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Thread: Aggressive land bids drive premiums up at government sites

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    Default Aggressive land bids drive premiums up at government sites

    Aggressive land bids drive premiums up at government sites

    MAY 17, 2017

    Average of 29% more paid for residential plots over comparable sites sold in past five years

    Wong Siew Ying


    Developers have been paying substantial premiums for government land sites recently amid healthy private home sales.

    There has been aggressive bidding at public land tenders this year, with developers paying an average of 29 per cent more for residential plots over comparable sites sold in the past five years.

    That was sharply higher than 13 per cent average premium in the second half of last year, a Cushman & Wakefield report noted yesterday.

    "This is testament to greater confidence (on the part of) developers in the residential market, bolstered by the positive response in new project launches in recent months," it said.

    Sales of new homes in the first four months this year were brisk - at 4,696 units - driven by projects such as The Clement Canopy and Grandeur Park Residences. This was more than double the 2,220 new units sold in the same period last year.

    The sales lift was partly due to the slight easing of some cooling measures in March and more projects being put on the market.

    Cushman & Wakefield noted that developers were more "bearish" in the first half of last year and second half of 2015 - when they bought land at a lower price compared to sites sold previously.

    Apart from land costs, the number of bidders at each tender has also shot up, from an average of 8.25 in the second half of 2015 to 13.3 in the first four months of this year.

    Notably, the tender for a non- landed private residential site in Toh Tuck Road attracted a record 24 bids, with Malaysian developer S P Setia clinching the plot for $265 million.

    A tender in Tampines Avenue 10 won by City Developments for $370.1 million had five Chinese players out of the nine bidders.

    "Interest from foreign players has also intensified, with two out of four land tenders awarded to foreign bidders" so far this year, said Cushman & Wakefield.

    Local firm EL Development told The Straits Times yesterday that it lost out on tenders for the Tampines Avenue 10 and Toh Tuck Road sites amid more competition.

    "As a small developer, we are not price setters... we'll monitor the tenders and put in bids that we think are right. There's no point over-bidding for a site," said managing director Lim Yew Soon.

    Analysts expect tenders to be keenly contested, particularly for prime plots, for the rest of the year as land-hungry developers - local and foreign - fight over a limited supply of sites.

    The Ministry of National Development, which has cut land supply in recent years, is expected to announce next month what sites will be available in the second half of the year.

    "I don't think the Government will put more sites out in its upcoming land sales programme in view of the large number of vacant units and the weak leasing market," noted International Property Advisor chief executive Ku Swee Yong.

    Cushman & Wakefield said local developers are likely to be outbid by their foreign counterparts "in this strong liquidity-driven market", leading possibly to more private land acquisitions this year.

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    Intense bidding for GLS sites to continue, analysts expect bigger supply in H2

    Study finds number of bidders and average price premium over comparable sites higher in H1 2017 than, say, H2 2015

    May 17, 2017

    LYNETTE KHOO


    DEVELOPERS' hunger for land has clearly translated into more intense bidding for sites sold under the Government Land Sales (GLS) programme, with more throwing their hat in the ring and the winning bidders footing price premiums that are higher than those for comparable sites sold earlier.

    Research by Cushman & Wakefield on predominantly residential GLS sites found that the average number of bidders in the first half of this year was 13.3, up from, for example, H2 2015, when it was 8.25.

    (A comparison with H1 2016 was not made because there were no clear comparables in that period for sites sold.)

    The average price premium of sites sold in H1 2017 over the latest comparable sites sold in the preceding five years was also higher - at 29 per cent, compared to negative 3 per cent in H2 2015.

    In fact, the average price premium paid by winning bidders turned positive only in H2 2016; this means developers started to pay more for the sites (compared to those who bought comparable sites) only in H2 2016.

    In the study, land parcels were deemed comparable by virtue of location, mainly being adjacent to one another; other attributes of the sites were not factored in the study.

