Spore Residential enbloc Sale Market experience hard landing
Singapore’s residential block sale market has faced a challenging period, with many unsuccessful attempts. Pine Grove condominium was unable to sell the 99-year-leasehold site for its S$1.95 billion price tag in its 5th attempt at a group sale.
The flood of new land from the government land sale programme will continue divert attention and resources from the private land market.
The Business Times quoted market watchers as saying that, with more property players becoming risk-averse in their approach, the high condo asking prices of owners will be even more difficult to match.
Colliers reported in April that residential investment sale fell by 47.6 % quarter-onquarter in the 1st quarter of 2024. This equates to S$1.8 billion.
Even then, however, the property consulting firm noted that sales had been boosted mainly due to three government land sale (GLS), which generated around S$400M each.
GLS is currently releasing land for the H1 2024 period. This will result in 5,450 new private homes. This is 5,6% more than H2 2023’s supply of 5160 units, and is also the highest confirmed list supply since 2013.
A capital markets head in the property sector believes that developers are better off with GLS land than with collective sales sites, because there is a larger pool of land.
The GLS process (has greater certainty) of deal completion, and more pricing discretion when compared to the Collective Sale Process.
It adds another layer of difficulty, especially because developers have become more cautious as a result of the economic slowdown, tighter finance conditions, and increased inflation.
Land prices for 99-year-leasehold land parcels are beginning to decrease compared to the valuations from previous years. Some plots of state land sold for up 30 per cent lower than the last site sold.
Due to changing market dynamics, developers are now more likely to be willing and able commit themselves to a GLS than a site purchased en bloc.
Real estate researcher says that collective sales of land can be a good way to get freehold property in desirable locations. But some sites require a minimum price at which they would break even, above the market clearing prices.
In rare cases, GLS-sites have been purchased for much less than the price set by collective sale sites located nearby.
GLS sites have a “more market-driven” pricing system, compared to private land.
Owners are encouraged to look at GLS sites or other land sales around them.
Pinetree Hill Pricing is available now. Secure your preview pricing and an exclusive viewing with us to find out why this majestic development is a steal from CDL.
Even if GLS costs drop, it’s difficult to adjust the price downwards once the reserve has been established and the owners signed the collective contract.
Pine Grove was sold for S$1.95 billion, which translates into S$1.434 per square feet per plot ratio.
As prices of recent GLS developments in the vicinity had eased, an attempt was made at lowering the reserve price to S$1.78billion (or S$1,335psfppr).
A nearby Pine Grove plot (Parcel B) sold in November for S$692.4m, or S$1,223psf ppr. That price was about 7 per cent below the winning bid of Parcel B in June.
The price was reduced, but the effort failed to gain the consensus needed to do so.
According to property experts, the enbloc method is the best way for developers of today to obtain freehold and 999-year leasehold properties.
Singapore has also found that collective sales are a vital catalyst in “driving private-led urban redevelopment”.
GLS also offers nice “bitesized developments between 300 and 725 units”, which is more palatable to developers.
The property analyst adds that today, when buyers have so many options, a smaller site is less likely to be noticed by buyers. Agents may also not be as willing to promote a project.
Developers of large sites are at risk of having to pay Additional Buyer’s Duty if they fail to complete the project within five year of its award.
Sellers also have reasons for keeping high reserves.
Experts say that one of the most common reasons is because of the substantial increase in cost for property owners to purchase a replacement. Urban Redevelopment Authority’s total price index has grown by 37.5% in the period between Q1 2019, and Q1 2020.
Owners face higher Buyer’s stamp duty and ABSD. As a result, the “collective-sale premium” has been reduced to an amount that may not motivate owners.
Some owners are prepared to pay a premium as low as 30 percent, whereas in the past it had been at least 50 percent. If the reserve value is too low, then some owners might prefer to have their unit sold on the public market.
In the meantime, developers have to contend with rising construction costs. They also face still-high interest rate, land betterment cost on redevelopments and ABSD.
Pine Grove’s effective acquisition cost would have been close to S$3 Billion if the estimated LBC was S$1 Billion.
The current standoff will persist as both sides (developers/owners) have solid reasons to justify the prices they charge.
A researcher calculated that the “reasonable rate” a developer would want to pay for a large project in the suburbs or city fringe with over 700 units is “perhaps S$1,750-1,900 psf for its net salesable area”.
Current prices for the units are expected to remain above S$2,000. But buyers of the first launch preferred smaller and less expensive units.
In light of the high ABSD rate and the still-high mortgage rate, housing demand has been dampened. Developers are now being very selective.
Analyst added that this dragnet targeted mischievous plans, such as “99-1” tax-avoidance arrangements, which “sought blood out the rocks in order to generate more demand residential real estate.”
Developers need to also consider that each time a Merdeka shopper or a Gen X shopper dips in to their savings, this means there will be one less customer for any new product launches at prices near or above record.
It is impossible to predict the number of buyers that will remain. Therefore, developers must take this into account when they are bidding on land.
