reporter2
30-11-17, 16:28
Developers 'in two main camps over how much to bid for land'
Findings of JLL study back up Redas comments that market has seen 'different risk appetites of developers' who differ in views on supply, demand
Thu, Nov 23, 2017
Lynette Khoo
ARE developers too aggressive in bidding up land prices in Singapore? It may well depend on who you ask. A new study on winning bids this year has tossed up a contrarian view on their bidding behaviour, with more than half of the winning bids regarded as "measured".
About 58 per cent of the winning bids suggest that developers were expecting selling prices for new projects to be either around current levels or up to 10 per cent higher, a study by JLL exclusively for The Business Times shows.
The other 42 per cent of winning bids reflect a bullish price outlook among developers. Of this, 27 per cent of the winning bids point to a 10-20 per cent rise in selling prices of new homes from current levels, while 15 per cent of the winning bids suggest an increase of more than 20 per cent.
This shows that bidders have differing outlooks on how prices will move in this market recovery, JLL national director for research and consultancy Ong Teck Hui told BT.
The findings resonate with recent comments by Augustine Tan, president of the Real Estate Developers' Association of Singapore (Redas), who noted last week that the market has seen "different risk appetites of developers who had different views on how supply and demand would pan out" in their land purchases.
Developers are having mixed readings of the market amid uncharted waters. For the first time, the residential market is turning around amid various cooling measures still in place, Mr Ong said. "Some bidders are obviously factoring this quite significantly in their bids while others seem to see market demand transcending the cooling measures."
JLL's detailed study covered a total of 26 residential sites sold this year - 19 collective sales sites and seven government land sales (GLS) sites.
For each site, the consultancy arrived at a projected selling price for the new project by adding up total development costs and factoring in developers' profit at 10 per cent of gross development value. This is compared against 2017 transacted prices of comparable projects, adjusted for differences in age, tenure, location and median unit size.
A turning point was seen around the middle of this year when developers' sentiment picked up. In the first half of this year, only 10 per cent of the winning bids displayed a bullish outlook of at least a 10 per cent increase in selling prices from current levels. In the second half, such winning bids made up 63 per cent of the sites sold.
This uptick in developers' sentiment coincided with the third quarter's 0.7 per cent rise in the private residential price index published by the Urban Redevelopment Authority (URA) - the first quarterly rise after 15 straight quarters of decline.
But with winning land bids this year breaching new highs, developers' bidding behaviour has come under the spotlight.
The government has sought to temper this perceived over-exuberance, with Minister for National Development Lawrence Wong recently reminding developers to price in the risks when making their bids.
Risks faced by developers include having to fork out the additional buyer's stamp duty (ABSD) on land cost, with interest if they cannot finish building and selling the project within five years from the land purchase.
Now, there is also the risk that developers may not achieve the desired number of dwelling units on newly acquired en bloc sites.
Under a new rule since Nov 13, a pre-application feasibility study (PASF) on traffic impact may be required for approval from the Land Transport Authority (LTA) before outline and development applications for collective sale sites are submitted to the URA.
The LTA has to be consulted on whether a PASF is needed; this is on top of an existing LTA requirement on Transport Impact Assessment for sites with at least 700 residential units.
But the new rule last week did little to dent the appetite of Singapore-listed developer Oxley Holdings which, a few days later, snagged Mayfair Gardens in a collective sale for S$311 million or 17.4 per cent above the reserve price.
"Developers' hunger for land does not seem to abate even with the government's recent efforts to temper enthusiasm in collective sale tenders," said DBS senior vice-president for group equity research Derek Tan. "Nevertheless, the results of the next few en bloc sites would be a better gauge of developers' appetite for land post the new traffic assessment policy."
JPMorgan property analyst Brandon Lee flagged that should upcoming GLS sites in Jiak Kim Street and Fourth Avenue on Dec 5 see exorbitant land bids, the government will be prompted to release "larger-than-expected quantum of sites" under its first-half 2018 GLS programme.
But even a potential increase in land supply should not dent developers' positive outlook on the back of record-low unsold pipeline, benign inventory growth through 2020-2021 and an uptick in the macro-economy, Mr Lee said.
Going by JLL's study, the most aggressive land bid year-to-date likely came from SingHaiyi Properties and Huajiang International Corporation for Sun Rosier in a S$271 million en bloc deal in September. The land rate of S$1,325 per square foot per plot ratio (psf ppr) suggests an over-40 per cent jump in selling prices from today's level, using adjusted prices of The Quinn as a comparison.
In the GLS space, the Singapore developers who bought sites in Woodleigh Lane and Serangoon North Avenue 1 in July could have priced in an increase of over 20 per cent in selling prices from current levels for the respective sites, JLL said.
Though the large GLS plot in Stirling Road drew a record price of over S$1 billion from Hong Kong-listed Logan Property Holdings and Chinese conglomerate Nanshan Group, the land rate of S$1,051 psf ppr suggests a measured 6 per cent rise in selling prices from the current level, which is derived from adjusted prices of units at Queens Peak and Commonwealth Towers.
Knight Frank head of consultancy and research Alice Tan felt that developers' pricing strategies tend to be sentiment-driven, and sentiments are clearly warming up amid an en bloc fever and record land prices.
If the surrounding projects achieve prices "higher than what is deemed reasonable now", this will create a positive spill-over effect in "a rising tide that lifts all boats", she said. "Buyers could also be enticed to pay a premium for good-quality projects with a 'wow' factor."
But the reverse can happen too. Developers risk squeezing their margins if they have priced in a steep jump in selling prices but prices do not rise as much as anticipated, JLL's Mr Ong said.
