GLS: Lower tender bids expected?

Market watchers are observing lower tender bids for government land sales (GLS).

According to OCBC Investment research, recent GLS tenders imply breakeven prices that are as much as 26% below market prices. It said this is likely due to the policy changes in the housing market after May 2011.

Average winning tenders for recent 99-year GLS condominium sites translate to a breakeven average selling price that is on average 7% below market levels. This is based on data compiled by OCBC Investment Research, covering 24 tenders from June 2010 to June 2011.

Analysts said the lower bids are a result of developers factoring in lower expected selling prices for their units. But they said this may not necessarily translate into significantly cheaper home prices for end buyers.

Liang Thow Ming, Head of Residential Services with Credo Real Estate: "Over the last couple of GLS tenders, we've noticed a drop both in the number of bidders and also in the successful bidding price. What will happen over here of course, is that the developers are now buying land at a lower cost. However, I don't think that is a major factor in deciding what the launch price is going to be."

Launch prices of end units are dependent on demand from home buyers as well as market sentiment. As such, developers with more freehold land sites in their land bank can choose to delay their launches, in order to wait for the market to pick up. This will allow them to set higher average selling prices.

Analysts do say the lower tenders protect the developers from a crash in home prices, as it gives them more flexibility to price their units accordingly.

Chia Siew Chuin, Director of Research & Advisory at Colliers International, said: "Should the market turn, should the market soften for whatever reasons, this low bidding price would actually create a buffer for the developers, thereby giving the comfort zone to then therefore reduce the selling price of end units."

Going forward, analysts expect the private home prices to remain flat, increasing at most 3% by the end of the year. The prices of mass market condominiums are likely to be between $900 and $1,200psf.

Source: Channel News Asia

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