Property prices to rise 7% in 2018
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Although market watchers have raised concerns that the collective sale momentum is slowing, Tan Hong Boon, regional director at JLL and a collective sale veteran, is confident that the current collective sale cycle will continue through 2018. “If you look at historical trends, there are usually six to eight quarters of active land buying in each collective sale cycle,” he says. Tan was one of the speakers at the EdgeProp 360 seminar held at Capital Tower on March 15. “We are about five quarters into this cycle, which means there are three quarters to go,” he adds (see chart).
The seminar was attended by 250 participants and ended with a panel discussion with the three speakers — Alice Tan, head of consultancy and research at Knight Frank Singapore, Feily Sofian, head of research at EdgeProp Singapore, and JLL’s Tan. The discussion was chaired by Boaz Boon, former head of research at CapitaLand, founder and principal of real estate and design thinking training company Thred and director at real estate advisory firm VestAsia.
From left: Boon, who chaired the panel discussion; Sofian, Knight Frank’s Tan and JLL’s Tan (Credit: Albert Chua/The Edge Singapore)
More sites sold by private treaty
As at March 19, there were 21 collective sale sites this year whose tenders closed. Of the 21, nine were sold at the close of tender, while one — Brookvale Park — was sold by private treaty after the close of tender. More than half of the sites (52%, or 11 sites) were unsold at the close of tender. However, they could be under negotiation for private treaty sale. In comparison, 32 out of 34 sites were sold at the close of tender in 2017.
Owing to the sheer volume of collective sale sites entering the market, JLL’s Tan expects more to be sold by private treaty after the close of tender. He attributes the shift from collective sale by tender to private treaty to the close of tenders for three residential Government Land Sales (GLS) sites on Handy Road, Chong Kuo Road and West Coast Vale on Jan 30. The hotly contested Handy Road site received 10 bids, while the Chong Kuo Road and West Coast Vale land parcels saw eight and six bids, respectively.
The GLS programme is the preferred method of land acquisition, because it is a transparent process and developers can obtain the site fast, according to Tan. “Even if collective sale tenders are launched at reasonable prices, developers tend to bid for GLS sites, and only when they fail to secure them do they consider collective sale sites,” he says.
Developers’ appetite for land remains
Decreasing pipeline supply, however, suggests that the collective sale market still has legs, reckons Tan. There were 40,430 units in the pipeline between 2011 and 2012 — the last peak in property prices. Meanwhile, there were 20,794 unsold units in the pipeline as at end-4Q2017. “These units would take two to three years to come onto the market. Therefore, developers are starting to see that there isn’t enough stock to sell,” says Tan. He expects total value of collective sales this year to surpass that in 2017.
As at March 15, 140 projects were at various stages of the collective sale process, according to Tan. However, not all of them would be able to launch a tender, he reckons. “There will still be many more sites coming on the market. You will still see more collective sales done and total quantum increasing,” says Tan. “But you may also hear of many failures because the asking price is too high.”
Some sites are taking the selling prices of sites launched earlier as a benchmark and are asking for 10% to 20% more than the earlier transacted prices, which were already record prices. “At some point, developers will not bite,” says Tan, who expects land prices to become more stable this year.
One site that Tan reckons will be difficult to secure a buyer is the 1,006-unit Mandarin Gardens off Marine Parade Road. Mandarin Gardens, marketed by C&H Properties, reportedly has an asking price of about $2.5 billion.
The latest quarterly EdgeProp 360 seminar on the residential and collective sale market drew 250 attendees (Credit: Albert Chua/The Edge Singapore)
Future launches present opportunity
Knight Frank’s Alice Tan recommends that buyers enter the market before the expected rise in mortgage interest rates materialises in three to six months. “Mortgage interest rates are ranging between 1.5% and 2.4% right now, depending on your package. If you are looking to buy properties and do re-financing, this is the time,” she says.
Meanwhile, EdgeProp’s Sofian reckons that projects near the Handy Road, Woodleigh Lane and West Coast Vale GLS sites present investment opportunities for buyers looking at the high-end, city-fringe and mass-market segments, respectively.
