En bloc appetite hit by ‘developer fatigue’

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According to an RHB analyst, many developers’ en bloc appetite is diminishing. The analyst, Vijay Natarajan, said that developers are not only paying smaller premiums, but are also becoming more selective with their en bloc site purchases.

“The fatigue is starting to be reflected in the premium developers have paid over the reserve price, which has halved to five percent this year compared (with) 10 percent in 2017,” noted Vijay Natarajan.

He expects the market to peak by Q2 or Q3 2018, after which their en bloc appetite will decline he believes. He said that major developers have become “very selective” when it comes to purchasing en bloc sites.

Their en bloc appetite was further hit by the more stringent Government policies. Recent policies like higher development charges for non-landed housing, the need for traffic impact study for redevelopment sites, and the Monetary Authority of Singapore’s move to look closer into bank financing for projects, have all had an impact on the developers.

Mr Natarajan expects the home builders attention to shift towards “small- to mid-sized sites that have good location attributes and amenities”. iCompareLoan.com‘s chief mortgage consultant, Paul Ho, also believes this.

He said, “If you want to build a ‘Landmark’ project, you not only have to pay a good price for the land, but you will also need to have a similarly remarkable ‘Brand-able’ district in order to hype it up for a better price.”

The analyst said that builders have started to look at alternative land sources like the second-half Government Land Sales (GLS) programme for 2018. The second-half of GLS 2018 programme, which will be announced in June, is also expected to have a huge impact on the developers’ en bloc appetite.

But still, Mr Natarajan expects the en bloc sales volume for 2018 to exceed last year’s total tally of $8.2 billion. 2018 has seen 20 en bloc sites being taken up with over 100 plots still available. In contrast, 28 sites were purchased for the whole of 2017.

Singapore’s lower unemployment rate and stronger economic growth which are expected to rise this year could be another factor which may weigh-in on the developers en bloc appetite. Against such a backdrop, Mr Natarajan cautions buyers of landed and non-landed properties to be prudent.

Private residential prices are anticipated to increase between 5 – 10 per cent this year on an annual basis, driven largely by successful en bloc sellers looking for replacement homes.

“We remain cautious on the longer-term outlook and sustainability of steep price increases” due to potential interest rate hikes and slow population growth, as well as a sluggish rental and resale property market, Mr Natarajan said.

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