http://www.businesstimes.com.sg/arch...views-20131227
Published December 27, 2013
Tweaking GLS: Consultants give their views
With high bids by foreign players, one suggestion is to award site to No. 2 bidder
By ong chor hao [email protected]
[SINGAPORE] Even as the government tries to temper land tender prices in Singapore, consultants feel this should not come at the expense of the Republic's long-standing reputation for being open and pro-business.
There has been concern whether the trend of increasing prices is sustainable, and if the government should come down hard on foreign developers who are entering the market flush with liquidity.
One tool the Urban Redevelopment Authority (URA) has in its kit is batched tender closings, where bids for some Government Land Sales (GLS) sites end on the same day.
This is meant to encourage a "divide-and-conquer" strategy, said Desmond Sim, associate director at CBRE Research, where developers focus on one or the other plot due to the absolute capital needed.
But the first batched closing for three executive condominium (EC) land parcels at separate locations in July ended up with one (for Yuan Ching Road) setting a record EC land price of $418.53 per square foot per plot ratio (psf ppr).
More recently, China-linked Kingsford Development swept both adjacent private condominium sites at Upper Serangoon View which closed on the same day. Its top bid of $522.43 psf ppr for each parcel beat the nearest competitors handily.
Nicholas Mak, executive director for research and consultancy at SLP International, said batched tenders encourage a few developers to bid aggressively for both plots. "By acquiring both sites, these winners could also corner the market in that location in the short term," said Mr Mak. Analysts noted that bids for the Upper Serangoon parcels were fairly measured if Kingsford's bids were excluded.
However, a more recent decision to enforce a 30 per cent mortgage servicing ratio (MSR) on EC housing loans from financial institutions for units bought from developers could swing the trend. Previously, the MSR did not apply to ECs.
Ong Kah Seng, director at R'ST Research, said that developers "cannot excessively raise prices since, going forward, the pool of eligible EC buyers might shrink".
URA is also not calling time on batched tender closings. A spokesman said in an email to The Business Times that it is "prepared to continue doing so opportunistically".
Indeed, in the GLS programme for the first half of 2014, there will be two such exercises: one for a pair of adjacent EC plots on Yishun Street 51, and the other for a pair of adjacent private housing sites on Fernvale Road.
Some consultants agree it may be too soon to deem batched closings unsuccessful. One reason is the attractive propositions in the two previous attempts. The Yuan Ching Road EC plot is in an area starved of new EC supply, while the Upper Serangoon parcels are a rarity for suburban areas with their waterfront potential.
CBRE's Mr Sim believes the fundamentals behind batched closings are sound, but noted that so long as Singapore remains an open economy, the bullishness will continue.
Christine Li, head of research at OrangeTee, said: "I think there isn't a need to protect local developers from their foreign counterparts, because doing so will tarnish the reputation of Singapore as a business-friendly place."
The rising land bids cannot be solely pinned on foreign players, analysts said.
CBRE's Mr Sim said there has been a marked increase in developers over the past decade, with new entrants made up of foreign players as well as contractors-turned-developers. "If there are so many developers out there, and their core business is to build and sell (homes), they need to go out and buy raw material, and the most important raw material would be land," he said.
After all, foreign developers are subject to criteria such as having to sell off all the homes in a development within two years of obtaining the temporary occupation permit (TOP) for the project for GLS tenders.
Consultants reckon that foreign players also bring their own benefits. They may have a pool of ready investors back home because of their credentials. When they partner Singapore companies in joint ventures, it also allows developers here to spread the risk while still booking revenue.
CBRE's Mr Sim said they may also offer a new perspective on the prospects of the Republic.
"Maybe what they do is that they look forward instead of looking in the rear-view mirror," he said of foreign developers, adding that no one had expected mass-market condos here to cross $1,000 psf.
That said, there is still room for tweaks to the land bidding system.
Some suggested that tenders be awarded to the second-highest bidder instead, so that developers may moderate their bids knowing that the highest one may not win.
Ms Li from OrangeTee said this "can kill two birds with one stone", as the tender process will not give foreign players with strong financing any advantage over Singapore players.
Mr Mak suggested a point system that would require bidders to submit both a price for the land and a fixed future selling price of the development. "The lower the condo sale price, the higher the points. The higher the land tender price, the higher the points," he said. The land will be sold to the party with the highest points, but has to still meet or exceed a reserve price to be determined by the authorities and kept secret.
As for batched tender closings, Chua Yang Liang, head of South-east Asia research at Jones Lang LaSalle, said having two adjacent sites at Upper Serangoon View may have led developers to be more aggressive in their bids so as to reduce competition. "In retrospect, two distinct sites might have been better to avoid such strategic play," he said.
In the end, however, developers will have to protect their own interests.
Said CBRE's Mr Sim: "There are repercussions going forward if they overprice . . . but the onus goes back to the bidder."
OrangeTee's Ms Li added that just because developers get the land cheaper, it does not mean new projects will be launched at lower prices.
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