these units are typically at the early stages of a project development and are 30.5% below the 14,285 units in the same category in 2016.
Collective Sales - EDGEPROP SINGAPORE
All of the above factors could possibly combine to create a compression point where developers will compete aggressively to secure limited available land parcels, whether it be from the public or the private sector, in the limited 728 sq km that encompasses Singapore. It is not helped by the fact that between the 2H2020 GLS list and the 1H2021 GLS, a conservative increase of an estimated 235 private residential units was observed on the Confirmed List, and an increase of 375 units in both the Confirmed and Reserve Lists combined. The modest supply could imply the authorities’ conservative stance in the near term and monitor the existing unsold inventory amidst the economic recession. Yet, should homebuying demand stay resilient or strengthen as the pandemic situation improves with the economy reopening at a faster clip by the end of first half 2021, the potentially quicker absorption of new sales could lead to fresh demand for land bank. More developers could then step up their search for opportunities from the GLS programme and collective sale sources.
So, a few things might possibly happen in 2021. Most likely, some of the sites on the 1H 2021 Reserve List will be triggered for tender. And it would not be a stretch of the imagination that developers will form partnerships to share in the slice of the available land sites, as well as the risk of escalating construction costs.
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Unsold inventory - EDGEPROP SINGAPORE
Additionally, it is possible for collective sales to be successful this year, especially for smaller quantum sites consisting of a project potential of about 200 units, priced within $200 million. For this to happen, however, existing homeowners and developers would have to find a reasonable middle ground where both parties could benefit in the prevailing uncertain economic conditions. And finding that middle ground will be hard to do. Construction costs have been on the increase in part due to the skilled workers unable to enter Singapore from across the Causeway and from elsewhere. Developers are mindful of this and would have to mitigate land costs against rising construction costs so as to keep the overall selling price within the means of homebuyers and not to risk prices from moving up too abruptly. This would not only price certain buyers out of the market but will likely lead to more measures by the government, who are already watching the market closely.
Of course, not all sellers of prospective collective sales projects will have exceedingly high price expectations. There will be some who might be willing to trade in their aging home and downgrade or right-size to a more manageable footprint and location, especially if they are retirees whose children have grown up and left home.
Regardless of what happens in 2021, the unique year of Covid-19 in 2020 will make for some interesting times in both the public and private residential land sales market in 2021. While the collective sales cycle might appear to occur every ten years or so, the advent of Covid-19 creating a gap year with a dearth of land sales suggests that the regular collective sales cycle might have been short-circuited. Assuming that the pace of developer sales and resale transactions stay the same course as in 2020, developers will be itching for land sooner rather than later.
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Alice Tan - EDGEPROP SINGAPORE
Alice Tan, head of consultancy at Knight Frank Singapore
Leonard Tay - EDGEPROP SINGAPORE
Leonard Tay, head of research at Knight Frank Singapore