In 1H2017, activity in the residential market continued to pick up, with sales volume returning to levels prior to the introduction of the total debt servicing ratio framework in 2Q2013. The fine-tuning of the seller’s stamp duty in February 2017 catalysed the improvement in sentiment, which was further reinforced by the successful collective sales and aggressive land bids. With more buyers on the sidelines entering the market and the good take-up rates of recent launches of well-located projects, the market may be bottoming out.
The economic outlook for Singapore is more optimistic, owing to a recovery in the electronics sector. However, the economic fundamentals have remained largely unchanged from last year and the global economic environment remains uncertain. Interest rates are likely to normalise over the next few years. Therefore, any increase in residential property prices is likely to be moderated.
Land parcels in the 1H2017 Government Land Sales programme saw aggressive bids from many developers. There were 24 bids for the site on Toh Tuck Road, which set the tone, and this was followed by bids for the sites on Stirling Road, Upper Serangoon, Woodleigh and Serangoon North. The sales momentum of the 1H2017 GLS programme is likely to spill over to the 2H2017 programme.
Why smaller sites are attractive
Developers do not have to pay additional buyer’s stamp duty on the purchase of land if they complete and sell all their units within five years of the acquisition date. However, developers who fail to do so, even if they are left with just one unsold unit, will incur a 15% ABSD for land purchased on or after Jan 12, 2013. A 5% interest rate per annum will also be levied. Therefore, some developers may choose to focus on smaller residential projects as it is easier to sell all the units within the five-year period, which helps to reduce the risk of incurring ABSD.
Smaller projects also offer new developers an entry point into the market. In addition, it takes less time for developers of smaller projects to break even. Overall, smaller projects mean less risk to developers, given the uncertain external environment.
For buyers, a smaller project means more exclusivity and fewer residents sharing the common facilities. Rental investors should also note that larger developments usually face pressure to lease within the first year of completion.
Identifying the best sites
Edmund Tie & Co Research has studied the land parcels in the 2H2017 GLS programme and identified the top three among the smaller land parcels. The sites were ranked based on criteria such as location and how established the neighbourhood is.
The location criterion is further broken down into three sub-attributes: distance to MRT stations; proximity to established schools; and lifestyle amenities. How established the neighbourhood is depends on the history and cultural identity of the area. For land parcels close to HDB estates, the age of the HDB town will also be taken into consideration. Other criteria include competition for potential buyers from existing or upcoming projects in the area.
Lastly, the land parcels are given a score based on URA’s plans. For instance, those in an area earmarked as a second CBD will receive the best score of five.
Land parcel on Handy Road
The land parcel on Handy Road, on the Confirmed List, is in a prime location. Located in District 9, it is 0.52ha and zoned for residential use, with a gross plot ratio of 2.8.
Land parcel on Handy Road (in orange)
It is within walking distance of the Dhoby Ghaut MRT station, an interchange station for the North-South Line, Circle Line and North- East Line. There are museums, shopping malls, eateries and pubs in its vicinity. It also has excellent accessibility to the CBD.
Residential properties around the site enjoy healthy rental demand, owing to the proximity to the CBD, Singapore Management University and other institutions of higher education. Rents in the area range from $4.32 to $6.10 psf per month; a one-bedroom unit of 400 sq ft could command a monthly rent of $2,080, based on the average rent in the area year to date.
Potential buyers of the project that will be built on the site include foreigners who would purchase a home for their children studying in the institutions nearby and couples who have dual income and no kids.
A potential theme that developers can consider for the site is co-living, such as having common kitchens and a regular programme of entertainment, talks, community activities and events for the residents. The steep slope of the site presents some challenges, but developers can also capitalise on the slope with innovative designs and concepts.
According to URA, the site can yield about 130 units and is expected to be launched in November 2017. As at Aug 1, ET&Co Research expected 12 to 18 bids for the site, with bids ranging from $900 to $1,300 psf per plot ratio (ppr).
Land parcel on Cuscaden Road
The land parcel on Cuscaden Road, which is on the Reserve List, has similar attributes to the Handy Road site. Located in prime District 10, it is 0.57ha and zoned for residential use, with a 2.8 gross plot ratio.
Land parcel on Cuscaden Road (in orange)
It is located near the Orchard Road shopping belt, the upcoming Orchard Boulevard MRT station and the Orchard MRT station, which will be an interchange station for the North- South Line and the Thomson-East Coast Line.
A project built on the site is likely to enjoy strong rental demand not only from expatriates but also professionals working at the nearby Camden Medical Centre. Hana, located adjacent to the land parcel, commands at least $19,000 in monthly rent for its four-bedroom units. Sales at Tomlinson Heights, a freehold development nearby, averaged $2,700 psf year to date.
The project is likely to appeal to investors seeking to rent to expatriates, medical professionals and affluent families with members who are seeking medical services at the nearby hospitals, as well as wealthy buyers who like the accessibility to the Orchard area and CBD.
According to URA, the site can yield an estimated 170 units and is expected to be launched in October 2017. As at Aug 1, ET&Co Research expected 12 to 18 bids for the land parcel on Cuscaden Road, if it is triggered for sale, with bids ranging from $2,100 to $2,500 psf ppr.
Land parcel on Chong Kuo Road
The land parcel on Chong Kuo Road, on the Confirmed List, is likely to attract interest from construction companies or smaller developers. The site is close to the upcoming Springleaf MRT station and is 0.48ha, with a gross plot ratio of 1.4. According to URA, it can yield about 90 units and has an estimated launch date in October 2017.
Land parcel on Chong Kuo Road (in orange)
With plenty of greenery and water bodies in the area, such as Springleaf Park, Sembawang Golf Course, Upper Seletar Reservoir and Sungei Seletar, a potential theme that developers can explore is a nature resort with an emphasis on well-being.
People seeking a more relaxed lifestyle would be a pool of potential buyers. Others include those who want to downsize from their landed homes in the area and professionals with flexible working hours or working from home.
As at Aug 1, ET&Co Research expected six to eight bids for the land parcel at Chong Kuo Road, with bids ranging from $900 to $1,050 psf ppr.
This article was adapted from Edmund Tie & Co’s research paper “Small is beautiful — The smaller residential sites in 2H2017 GLS”.
Lee Nai Jia is senior director and head of Southeast Asia research at Edmund Tie & Co (SEA).He can be reached at naijia.lee@etcsea.com.