The Business Times, 8 Aug 2022, Mon 9:33 PM
By Nisha Ramchandani
THE residential en bloc market has been gathering momentum in recent months as developers seek to replenish their land banks amid dwindling unsold inventory, a relative lack of supply under the Government Land Sales (GLS) programme and buoyant sales at new launches.
Analysts said that the en bloc market should continue to see stable interest in the coming months as more sites come onstream, although developers are likely to remain discerning when it comes to selecting sites.
There were 9 residential en bloc deals so far this year totalling a transacted value of about S$1.81 billion as at Jul 31. This surpassed the 8 residential en bloc deals worth some S$1.17 billion for 2021 as a whole, data from real estate consultancy JLL showed.
The year-to-date tally for 2022 excludes freehold, 16-unit development Vicenta Lodge in Kembangan, which was sold via private treaty in March for S$27.2 million before the deal was aborted in April after the buyer ran into trouble transferring funds from overseas. Freehold, 4-storey building Kartar Apartments at Thomson Road is back on the market this year with a price tag of S$18.5 million, after a developer who sought to purchase it for S$17.8 million in November last year was unable to complete the transaction for a similar reason.
Generally, developers have been drawn to en bloc sites in the suburbs and city fringe with a palatable price tag of under S$300 million. The biggest deal this year was Chuan Park, which was sold via private treaty for S$890 million, albeit below its reserve price of S$938 million.
While Tan Hong Boon, JLL’s executive director (capital markets), expects more sites to make their way to the market this year, he does not expect a crop of bumper launches. “Many of the sites under preparation now are finding it more and more difficult to garner the 80 per cent support (required) from owners,” he added. This is due to the now-higher Additional Buyer’s Stamp Duty (ABSD) rates following December 2021’s cooling measures, which is prompting owners – who may incur the ABSD when they purchase a replacement property to think twice.
Analysts said the momentum in the residential en bloc market is being fuelled by a relative lack of supply under the GLS programme, shrinking unsold inventory, as well as a robust take-up at recent project launches such as Piccadilly Grand, Liv@MB and AMO Residence.
Tricia Song, CBRE’s head of research (South-east Asia), noted that unsold inventory had dropped to 16,079 units as at Q2 2022, markedly lower than the last peak of 37,799 units in Q1 2019. “This implies less than 2 years’ landbank, based on the 10-year (2012-2021) annual average of 11,216 new sales,” Song added.
And while the government is roughly doubling the supply of private residential units available under the GLS Programme’s Confirmed List to about 5,300 units in 2022 from the year prior, supply still lags demand, noted Edmund Tie’s head of research and consulting Lam Chern Woon. He said: “This falls short of the 10,000 units in primary sales volumes expected for this year. As such, developers will still need to tap … the private land market.”
Lam also expects that the government will have to continue to boost land supply further, albeit in a calibrated manner.
Developers turning to the en bloc market to replenish their stock could also be looking ahead and betting on a brighter macroeconomic environment by the time the project actually goes to market, suggested Savills executive director Alan Cheong, who estimated that a likely launch date for a collective sale could be over a year from the date of closure. “By the time they start marketing the project, it would be either late 2023 or 2024,” he pointed out.
Another factor Cheong cited is the pressure for developers to re-invest the equity and profits reaped from earlier projects kickstarted during the 2018-2019 landbanking season.
Analysts say that the residential en bloc market should see sustained momentum for the next 6 months, although developers will remain selective when it comes to scooping up sites. “(With) rising macroeconomic uncertainties, developers might prefer the GLS Programme as a key source of development land due to the greater certainty of deal completion and pricing discretion, compared to collective sales,” said CBRE’s Song. “However, smaller to medium-sized collective sites with good locational attributes and those facing little competition from GLS sites are expected to continue seeing healthy interest from developers, provided asking prices are realistic.”
And while the 30 per cent ABSD payable by foreign buyers – hiked from 20 per cent previously – has had developers adopting a cautious stance when it comes to committing to prime residential parcels, JLL’s Tan reckons the tide is turning.
Tan said: “More foreigners are again entering the market to invest for capital preservation and appreciation, as Singapore continues to be perceived as a safe haven. With the developers’ luxury unsold stock dwindling as well, we expect developers to start looking at prime residential sites for luxury developments from Q3 for the rest of this year and into the next year.”
Lam shares that sentiment, noting that foreign buyers started to stream back into the luxury market in Q2 2022 after Singapore relaxed its border curbs. “We are already seeing a revival in the foreign share of home-buying demand in Q2 2022, following December 2021’s higher ABSD rates,” said Lam, adding that purchases by foreign buyers in the Core Central Region (CCR) comprised 12 per cent of demand that quarter. While this is still below the 15-18 per cent share trending pre-pandemic, it is a distinct improvement over the 7.8 per cent low in Q1 2021.
Karamjit Singh, chief executive of property consultancy Delasa, reckons the slower take-up of prime-located en bloc sites thus far may stretch out the existing en bloc cycle over 3 years; typically, en bloc transactions generally fall within a shorter 18 to 24 month cycle. This is due to the fresh property curbs, which also brought heftier ABSD rates for housing developers if they fail to complete and sell all their units within 5 years of acquiring a residential site.
Singh said: “The demand is clearly strong for the lower to medium-end of the housing market, but there are insufficient reasonably-priced en bloc deals to make their sale viable. So it’s a classic case of supply and demand mismatch of the reverse order between prime-located en blocs and the rest of the market.” According to Singh, this could cause a steady rise in land values and result in the current en bloc cycle spilling into 2023.
Meanwhile, downside risks flagged by analysts that may impact the en bloc market include a US-led recession, climbing interest rates, elevated development costs and a further round of cooling measures.
Rising interest rates, for instance, mean that developers have to do their sums carefully before bidding for sites, highlighted Tan. He said: “With higher interest rates and expected further hikes, developers will factor this cost into their new land purchases and offer their bid prices accordingly. This is a concern, but the risk is manageable so long as the developers price it in sufficiently.”
But even with interest rates heading north, Cheong expects developers will continue to scout for land sites to acquire. “Given the strong launch demand since the start of the year and the pressure to reinvest their capital, they will continue to look for land banking acquisitions, rather than parking it in a bank or in funds,” Cheong said, adding that the latter would result in a big opportunity cost for developers in terms of operational overheads and core skills.
He also pointed out that interest rate hikes now take less of a bite out of purchasing demand since the Total Debt Servicing Ratio prevents buyers from over-leveraging.
Touching on headwinds such as rising mortgage rates and the prospect of a recession, Singh noted that Singapore’s housing market has been taking them in its stride thus far. “But (it) may start to falter as risks emerging from the United States intensify,” he cautioned.
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