China, HK developers temper their bids in Singapore land tenders

But they remain active players despite less aggressive bids amid cooling measures and significant landbanks built up from en bloc deals

Fri, Jul 26, 2019

CHINA and Hong Kong developers - once fingered for pushing up property prices with aggressive bids in land tenders here - are no longer the top bidders these days.

Though still active in tenders, they have not had much success in both state and private housing site tenders since the first half of last year.

Industry players see several reasons for the less gung-ho bids. One major one is the build-up of landbank from successive en bloc deals prior to last year's property cooling measures. The latter, which include the additional buyer's stamp duty (ABSD), also tempered the appetite of developers overall. And amid slower home buyer demand, developers are concentrating on clearing their current stocks. In addition, there has been a drop in the overall number of land tenders that were awarded since the first six months of last year.

According to data from property consultant Cushman & Wakefield, the proportion of private and public land tenders won by China and Hong Kong developers slid from 16.7 per cent in 1H 2018 when they sealed eight deals to 11.1 per cent in 2H 2018 when one was secured.

There were no deals from Chinese and Hong Kong developers in 1H19. In comparison, five sites were landed by both local and other foreign developers in the first six months of this year.

Cushman & Wakefield included all successful tenders - namely from the government land sales (GLS) programme, private en bloc and land tenders - for pure residential developments and mixed-use developments with a residential component. Sites for hotel, commercial and industrial use were excluded.

Looking ahead, Cushman & Wakefield's head of research (Singapore & Southeast Asia) Christine Li expects China developers to continue to take a more subdued approach when it comes to bidding for GLS sites.

"The Chinese economy is headed for a potential hard-landing arising from the prolonged trade and technology tensions with the US and that does not bode well for business sentiments," she said.

"The imposition of additional buyer's stamp duty (ABSD) in the latest round of cooling measures in Singapore has also made residential development more challenging. In the current climate, the focus for Chinese developers could be on clearing existing launches in the short to medium term."

Nonetheless, she reckons that these developers will still compete aggressively in segments where they expect resilient demand, such as executive condominiums.

For instance, in July this year, MCC Land put in the winning bid of S$233.89 million for a state tender for an EC site at Canberra Link in Sembawang.

It is unclear if a more measured approach from Chinese developers spells an easier time for other developers, given that most developers are taking a more cautious stance owing to the latest cooling measures, some analysts pointed out.

Senior director & head of research at Knight Frank Lee Nai Jia suggested that competition may still be keen for certain sites, pointing to the outcome of the public tenders for the Tan Quee Lan Street and Bernam Street sites as ones to watch.

When it came to participation for GLS site tenders, China and Hong Kong developers continued to throw their hat into the ring. A separate JLL study covering GLS tenders for private residential, executive condominium and mixed commercial residential use showed their participation rate clocked 23 per cent in 1H18, 34 per cent in 2H18 and 29 per cent in 1H19.

JLL's senior director for research and consultancy, Ong Teck Hui, reckons that their lower participation rate for GLS sites in 1H18 was due to their active involvement in the fervent enbloc market before the cooling measures were imposed. He added: "After the cooling measures, en bloc owners' price expectations remained high while developers turned cautious, making it very difficult for them to secure such sites. This probably resulted in Chinese and Hong Kong developers participating more actively in GLS tenders in 2H18 and 1H19, compared with 1H18."

Mr Ong went on to highlight that their lower success rate in landing GLS sites after 1H18 could be due to less aggressive bidding, since many of them had already secured en bloc sites from 2016 to mid-2018.

Analysts say Chinese developers were quicker to read the market and acted to bid aggressively as the market corrected over 2014 to 2016 and were already ahead of other developers by the time the market recovered.

Among the flurry of purchases was the collective sale of Normanton Park to Kingsford Huray Development for S$830.1 million in 2017, a Stirling Road land parcel under the GLS programme to Logan Property and Nanshan Group of China for some S$1 billion in 2017, as well as the collective sale of Shunfu Ville to Qingjian Realty for S$638 million in 2016. Logan Property also scooped up privatised HUDC estate Florence Regency for S$629 million.

Then there were the cooling measures implemented in July last year, which brought higher ABSD and tightened loan-to-value limits on residential property purchases.

"Following the latest measures, the slowing market has also made (Chinese developers) more cautious in their land bids," said Knight Frank's Mr Lee.

ERA Realty's head of research and consultancy, Nicholas Mak, pointed out that developers in Singapore - both local and foreign - would also plan to sell a substantial part of their current projects before acquiring more land since the cooling measures are expected to continue to moderate demand.

Current conditions here might also be prompting some Chinese developers to explore other regional markets, such as Malaysia, Thailand and the Philippines, he added.

Developers are required to develop and sell all units of a project within five years to qualify for remission of the ABSD on the land purchase price.

In addition, the economic slowdown in China may also have posed a challenge for some Chinese developers with overseas business units, Ms Li highlighted.

"Capital controls could lead these developers to look for more opportunities at home, resulting in more subdued investments overseas," she said.

SingHaiyi Group, which is based in Singapore, said that it is presently focused on rolling out its three residential projects, as well as a commercial development project at Penang Road.

Over 2017 and 2018, SingHaiyi had acquired three collective sale sites totalling S$1.2 billion. Two of them - freehold projects The Gazania (formerly Sun Rosier) and The Lilium (previously How Sun Park) - were launched for sale in May, while 99-year leasehold Parc Clematis (formerly Park West) will likely be launched in the coming months.

Gregory Sim, the deputy chief executive officer (Singapore) of Singapore Exchange-listed SingHaiyi, said: "While we are on the lookout to replenish our landbank in Singapore, we will maintain a prudent stance and consider fairly-valued and quality land plots with good location moving forward."