In the midst of a purchasing frenzy at new house launches, developers may be trying t

In the midst of a purchasing frenzy at new house launches, developers may be trying to indicate a peak in the market

Sep 26, 2022

On September 16 and 17, GuocoLand sold 508 properties at prices per square foot ranging from S$1,856 to S$2,538 in the 99-year leasehold housing development known as Lentor Modern. This is an 84 percent sales rate (psf). The success of Lentor Modern is due, in large part, to the robust demand that has been shown for recently launched leasehold condominium complexes in the Outside Central Region (OCR).

At the inauguration of the project on September 7, around 75 percent, or 118 out of 158 houses, were purchased at an average price of approximately S$2,100 per square foot (psf). At a median price of S$2,110 per square foot, AMO Residence in Ang Mo Kio sold 366 of its 372 available units in the month of July.

Developers should be vying for property like there's no tomorrow given the high demand for suburban condominiums. Building new houses is sure to be profitable for developers, but in order to do business in this sector, they must first acquire land for construction.

However, state tenders for 99-year OCR sites that closed last week brought in fewer bids than most property consultants had anticipated they would. These tenders were for two private housing sites near the Lentor MRT station and an executive condominium (EC) site along Bukit Batok West Avenue 5. Both tenders were for 99-year leases on the land.

There were four bidders for the EC property in Bukit Batok. At a tender that was held in March and resulted in 9 offers, the highest bid was around S$626 per square foot per plot ratio (psf ppr). This was 5.4 percent lower than the winning bid for the plot that was located next door.

There were a total of three offers submitted for the Lentor Central site, while there were two bids submitted for the Lentor Hills Parcel B site. The highest price for each of these sites was S$1,108 psf ppr. The highest bids are between 4.5 and 6.6% higher than the price of S$1,060 psf ppr for the nearby site that will house Lentor Hills Residences. That site was sold in January shortly after property cooling measures were introduced in late 2021, and the price of that site was determined to be S$1,060 psf ppr.

It would appear that the impacts of the cooling measures have been largely ignored by private property prices. They experienced an increase of 4.2% between the fourth quarter of 2021 and the second quarter of 2022, as reported by the Urban Redevelopment Authority. Prices of non-landed private residences in OCR rose by 4.4% over this time period. Edmund Tie and Huttons, two consulting firms, anticipate that the prices of privately owned homes would increase by around 8% this year.

Demand drivers

Prices of private non-landed residences in OCR increased by 17.1 percent between the fourth quarter of 2019 and the second quarter of 2022, while the Housing Development Board (HDB) resale price index increased by 24.6 percent. As a result of the robust state of the HDB resale market, a significant number of prospective purchasers of suburban condominiums may anticipate utilising the proceeds from the sale of their HDB apartments to finance the acquisition of condos.

Demand in this market segment is supported by a tight labour market as well as growing earnings in many different industries. This is due to the fact that many buyers of suburban condominiums are locals. In the month of July, the unemployment rate among local residents was 2.9%. At the introduction of Lentor Modern, around 92% of the buyers were Singaporeans. The remaining buyers were made up of permanent residents and international buyers.

Higher loan rates and less optimistic projections for economic growth don't appear to be deterring buyers of homes so far. If this is the case, then why are developers not putting up more aggressive bids for land?

The growing expenses of both mortgage rates and construction add up to put a financial strain on developers. However, the impact of growing expenses will be nullified if customers are willing to pay higher rates.

A rising peak in prices

It's possible that real estate developers are using their land offers to send a message that home prices have reached their high, knowing well well that the housing industry goes through cycles. In addition to the lacklustre response to governmental tenders for OCR housing sites, prominent residential en bloc sale sites like as Trendale Tower, 5 Oxley Rise, and Oxley Garden have recently ended their tenders without making a sale.

There is no question that developers cannot produce development revenues without sites. However, private developers of housing take on a significant amount of risk. They are subject to an Additional Buyer's Stamp Duty (ABSD) of forty percent, of which thirty-five percent may be needed upfront, subject to restrictions such as the requirement to finish the development and sell all of the residences within five years of the acquisition date.

In addition, the amount of new house sales is decreasing; according to CBRE Research, new private home sales are expected to reach around 9,000 units in 2022, down from 13,027 units in 2021.

In a climate rife with unpredictability and after house prices have been on a tear, real estate developers could be content to forego the projected net profits of a housing project, which might be something like ten percent. Because of the stringent requirements for ABSD remission, the costs associated with taking on a project that does not perform effectively in the marketplace are increased.

The fear that frantic buying at recent condo openings would lead the government to announce further cooling measures is looming large over developers as well. These policies are intended to guarantee that property prices do not surge ahead of the economic realities. If there are more steps taken to chill the market, the worst hurt will be real estate developers who have house sites but have not yet begun construction on their projects.

Buyers of homes are showing signs of optimism, while developers are still cautious. Whose perspective on the state of the housing market do you think will turn out to be more accurate? This is a difficult choice to make.

However, the opinion of the developer may be a strong factor in influencing how buyers behave.

By making less aggressive bids for property, developers are eliminating a typical selling pitch used by real estate salespeople, which is that potential homeowners should act quickly since the prices of subsequent developments would be far higher.

Should there be a shift in the purchasing attitude, the velocity of sales may drastically slow down. This is because many people who buy out of concern that they would be left out may decide to wait and see instead.