Findings of JLL study back up Redas comments that market has seen 'different risk appetites of developers' who differ in views on supply, demand
Thu, Nov 23, 2017
Lynette Khoo
ARE developers too aggressive in bidding up land prices in Singapore? It may well depend on who you ask. A new study on winning bids this year has tossed up a contrarian view on their bidding behaviour, with more than half of the winning bids regarded as "measured".
About 58 per cent of the winning bids suggest that developers were expecting selling prices for new projects to be either around current levels or up to 10 per cent higher, a study by JLL exclusively for The Business Times shows.
The other 42 per cent of winning bids reflect a bullish price outlook among developers. Of this, 27 per cent of the winning bids point to a 10-20 per cent rise in selling prices of new homes from current levels, while 15 per cent of the winning bids suggest an increase of more than 20 per cent.
This shows that bidders have differing outlooks on how prices will move in this market recovery, JLL national director for research and consultancy Ong Teck Hui told BT.
The findings resonate with recent comments by Augustine Tan, president of the Real Estate Developers' Association of Singapore (Redas), who noted last week that the market has seen "different risk appetites of developers who had different views on how supply and demand would pan out" in their land purchases.
Developers are having mixed readings of the market amid uncharted waters. For the first time, the residential market is turning around amid various cooling measures still in place, Mr Ong said. "Some bidders are obviously factoring this quite significantly in their bids while others seem to see market demand transcending the cooling measures."
JLL's detailed study covered a total of 26 residential sites sold this year - 19 collective sales sites and seven government land sales (GLS) sites.
For each site, the consultancy arrived at a projected selling price for the new project by adding up total development costs and factoring in developers' profit at 10 per cent of gross development value. This is compared against 2017 transacted prices of comparable projects, adjusted for differences in age, tenure, location and median unit size.
A turning point was seen around the middle of this year when developers' sentiment picked up. In the first half of this year, only 10 per cent of the winning bids displayed a bullish outlook of at least a 10 per cent increase in selling prices from current levels. In the second half, such winning bids made up 63 per cent of the sites sold.
This uptick in developers' sentiment coincided with the third quarter's 0.7 per cent rise in the private residential price index published by the Urban Redevelopment Authority (URA) - the first quarterly rise after 15 straight quarters of decline.
But with winning land bids this year breaching new highs, developers' bidding behaviour has come under the spotlight.
The government has sought to temper this perceived over-exuberance, with Minister for National Development Lawrence Wong recently reminding developers to price in the risks when making their bids.
Risks faced by developers include having to fork out the additional buyer's stamp duty (ABSD) on land cost, with interest if they cannot finish building and selling the project within five years from the land purchase.
Now, there is also the risk that developers may not achieve the desired number of dwelling units on newly acquired en bloc sites.
Under a new rule since Nov 13, a pre-application feasibility study (PASF) on traffic impact may be required for approval from the Land Transport Authority (LTA) before outline and development applications for collective sale sites are submitted to the URA.
The LTA has to be consulted on whether a PASF is needed; this is on top of an existing LTA requirement on Transport Impact Assessment for sites with at least 700 residential units.
But the new rule last week did little to dent the appetite of Singapore-listed developer Oxley Holdings which, a few days later, snagged Mayfair Gardens in a collective sale for S$311 million or 17.4 per cent above the reserve price.
"Developers' hunger for land does not seem to abate even with the government's recent efforts to temper enthusiasm in collective sale tenders," said DBS senior vice-president for group equity research Derek Tan. "Nevertheless, the results of the next few en bloc sites would be a better gauge of developers' appetite for land post the new traffic assessment policy."
JPMorgan property analyst Brandon Lee flagged that should upcoming GLS sites in Jiak Kim Street and Fourth Avenue on Dec 5 see exorbitant land bids, the government will be prompted to release "larger-than-expected quantum of sites" under its first-half 2018 GLS programme.
But even a potential increase in land supply should not dent developers' positive outlook on the back of record-low unsold pipeline, benign inventory growth through 2020-2021 and an uptick in the macro-economy, Mr Lee said.
Going by JLL's study, the most aggressive land bid year-to-date likely came from SingHaiyi Properties and Huajiang International Corporation for Sun Rosier in a S$271 million en bloc deal in September. The land rate of S$1,325 per square foot per plot ratio (psf ppr) suggests an over-40 per cent jump in selling prices from today's level, using adjusted prices of The Quinn as a comparison.
In the GLS space, the Singapore developers who bought sites in Woodleigh Lane and Serangoon North Avenue 1 in July could have priced in an increase of over 20 per cent in selling prices from current levels for the respective sites, JLL said.
Though the large GLS plot in Stirling Road drew a record price of over S$1 billion from Hong Kong-listed Logan Property Holdings and Chinese conglomerate Nanshan Group, the land rate of S$1,051 psf ppr suggests a measured 6 per cent rise in selling prices from the current level, which is derived from adjusted prices of units at Queens Peak and Commonwealth Towers.
Knight Frank head of consultancy and research Alice Tan felt that developers' pricing strategies tend to be sentiment-driven, and sentiments are clearly warming up amid an en bloc fever and record land prices.
If the surrounding projects achieve prices "higher than what is deemed reasonable now", this will create a positive spill-over effect in "a rising tide that lifts all boats", she said. "Buyers could also be enticed to pay a premium for good-quality projects with a 'wow' factor."
But the reverse can happen too. Developers risk squeezing their margins if they have priced in a steep jump in selling prices but prices do not rise as much as anticipated, JLL's Mr Ong said.