Part of the successful launch of Pasir Ris 8 was the expected launch price of the new project that will be built on the Lentor Central government land sales site.
SINGAPORE (EDGEPROP) - Competition among developers for government land sales (GLS) sites has intensified over the past year or so. Most newly launched projects have recorded steady sales amid a resilient market this year. Thus, developers are keen to replenish their depleted landbanks to prepare for the next cycle of new projects from 2022. (See also: [UPDATE] Far East Organization and Sino Group submits three out of five bids for Jalan Anak Bukit GLS site)
This has led to strong competition for GLS sites, and recent tenders have recorded better-than-expected tender prices and number of bids.
In the 2Q2021 housing statistics released by the URA on July 23, there was a total supply of 47,097 uncompleted private residential units (excluding executive condos) in the pipeline with planning approvals. This was lower than the 48,139 units in the previous quarter.
Of the stock of uncompleted units, there were 19,384 units that remained unsold as at the end of the quarter, compared to 21,602 units at the end of 1Q2021.
When these statistics were released, URA noted that “the supply of private housing in the pipeline, including from GLS sites, will sufficiently cater to the housing needs of the population when completed over the next few years”.
However, some developers and property consultancies have noted that the supply of GLS sites and the corresponding yield of new homes that could be redeveloped have not kept pace with conditions in the property market over the past 12–18 months.
According to Nicholas Mak, head of research and consultancy at ERA Realty Network, over the past five years, the government has released enough GLS sites that could yield between 3,000 and 6,000 private housing units each year.
“However, due to the pandemic (last year), the government scaled back the supply of residential land. Hence, the housing supply that can be built on the land sold last year only amounts to an estimated 1,800 units,” he adds.
This comes even as demand for new private homes was relatively robust in 2020, especially after the “circuit breaker” period.
Mak: The potential supply of new homes from land sold in 2020 is substantially lower compared to pre-pandemic levels. (Picture: The Edge Singapore)
“Coupled with a more muted collective sales market, the potential supply of new homes from land sold in 2020 was substantially lower compared to pre-pandemic levels, but at the same time, housing demand remained strong,” says Mak.
He concludes that the GLS supply last year was not enough to meet the housing demand seen this year and which is expected to continue into 2022.
Thus, developers have been bullish towards recent GLS tenders, given the relatively limited supply of such sites that have been put up for sale this year and a shortage of sizeable en bloc sites, says Mak. (See: See potential condos with en bloc calculator)
The most recent example of this bullish attitude was seen on July 22 when a mixed-use GLS site at Lentor Central was awarded to GuocoLand Group for $784.1 million, which translates to a land rate of about $1,200 psf per plot ratio. Eight other bids were also submitted by the close of the tender.
Using EdgeProp’s Land Sales property analytics tool, we estimate that the developer could face a breakeven price of about $1,930 psf after factoring in the various development, construction, and marketing costs for the new project.
This had an immediate impact on the launch of Pasir Ris 8, a 487-unit integrated development that was launched just two days later, on July 24. By the end of its initial sales weekend, the project saw 415 units sold, which translates to a take-up rate of 85.2%. Meanwhile, prices for the units sold ranged from $1,400 psf to $2,000 psf, with an average price of close to $1,600 psf.
A screenshot of EdgeProp's Land Sales property tool. (Source: EdgeProp Singapore)
According to Ken Low, managing partner at Singapore Realtors Inc (SRI), the close of the GLS tender at Lentor Central created a knee-jerk reaction among most prospective buyers of Pasir Ris 8.
“Most buyers took advantage of the opportunity to capitalise on the relatively lower price offered at Pasir Ris 8 compared to the expected launch price of the redevelopment at Lentor Central. This is because the expected launch price of the new project is above $2,000 psf when it is launched next year,” says Low.
He adds that the successful launch of Pasir Ris 8 and the prices the project managed to achieve over its opening weekend sales paved the way to normalise the price expectations of buyers in the market, especially those looking for homes in the city-fringe and suburbs.
“We saw in the following weeks that some already-launched new projects in the suburbs marginally increased their sales prices by 2%-3%,” says Low.
Low: Some already-launched new projects in the city-fringe and suburbs increased sales prices by 2%-3%. (Picture: The Edge Singapore)
In general, he says that buyers responded positively to this price increase. “The 2%-3% price increase that we saw in the market is reasonable compared to what we expect to see in terms of new launch prices in 2022,” he explains
Low echoes Mak’s concern that based on the rate of new home sales over the past few months, the current supply of new private homes is “running dangerously low”. “The current pipeline supply of new homes will probably last us for the next one to two years,” says Low.
Home buyers and investors have benefitted from a persistently low interest rate environment that has encouraged more upgraders and first-time private homeowners to enter the housing market.
But according to Clive Chng, associate director at Redbrick Mortgage Advisory, there are signs that point to a change to this environment, especially as interest rates in Singapore move in tandem with global markets and the US economy.
“Based on economic data from the US, we see that their unemployment rate has been gradually falling. Singapore’s unemployment has also been steadily falling over the past year, from 3.3% at the peak of the pandemic last year to 2.7% last quarter,” says Chng.
Chng: There are signs that point to a change to the low interest rate environment. (Picture: The Edge Singapore)
He adds that with the gradually reopening of the global economy, the market will likely see a shift in monetary policy in the form of an interest rate hike.
New home buyers who are taking out bank loans to finance their purchases this year and last year are “lucky” as they manage to capitalise on all-time low interest rate levels. “Many of these buyers are leveraging this situation to lock in low fixed interest rates for a longer period, such as three or five years,” says Chng.
Other buyers have opted for floating interest rates instead, expecting interest rates to rise from 2023 or 2024 onwards, he says.
Tune in to our next episode of Real As State on August 27.
Check out the latest listings near Pasir Ris 8