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Published December 29, 2011

2012 could be a quiet year for collective sales

Market cooling measures, more housing supply and eurozone woes set to weigh on sentiment: analysts

By MINDY TAN


CAUTION pervades discussions of collective sales come 2012, with analysts of the opinion that it could be a quiet year given recent developments.

Topmost on most people's minds include the recent round of cooling measures by the government, alongside the number of private homes made available under the Government Land Sales (GLS) programme.

'Together with the large supply of sites from the GLS programme and the cooling measures introduced by the government in 2011, collective sales are likely to continue the downward trend unless owners are willing to lower their expectations,' noted Denson Phua, head of investment sales at Dennis Wee Group (DWG).

From a macro perspective, economic uncertainties have also made developers more cautious, said Jones Lang LaSalle's head of research Chua Yang Liang.

'Given the global economic uncertainty stemming from the eurozone sovereign debt situation, investors are likely to remain cautious. Coupled with the recent stamp duty on buyers, we could see further tightening of demand for collective sales in 2012,' he said.

Credo's deputy managing director Tan Hong Boon expects collective sales next year to hit $2 billion, driven by small and medium-size deals, if owners' price expectations are realistic.'We expect a slight slowdown because of the new measures, but we still feel developers will continue to pick up sites because collective sales are still the main source of freehold sites,' he said.

To-date, 2011 has seen 49 collective sale deals, crossing the $3 billion mark, according to Credo's data.

Indeed, policies implemented to cool the property market are making themselves felt on 2012 collective sales projections.

The additional buyer's stamp duty (ABSD), for instance, which came into effect this month, affects developers on two fronts.

For one, developers must build and sell all units on residential sites within five years, or face a 10 per cent stamp duty.

Market watchers agree that this five-year limit will give developers more cause for pause, and make them weigh their land purchase decisions more carefully.

In addition, foreigners might be less willing to sell their homes, pointed out Petra Blazkova, CBRE's head of research for South-east Asia.

'Foreigners who own properties in potential collective sale sites will not give their consent to the sale because they will have to pay an additional 10 per cent stamp duty under the latest property measure if they have to buy a replacement property,' she said.

There is also the pipeline of GLS sites to contend with. New land released for the first half of 2012 will constitute about 14,100 private homes, of which around 7,000 will be rolled out through the confirmed list.

'This puts a dampener on developers' interest in collective sales, especially for the larger sites,' said Ms Blazkova. 'GLS sites are also more attractive because the acquisition process is straightforward and they are not subject to development charge.'

There is also the issue of bank financing, said Ku Swee Yong, chief executive of International Property Advisor. 'Banks prefer to lend to developers who bid for GLS rather than bidding for large en bloc sites (because) . . . the drawdown of the credit line by a developer could take two to three years, assuming the en bloc is successful,' he said.

That being said, Credo's Mr Tan pointed out that small developers priced out of the large GLS sites have become more active in the collective sales market this year.

This is one of the key reasons why most of the collective sale sites sold in 2010/11 have generally been below $100 million each - within the financial means of smaller developers.

Noted DWG's Mr Phua: 'Smaller collective sale sites of below $100 million will be well received if the sites are reasonably priced.'

He added: 'It would be better if these sites have obtained 100 per cent approval as the entire process will be expedited.'

In the course of this year, sites with hefty price tags - Pine Grove, Pearl Bank Apartments, Laguna Park, Hawaii Tower and Tulip Garden, which launched en bloc attempts priced at more than $500 million - have failed to find buyers, despite being relaunched at lower asking prices.

The largest collective sale, by value, to take place this year was a site at Henry Park, which was bought for $175.9 million by Kentish View, a subsidiary of Far East Organization, in December.

Owners of freehold condo Tulip Garden in District 10 relaunched a collective sale bid at $600 million in June, down from the $650 million price tag in January. Pearl Bank Apartments, near Chinatown, also lowered its asking price to $725 million in October, down from $750 million in March.

On the other hand, it was the smaller deals that went through more smoothly. Of 47 known deals concluded prior to Henry Park, the average was about $60 million, said Credo's Mr Tan.