The Martin Place GLS site, which was launched last July as the 450-unit Martin Modern by developer GuocoLand, presents a notable case study. GuocoLand bought the 99-year leasehold site at River Valley for $595.1 million, or $1,239 psf per plot ratio (ppr) in June 2016. At the time, analysts expected the average selling price for the future Martin Modern to be $2,100 to $2,200 psf, while surrounding freehold developments, such as the 302-unit Martin Place Residences (completed in 2011) and the 545-unit Rivergate (completed in 2009), were transacting at less than $2,000 psf on average, notes Sofian.
Martin Modern’s selling price surpassed analysts' expectations; it was launched at above $2,200 psf on average. This drove up the transaction prices of developments in the vicinity. At Martin Place Residences, a 23rd-floor unit was sold in January 2018 for $2,111 psf, 7% higher than the price of a unit on the 27th level that fetched $1,971 psf in December 2016.
Prices at the 302-unit Martin Place Residences (pictured above) rose after the adjacent 450-unit Martin Modern was launched at above $2,200 psf on average, surpassing analysts' expectations (Credit: Samuel Isaac Chua/The Edge Singapore)
Sofian expects a similar trend for the Handy Road, Woodleigh Lane and West Coast Vale sites. For developments near the Handy Road site, she recommends the freehold, 50-unit Nomu, designed by WOHA Architects and completed in 2009. While Nomu units are transacting at an average price of $2,035 psf, analysts expect the selling price for the new project on the 99-year leasehold Handy Road GLS site to be between $2,600 and $2,700 psf.
Similarly, the GLS site at Woodleigh Lane that sits between the 179-unit Avon Park and the Woodleigh MRT station, was sold for $700.7 million, or $1,110 psf ppr, in July 2017.
The new project will be launched as Parc Colonial. Analysts estimate the average selling price to be north of $1,800 psf. However, units at the nearby Blossoms@Woodleigh, a 240-unit, freehold development, have been transacting at $1,218 psf, presenting a value proposition, says Sofian.
In the mass market, Sofian singles out West Coast Vale, where there has been a spate of GLS sites sold. Units at the GLS site on West Coast Vale that City Developments secured at end-January are expected to be sold at $1,500 psf. Meanwhile, the average asking price for units at the 520-unit Twin Vew, which is slated for launch in 1H2018, is expected to be between $1,200 and $1,300 psf. “There are also freehold or 999-year leasehold developments in the area with resale units transacting at $1,000 to $1,200 psf, including the 315-unit The Infiniti and the 396-unit Hundred Trees,” says Sofian.
Redevelopments at Shunfu Ville and Eunosville could also be value propositions, according to Sofian. The land cost for Shunfu Ville, off Marymount Road, was $747 psf ppr, while Eunosville, which is adjacent to the Eunos MRT station, was sold at $909 psf ppr.
The redevelopment at Eunosville, which is adjacent to the Eunos MRT station, could present an investment opportunity as the site was bought at a relatively low land rate of $747 psf ppr. Comparatively, City Developments Limited paid $800 psf ppr for a GLS site at West Coast Vale in end-January (Credit: OrangeTee)
Prices to rise further
All three speakers were of the view that prices are likely rise further, owing to demand from collective sale beneficiaries, HDB flat owners seeking to upgrade, and positive market sentiment, among other factors.
“Buyers are expecting developers to raise prices, and developers have said they will, in the latest NUS-Redas Real Estate Sentiment Index,” says Knight Frank’s Tan. “There is a match in buyers’ and sellers’ expectations. I think that means strong demand this year,” she adds.
However, she expects property prices to rise by 5% to 7% instead of the 10% to 20% suggested by equity analysts. “Singaporeans are savvy, prudent buyers. In a Homebuyer’s Sentiment Survey we did with EdgeProp late last year, respondents said prices would not go up by more than 5%. The survey has corresponded with actual buying behaviour,” she says.
This article appeared in EdgeProp Pullout, Issue 823 (March 26, 2018).
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