Below is a compilation of two reports featured in The Straits and Business Times respectively during the past two days, which the wife and I have found to be rather interesting.
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Major developers, caught by surprise by the strong home sales in the past year, are now faced with fast depleting land banks.
Research complied by property firm DTZ shows that out of 16 major developers in Singapore, half had less than 1,000 residential units left in their land banks as of end-February this year. Another five developers had between 1,000 and 2,000 units.
The numbers do not take into account strong home sales in March – which means that many developers’ land banks would have shrunk further by the end of last month.
Sales in March include all 202 units in Hong Leong’s
76 @Shenton. At Sentosa Cove, Ho Bee Investment recently launched
Seascape, and City Developments,
The Residences at W Singapore Sentosa Cove.
Analysts said that developers put off buying sites during the downturn in 2008-2009, when the outlook for the property market was bleak. Hence some were suddenly low on inventory when demand rose and they brought forward their launches.
The hunt for fresh residential sites has led to a spike in both the price and the number of bids for state land tender. In December last year, for example, a landed housing site at Jurong West put up for sale by the government drew a whopping 32 bids. The winning bid of $38.5 million, or $254 per sq ft of land area, came from Chappelis, a unit of Wee Cho yaw’s privately held Kheng Leong. At other tenders, the top bids were sharply higher than analysts’ estimates.
In response to the intense competition for sites, the government has in recent months stepped up land sales. More residential sites are also likely to be added to the second half 2010 government land sales programme. But the hunt for new residential sites is likely to continue unabated in the short term.
Boutique property group EL Development, which launched and sold-out a few high-profile projects last year, has just one more development (with 32 units) left in its portfolio. Other developers are similarly worse-off. DTZ’s research shows that Singapore Land had just 206 units left in its land bank as of end-February while Wheelock Properties had 209 units. Comparatively, UOL has 1,074 units left in its land bank, according to DTZ.
The 16 developers’ land banks amount to 21,886 units in all, which means that they hold over half of all the unsold residential supply in the pipeline.
Official figures from the Urban Redevelopment Authorities (URA) show that there were 34,234 unsold, uncompleted units of private housing in the pipeline as of end-2009. But this does not include projects without planning approvals.
For the year ahead, developers expect home sales to remain strong. Some 1,480 new homes were sold in January this year, followed by another 1,196 units in February – pushing the estimated number of new home sales in Q1 2010 to about 4,000 homes. Demand for new homes is expected to be around 3,000 units for the second quarter, analysts said.
The buying activity has however moved slightly to the high-end and luxury segments, where developers have a higher proportion of unsold units. That may work in some developers’ favor, as low land banks seem to be more of an issue for the mass market. For the high-end segment, developers still have ample supply because of all the collective sale sites they bought during the last boom.
And speaking of collective sales, more projects are expected to be put up for “en bloc” sale this year. This should bode well for developers keen to beef up their land banks especially in the mass market segment. But they are not rushing into the en bloc market just yet, experts say. This is because of the gap between what the sellers wants and what developers are prepared to pay. The prices en bloc sellers are asking now may not yet be justified by what the new projects nearby are fetching. Given a choice, developers would rather bid for government land sale sites than a private plot.
Government land sales sites are usually located in established residential areas with ready comparable projects, making it easier for developers to work out their sums. The sale process is also neater and faster, experts said. The collective sale process can drag on if there are strong dissenters.
Unhappy minority owners have, in the past, taken their estate’s collective sale case to the High Court and the Court of Appeal (e.g.
Horizon Towers). This means that timing can be a big problem with collective sales.
In such a sale, both sides want to protect their interests. The developers would not want to bid too high in case the market does not turn out to be as strong as expected. But sellers want to secure a higher price to safeguard their position when the deal is sealed, in case prices continue to rise and they are unable to afford a similar replacement property.
Until prices of new private home launches improve further, the en bloc market may not take off in a significant way yet.
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On a related note, the wife and I wonder how much the prices of new private home launches will have to “improve further” before the bubble finally bursts…
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