    Cushman & Wakefield research director Christine Li said: "Developers' hunger for attractive residential development sites are set to continue this year, likely to be fuelled by the positive sentiment in private new home sales and upcoming development sites with premium locations, such as the first landmark project for the Upper Serangoon Road site next to Woodleigh MRT station in Bidadari."

    She said the recent collapse of the Bandar Malaysia deal could have eroded some foreign investors' confidence in Malaysia and turned their focus to Singapore as a safe haven.

    Already, interest from foreign players has intensified; two out of four land tenders in H1 2017 were awarded to foreign bidders. There has also been significant Chinese interest in recent land tenders, with five out of nine bidders for the Tampines Ave 10 (Parcel C) site being Chinese players.

    Ms Li said: "Singapore developers are likely to be outbid by their foreign counterparts in this strong liquidity-driven market, as the barriers to entry for the Singapore residential market are relatively low.

    "This could lead to some spillover to the private land acquisitions in 2017, where the chance of success could be relatively higher."

    Some consultants pointed out that other than locational attributes, factors such as the site's shape, facing and proximity to disamenities such as sources of noise can also affect its valuation.

    Land sales conditions can also be quite varied over a five-year period.

    But most market watchers agree that the aggressive land bidding by developers will persist. Savills Singapore research head Alan Cheong noted that the aggressive land bidding will further depress developers' margins, which are already compressed by higher costs and a decrease in efficiency, as measured by saleable area as a percentage of gross floor area. Nowadays, developers need to factor in a margin of 5-10 per cent in order to secure a site, he lamented. "Going forward, margins cannot go lower, so there will be (upward) cost pressures on the end-product."

    SLP International executive director Nicholas Mak said this would prompt the government to release more residential sites on the confirmed list, likely seven to eight or more.

    Developers' spillover demand for en bloc sites will be inversely correlated to the number of GLS sites being released, he added.

    But he noted that a key challenge to closing en bloc deals has been that home-owners are inflexible with pricing, because they are looking at replacement costs.

    JLL national director for research and consultancy Ong Teck Hui observed that developers are also pricing in a market recovery and a projection that prices may rise.

    "I expect the GLS programme to increase land supply more decisively for the second half of 2017 as the unsold inventory in the market has fallen to more manageable levels and the market is showing signs of turning around."

    But Knight Frank head of consultancy and research Alice Tan said the bid prices from developers in the last six months suggest that they still hold mixed views of the market.

    "Despite having more bidders per site, we still see disparate bids, with the top band of developers putting in bids that are very close to one another and the rest exercising caution in their land bids."

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    Developers haven't learnt lesson about bidding high for land

    May 22, 2017


    I was alarmed to read that developers were bidding aggressively for land (Aggressive land bids drive premiums up at govt sites; May 17).

    It seems that they have not learnt their lesson.

    When they submit high bids for the plots, they have to sell the completed units at sky-high prices to cover their land and construction costs. But the exorbitant prices may turn potential buyers away.

    The vacancy rate of private residential units was 8.4 per cent in the fourth quarter of last year, with another 40,913 units uncompleted or in the pipeline.

    Furthermore, with around 17,000 Build-To-Order flats promised this year, and future BTO flats planned in prime areas like the Greater Southern Waterfront, buyers may be enticed away from private property.

    Developers have already requested the Government to consider extending the timeframe for them to sell their units or face penalties.

    Whether the current bidding will result in the same pleas in future is anybody's guess.

    Making housing more affordable for Singaporeans is going to be difficult if we allow developments' costs to rise.

    Francis Cheng

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    EnBloc prices are also going crazy

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    Quote Originally Posted by Laguna View Post
    EnBloc prices are also going crazy
    Market really bottoming out?

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    Quote Originally Posted by anythingwhatever View Post
    Market really bottoming out?
    Don't Miss The Boat again if you are not on the Boat.

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