Spore housing market will face a tough period of adjustment

Singapore’s residential market has seen a number of unsuccessful attempts at en bloc sales. Pine Grove condominium failed to sell its 99-year leasehold property for S$1.95billion in its fifth attempt at a collective auction earlier this month.
Developers will be diverted from the private market by the flood of land available through the government programme for land sales.

The Business Times reported that market observers believe condo owners will have a harder time matching their high asking prices as they become less risk-averse.

Colliers published a report in April that showed residential investment sales had fallen by 47.6% in the first three months of 2024, to S$1.8bn.

Property consultancy still noted that three GLS sites accounted for around S$400m each.

GLS will release 5,450 private houses under the current H1 2024 programme. This is 5.6% higher than the H2-2023 supply of 5,160 homes, and represents the highest number on the list confirmed since 2013.

The property head for capital markets believes that the greater pool of state-owned land is good news for developers who are more likely to prefer GLS sites over collective sale sites when restocking land banks.

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The GLS (program) has greater certainty about the completion of deals and pricing discretion as compared to collective sale, which can be fraught with many complications.

The uncertainty of such a situation adds a layer of complexity, especially as developers have already become cautious in the face economic weakness, tighter financial conditions, and rising inflation.

Prices of 99-year leasehold parcels of state land are starting to drop compared with previous years. Some plots were sold at up to 30% less than previous land sites sold by the state in the area.

Developers are less likely to take a risk by committing to GLS sites than they would with an en-bloc site due the changing dynamics of the market.

According to a real estate researcher, while collective sales are a good source for freehold, valuable land in a great location, some sites come with a reserve that would require an above-market clearing price as a breakeven point.

In some cases, GLS locations have been sold much cheaper than the reserve prices of nearby collective sales sites.

GLS site prices are “more driven by market forces” than private land.

Owners refer to GLS sites as well as other private land sale in the area.

It is hard to reduce the price once the reserve is set, and owners have signed a collective agreement.

Pine Grove condos’ S$1.95 billion asking price is equivalent to S$1,434 for each square foot and per plot ratio.

Prices for GLS sites have also decreased in recent years.

In November 2023, a plot in Pine Grove (Parcel B), which was located nearby, was sold at S$692.4million or S$1,223psfppr. This price was around 7 percent less than that of the winning bid in June 2022 for Parcel B next door.

It was not possible to achieve the necessary consensus to lower the price of the offer.

Experts in the property industry have stated that developers can only acquire land by buying it en bloc, and this is especially true for large sites located in attractive areas.

Singapore is a prime example of a city that has benefited from the collective sale.

GLS sites, on the other hand offer “bite sized developments” ranging from 300-750 units. This is more appealing for developers.

According to property analysts, the current market is flooded with choices for buyers. Sites that are too small will not appeal to them and agents won’t be willing to invest in marketing that project.

In the case of very large sites the developer may be liable for Additional Buyer’s Duty (ABSD), if they do not sell out their entire project in the five-year period following the award.

There are many reasons why sellers will not lower their reserve price.

Experts often point out that the cost to buy a replacement home has gone up significantly for owners. Urban Redevelopment Authority’s price index increased by 37.5 percent between Q1 2018 and Q1 2019.

Owners are now subject to higher Buyer Stamp Duty (ABSD) and ABSD. This has lowered the “collective premium to a low level that might not motivate them”.

Owners are sometimes willing to accept a 30 per cent premium when historically, it was 50 per cent. If the reserve is deemed to be too low, owners may prefer to sell the unit directly on the market rather than through a group sale.

The developers are faced with higher construction costs as well high interest rates and the Land Betterment Cost (LBC), which is payable for redevelopments, as they also have to pay hefty ABSD on large sites.

Pine Grove would have seen a LBC of S$1billion to intensify land use, and upgrade the lease for its huge site of 893,218 square feet, bringing the acquisition cost up to S$3billion.

The standoff is likely to continue as both parties (developers and owners) have valid reasons for justifying their respective prices.

A developer may want to break even at S$1,750-S$1,900 for a project with more than 700 units on the edge of the city or in suburbs.

Current prices are above S$2,000/sqft and are likely to remain there, although initial purchases have been concentrated around smaller, more affordable units.

As higher ABSD and still high mortgage rates have dampened housing demand, “developers are becoming more selective. Even recent public land auctions have seen less participation with bid prices that were below or within the range of expectations.

Analyst added that a dragnet was drawn against mischievous schemes like the “99 to 1” tax avoidance scheme, which “tried squeeze blood out rocks to create more demand for real estate residential”.

The developers must also realize that with each Merdeka or Gen X who dips their hands into their savings pool, they are losing a potential buyer for new products priced at records or near records.

The number of buyers who remain is not known, and therefore developers should factor this into their bids for land.

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