S’pore collective residential market facing a hard landing

The residential en-bloc sale market in Singapore has had a difficult time, with unsuccessful attempts after unsuccessful attempts. Pine Grove condominium’s fifth collective sale bid, at S$1.95bn for a 99-year leasehold, failed to find any takers earlier this month.
The government’s Land Sales Programme will continue to draw developers’ attention away from private land sales.

Market watchers tell The Business Times that as property investors become more risk-averse the high prices condo owners are asking for will be harder to match.

A Colliers report from April stated that residential investment sales in the first quarter 2024 fell by 47.6% quarter-on quarter to S$1.8billion.

The property consultancy reported that even then, sales were boosted mainly by three Government Land Sales (GLS) locations, which each brought in about S$400,000,000.

GLS’s current programme for H1-2024 will release land to yield 5,450 homes. This is 5.6% more than the supply of 5,160 units for H2 2023 and the highest confirmed supply since 2013.

Capital markets property director, says that developers will prefer GLS sites to collective sale sites because of the larger pool of available state land.

The GLS program (has) a greater degree of certainty in terms of the deal’s completion and price discretion than the collective sales process, which is prone to many complications.

This uncertainty is especially complex, since the developers are already cautious due to economic weakness, tighter lending conditions and high inflation.

The land prices for 99-year leasehold state parcels have also started to fall compared to previous valuations. Some plots sold for as much as 30% less than the previous state land site in the same location.

The changing market dynamics make committing to a GLS-site a safer proposition for developers than a site that is en bloc.

Real estate researcher believes that while collective sales can provide valuable and well-located freehold land, certain sites have a reserve price which would require a price above the current market clearing price for their respective locations.

Occasionally, GLS sites are sold at a price that is much lower than other sites of collective sale in the area.

GLS land prices are more market-driven than private land prices, which are determined by the owners.

Owners can get ideas from GLS and private land sales nearby.

Once the reserve price has been set and the owners have signed the collective agreement it will be difficult to lower the price, even if GLS price drops.

Pine Grove’s S$1.9 billion asking price translates to S$1,434 a square foot, per plot ratio.

The reserve price was reduced by 8.7% to S$1.78billion or S$1,335psfppr. This was done because prices at recent GLS sites had decreased.

A plot of land at Pine Grove, Parcel B, was sold for S$692.4m or S$1,223 per square foot per person in November 2023. This was a price around 7% lower than the winning bid at the Parcel A next door sold in June 2022.

The attempt to reach consensus on a price reduction failed.

Property experts have pointed out that the en bloc method is the only option for developers today to purchase freehold or 999 year leasehold land, particularly large sites in desirable locations.

Singapore’s “private-led urban renewal” is also driven by collective sales.

GLS offers “bite-sized development ranging between 300 and 750 units” which is more appealing to developers.

A property market analyst says that, in today’s market where buyers have a lot of choice, a small site may not attract buyers, and agents may be unwilling to spend resources on promoting that project.

The developer is at risk of incurring additional buyer’s stamp duty (ABSD) if the site is very large and not sold out within five years after award.

The sellers have their own reasons for maintaining high reserve prices.

Experts often cite the fact that owners are now paying more to replace their property. The Urban Redevelopment Authority, for example, saw its overall price index grow by 37.5% between Q1 2019 to Q1 2024.

The owners now have to pay higher ABSD and Buyer’s Stamp duty, which reduces the “collective sales premium” so that it is no longer motivating.

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Some owners will accept a lower premium, say 30 percent. Historically it was at least 50%. Some owners will prefer to sell on the open marketplace if the reserve price is too low.

Developers are also facing higher construction costs and still high interest rates as well as land betterment costs (LBC) on redevelopment projects as well as hefty ABSDs for large sites.

Pine Grove’s estimated LBC cost of S$1billion for intensification of land usage and lease upgrade would have increased the effective acquisition costs to S$3billion.

Both (owners of land and developers) are justified in their prices, and so the standoff continues.

According to researcher calculations, “a reasonable price” that a large project of more than 700 apartments in the city fringes or suburbs would like to see is “perhaps S$1,750 – S$1,900 per square foot” for its net sellable area.

The current selling price is over S$2,000 per square foot and will likely remain at that level, but the initial launch was dominated by smaller, cheaper units.

The housing market is being affected by higher ABSD rates, and mortgage rates are still high. “Developers have become very selective. Recent public land tenders saw less participation, and bids below or in the lower range.

Analysts added that the dragnet had been drawn to mischievous schemes such as “99-to-1”, tax avoidance arrangements that “tried to squeeze blood from rocks to generate greater demand for residential real property”.

Developers must also be aware that every time a Merdeka, or Gen X, dips into the pool of their savings there is one fewer buyer on the market to buy new launches at or near record prices.

Developers must factor in this risk when bidding for land.

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