Analysts: Developers remain keen to grow land bank in Singapore

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An Insights and Analysis report by DBS bank said that by pouring $1.6 billion into three residential sites, foreign and local property developers have shown that they are keen to grow their land bank. The report added that the Cuscaden Road development may test records when it launches.

land bankA joint venture between SC Global, FEC Properties and New World Development are testing the upper limits for Government Land Sales (GLS) by placing a top bid of $410 million or S$2,377 per square foot (psf) for the Cuscaden Road site. The SC Global consortium’s bid is 8 per cent higher than the second-highest bidder – Shun Tak Holdings.

Bukit Sembawang Estates, Guocoland and Logan Property put in the subsequent high bids at $2,152 psf, $2.063 psf and $2,050 psf respectively.

The report noted that the highest number of foreign developers had put in a bid, implying robust demand for prime sites to grow land bank in Singapore.

It estimates that the break-even for the site is expected to be close to S$3,000-S$3,100 psf, which implies that the selling price will be upwards of $3,500 psf.

“With SC Global in the consortium, we cannot help but imagine that the group will look to the push the price envelope and shoot for at least S$4,000 psf and above,” the analysts said.

They added: “Based on the bids, all developers were willing to bid up to a break-even of S$2,600 psf; implying that most will be looking to launch the development for at least S$3,000 psf and above for prime Orchard Road.”

The analysis said that a site at Mattar Road was also hot with many developers vying for the same site. Ten developers put in bids for this site at Mattar Road with the top six bids within a close $50 psf range. the top bid for this site was placed by a joint-venture between middle-capitalisation developers, Hock Lian Seng, Keong Hong Holdings and TA Corporation, at $223 million or $1,109 psf.

The site is located near Mattar MRT station and is near Macpherson estate, which has both landed and public housing. The analysts believe that the developers may have been attracted to the potential rental catchment, given its location at the fringe of the CBD, and since the site is near the Tai Seng Industrial estate and the upcoming Paya Lebar commercial cluster.

Break-even is estimated to be close to $1,650-1,700 psf for the Mattar Road site, suggesting that selling prices could be at least $2,000 psf onwards.

A site in Silat Avenue, however, only drew a sole bidder. The analysts suggest that at $1.04 billion, the hefty capital outlay had cut off interest from many developers and saw a lone bid by a consortium comprising UOL/UIC and Kheng Leong. With development limited to 1,250 residential units (average size of 790 square feet), the use of PPVC construction techniques, and presence of five conservation buildings and a cap on commercial gross floor area (GFA) of 1,300 square metres, several mandatory conditions apply to this site. Back-on-the envelope estimates put break-even at close to S$1,700 psf  for this site.

Some other reports have suggested that foreign property developers are bidding aggressively to stock up on land bank, and that this may be bad news for home-buyers because additional costs may be headed their way.

Some property consultants have suggested that the low interest rates which are being provided by the banks now is a major factor which is driving developers’ demand for land bank. Co-founder of HugProperty, Ku Swee Yong, for example noted that there is the fear that the low interest rate situation which has been with us since the Lehman crisis, may change at any time.

“If there were to be a hiccup somewhere in the world, interest rates could spike up,” he said.

Developers’ demand for land bank is riding on the recovering residential property market, which has also propelled residential investment sales value to the highest level ever. Developers snagged some 26 plots of residential land (excluding sites yielding more than 20 per cent of gross floor area in other uses) worth $7.27 billion in the first three months of 2018. Of these, $5.83 billion were accumulated from 17 collective sales deals, while the sale of four government land sites (including one Executive Condominium plot) contributed a further $1.24 billion.

The low interest rates, besides supporting the developers’ interests, is also sustaining the buyers’ fascination with new launches. But buyers have to be concerned since any hiccups in the global economic order (e.g. trade war between China and the USA) could see their interest rates sky-rocketing.

Trade war between USA and China could spring nasty surprise on en bloc mania

The Fed interest rates hike is also expected to have an impact on home loans of buyers. The increase is expected to have an impact on credit cards, mortgages, vehicle loans and bank savings accounts here. This is because Singapore interest rates are closely correlated with those in the US. The SIBOR (Singapore interbank offered rate) for example is expected to go up. This could dent some of the enthusiasm in the buoyant property market.

Since the beginning of this year, banks have raised interest rates for both fixed and floating home loan packages by 10 – 30 basis points (bps). Some banks have already upped their mortgage rate to 2.05 per cent, to keep pace with the increasing interest rates.

Banks, however, are usually slow off the mark in raising the interest rates in response to global news. This lag time is where a mortgage consultant can best help a distressed buyer to finance a new purchase or to refinance their current property.


If you are home-hunting, our Panel of Property agents and the mortgage consultants at icompareloan.com can help you with affordability assessment and a promotional home loan. Just email our chief mortgage consultant, Paul Ho, with your name, email and phone number at paul@icompareloan.com.