Goodies which usually come with GE could be main reason for en bloc market optimism

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It remains unclear as to what is fueling the continued buoyancy in the en bloc market. Some analysts predicted in December last year that the en bloc market was reaching the tail-end of its life cycle, but we are now at the close of the 1st quarter of 2018 and yet there seems to be no end to the collective sale fever. It seems there are still many developers out there who would buy from the en bloc market, depending on the price.

en bloc marketThe chief mortgage consultant of iCompareLoan.com, Paul Ho, said: “If an en bloc has happened lately nearby an area for $1500 per square foot per plot ratio price (psf ppr), another en bloc project that is priced at $1420 psf ppr would attract bids. All things being equal, it is a matter of how the developer is able to price the project upon completion with its frills and all.”

He noted that sites such as Mandarin Gardens are also going for an estimated S$2.5 billion. Properties like Cashew heights may also go for around $1.65 billion.

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“So if all of these materialised along with many other developments, 2018 will indeed be a bigger year for en bloc sales, not by number of the projects, but definitely by the total en bloc volume of the projects,” Mr Ho added.

Mr Ho is unsure about what information the developers are privy to which gives them such optimism about the en bloc market.

He noted that the next General Election should happen sometime in 2019 or 2020, and that it will bring “some level of artificial pump priming of the economy to give the feel good factor for the coming elections.”

“Hence I think the developers may have had that in mind as one of the many considerations and their ability to price the projects,” Mr Ho suggested.

In 2018, some of the 2016/2017 en bloc projects will also have attained URA permission for sale. These projects will come onto the Supply in the Pipeline “Bandwagon”, and the developers of such “early bird” projects will make money.

Developers will undoubtedly have to rush their launches to capture the buyers, as there will be a lot of supply in the pipeline from the government land sales projects. On top of that, it is expected that another 10,000 or more units will come into the en bloc market from the ‘en bloc tear down and re-development into new condominiums’ projects.

One mitigating factor against price drops from large supplies from the en bloc market is that many ‘supply-in-the-pipeline’ units have already been sold.

There is no doubt that there is a demand for “entry-level” condominiums. To meet this demand, developers may acquire “cheap” projects below $1,000 psf ppr and try to price it at around $1500 – $1600. But some of these locations do not have the cachet to command top prices. Hence, pricing them at $1500 – $1600 may be “pushing it”.

The developers with considerations for margins may continue to bid for “expensive locations” such as Bukit Timah, Sixth Avenue, River Valley, Newton, Tanglin Road, etc. The traditional District 9, 10, 11 and the District 15 and Care central regions, may also be on some developers’ radars.

“If a developer bids for $1500 to $1800 psf ppr in a prime district, the estimated break even would be around $2000 to $2300., but the developer is likely to call for $2500 to $2800 psf ppr selling price,” Mr Ho said.

“The margins will likely be better as these areas have the brand premium to command the price premium,” he added.

When developers acquire “expensive locations”, they may also spend more on construction to throw in the “thrills and frills” – to make the project an iconic project to command the top end of the premium price.

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Most Singaporeans are helpless against property price rises and tend to go with the flow. While some may have “large wallets” to buy expensive developments, most will have to end up with smaller and smaller units. Smaller household sizes coupled with the aging population also contribute to the trend of building smaller housing.

“But should developers conveniently raise prices too?”  asked Mr Ho.

“For those who are currently letting go of their 2000 to 3000 sq feet units, these people would have received in the range of $2m to $5m of en bloc sales proceeds, they will baulk at buying a 1000 sq feet unit at $2m,” the head honcho at iCompareLoan.com said.

He added: “They will look around and when they see that there are really no sensible bargains to be had – a minority of 15 to 30 percent of the en bloc sales owners – will start to go into the landed inter-terrace market. This will lead to landed housing market prices upward move which had been lagging behind the condo sales activity for many months.”