Friday, March 1, 2013

Still an uphill battle for en bloc sales

But there will be opportunities for sites with the right attributes

The Business Times |  MARCH 01, 2013

It has been more than three years since the residential property market recovered after the global financial crisis. Private residential property prices have risen 59 per cent from mid-2009 to end-2012, accompanied by high sales volume during that period. Developer sales have remained persistently robust with 14,688 units sold in 2009, 16,292 in 2010, 15,904 in 2011 and 22,197 in 2012. While end-user sales boomed, residential collective sales (including mixed-use residential sites) remained modest with annual investment values of $1.8 billion in 2010, $3.1 billion in 2011 and close to $2 billion in 2012, a far cry from the record of $11.4 billion in 2007. In this article, we will review the factors that have affected the recovery in the collective sales market and share our outlook for 2013.

Ramped-up Govt residential land sales

Following the global financial crisis, quantitative easing by major economies resulted in massive liquidity inflows and low interest rates. These contributed to a buoyant property market, pushing demand and prices to new highs. Concerned with an asset bubble being formed, the Government implemented several rounds of demand cooling measures. In tandem with these measures, the Government ramped up supply of residential sites under the Government Land Sales (GLS) programme. 2010's confirmed list sites had a planned supply of 11,060 units and this was stepped up to 16,240 units in 2011. Planned supply remained strong in 2012 with confirmed list sites that could yield 14,080 units, and in 1H2013 momentum has been maintained with 6,935 units in planned supply. The bulk of the sites in the GLS are in the Outside Central Region (OCR) and have provided abundant opportunities in the suburbs for buyers.

In the years leading up to the global financial crisis, demand for suburban homes was rather low-key with developer sales averaging below 3,000 units per annum from 2004 to 2008 for the OCR. The coincidence of pent-up demand for suburban homes and the supply surge in the OCR resulted in huge take-up averaging above 11,000 units per annum between 2010 and 2012 in the OCR.

With supply gravitating towards the OCR, developers focused on opportunities in this market segment resulting in GLS residential sites accounting for the lion's share of residential property investments. Between 2010 and 2012, total investment value in collective sales averaged $2.3 billion per annum while the annual average for GLS was $7.8 billion. Higher transparency of development requirements, economies of scale and potentially higher profitability are other advantages that GLS sites have, relative to collective sale sites. Therefore the competition for collective sale sites is not just among themselves but also against the indomitable GLS sites under present market circumstances.

Effect of market cooling measures

The key measures imposed by the Government in moderating the residential market are the seller's stamp duty (SSD), additional buyer's stamp duty (ABSD) and loan tightening controls, especially against buyers who have outstanding loans. The target group of these measures are speculators, investors and foreigners while first-time buyers or those without outstanding loans remain largely unaffected. The prime residential market is generally underpinned by demand from investors and foreigners. With this group of buyers substantially reduced, sites in prime locations have been more difficult to market as developers became selective in considering such sites.

In the past three years, Core Central Region (CCR) sites accounted for only 27 per cent of total collective sales investment value as compared with 71 per cent in 2007. Without the high-value contribution from prime sites, it will be challenging for collective sales investment value to increase significantly. The sluggish CCR collective sales have also been exacerbated by the ABSD requirements. For development sites, a major requirement for the remission of ABSD is the completion of the development and sale of all the units within five years. As the five-year timeframe is rather onerous for large sites, developers have been wary of purchasing them.

Outlook for 2013

The market is still reeling from the effects of the latest cooling measures imposed which took effect on Jan 12. ABSD has been raised substantially for foreigners and is now also payable by permanent residents buying any residential property and Singapore citizens buying their second and subsequent properties. LTVs for housing loans have been reduced further for those with outstanding loans. These measures are expected to substantially discourage investors and foreigners from purchasing residential property, so demand for private homes could moderate significantly. With increased uncertainty in the future sales performance of new launches, developers are likely to be more cautious and selective in bidding for residential sites. This would apply to both Government Land Sales (GLS) as well as collective sales sites. These challenges could result in a lower total investment value of residential sites in 2013, compared with the $11.3 billion in 2012.

In the past few years, most of the en bloc sites that were sold were relatively bite-sized at below $200 million, which made them less risky to develop and also affordable to mid-tier and smaller developers, who are unable to compete for the big-ticket GLS sites.

Consequently the stock of "en bloc-able" developments within the sweet spot of below $200 million has become more limited. While the uphill battle for collective sales continues, there will still be opportunities for sites with the right attributes. Collective sale sites that tend to do well are those in established residential areas and in reasonably good locations such as those near MRT stations and amenities such as shopping, food outlets and schools. Mixed-use sites allowing commercial and residential use are in demand and these constituted about a quarter of last year's collective sales value.

In a competitive market, buyers tend to shy away from sites that are priced optimistically so deals are only concluded where pricing is realistic. This year, sales volume of en bloc sites may still be around the $2 billion achieved last year or slightly less, unless one or two large sites are sold, propelling the overall figure by 20 to 30 per cent higher.

The writer is regional director and head of investments & residential at Jones Lang LaSalle

Martin Koh | 86666 944 | R020968Z
Sherry Tang | 9844 4400 | R020241C

Senior Sales Director
DTZ Property Network Pte Ltd (L3007960A)

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