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Thread: Govt site sales plan runs counter to market signals

  1. #1
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    Default Govt site sales plan runs counter to market signals

    http://www.todayonline.com/business/...market-signals

    Property

    Govt site sales plan runs counter to market signals

    The GLS for the second half of the year appears to direct developers’ attention towards ECs, which cater to a more genuine upgrader market.

    By COLIN TAN
    -
    28 June


    The Government Land Sales (GLS) programme for the second half of this year, released on Tuesday, appears to go against the recent tide of market signals of increased demand from developers.

    Although the overall land supply remains more or less the same, there was a reduction of about 14 per cent from the previous half-yearly plan for sites under the Confirmed List in terms of the number of homes that can be developed.

    And under the Confirmed List, the share of sites slated for private housing has been further reduced in favour of sites for Executive Condominiums (ECs). Market watchers have also noted that the prime quotient of the sites released has fallen. Are these a signal from the Government that it thinks that the current pace of land supply is unsustainable and that demand may falter in the second half of the year?

    Recent market activity suggests that more Confirmed List sites should have been offered and that overall supply in the second-half GLS be further increased.

    Just last week, a tender for a housing site at Faber Walk garnered a total of 18 bids, making it the most hotly-contested GLS site since the Jurong Kechil parcel last November that attracted a record 23 bidders. A news report noted that the top five bids were 24 per cent to 60 per cent higher than what industry analysts had predicted.

    As the GLS sites see keen competition, collective sales have also been actively in the news in recent months, with eight such deals totalling S$717 million sealed so far this year. Although the numbers are modest compared to those achieved last year and in 2011, they indicate a sustained appetite for sites among developers.

    Whether by design or not, the GLS for the second half of the year feels like a contingency plan to mitigate any possible negative consequences that may befall the property market in the near future.

    Firstly, it appears to direct the attention of developers towards ECs, which from the policy makers’ point of view is probably a safer segment as it caters to a more genuine upgrader market. The majority of genuine buyers have no choice but to turn to the EC market to satisfy their housing aspirations, as price levels in the private residential market have risen beyond their means.

    While the investor market remains robust, it can suddenly disappear overnight if confidence is lost. Prices simply have to drop in a genuine market to draw demand whereas with an investor market, you cannot see the bottom if confidence does not return.

    Secondly, the latest GLS programme offers more average sites and fewer prime ones. Theoretically, this should bring down price levels immediately, as a lesser product garners a lower price and the successful bidder’s exposure to the market is automatically reduced. Whether the impact is significant or not remains to be seen.

    Finally, the smaller number of Confirmed List sites shows that the Government may be acting pro-actively to prepare for a more subdued market in the near future.

    Whatever the intentions behind the GLS programme, the demand for land will not abate if the robust home buying continues. Developers will continue to bid for land so long as there are buyers.

    Furthermore, compared to two to three years ago, there are now more developers looking for sites as more foreign names join the long list of well-established local players. And the number of firms operating in other industries getting shareholder approvals to dabble in the property market appears to be rising.

    Have the developers been earning good profits? We have read of contractors folding up recently but what of developers? None so far; they are still going strong. Besides increasing their dividend payouts, what can they do with the profits? Yes, plough it back into the market. And if there are not enough sites — whatever their quality — to go around, they will have to increase their bids until they get the land.

    In short, to cool the market, you increase supply, not decrease it. Either that or you deal with the demand side of the equation.

    ABOUT THE AUTHOR:

    Colin Tan is Head of Research and Consultancy at Chesterton Suntec International.

  2. #2
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    So after all that, Cooling Tan is saying govt should release more private and prime land?
    click: 🏢shoeboxmickeymousehouse 🏢

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