Updated from : The Business Times, 22 Sep 2022
OVER Sep 16 and 17, GuocoLand : F17 0% sold 508 units, or 84 per cent, of 99-year leasehold Lentor Modern’s 605 homes, at prices ranging from S$1,856 to S$2,538 per square foot (psf). Lentor Modern’s success follows strong take-up at recent launches of leasehold condominium developments in the Outside Central Region (OCR).
About 75 per cent or 118 of 158 homes at Sky Eden@Bedok were sold at an average price of around S$2,100 psf at the project’s launch on Sep 7. AMO Residence in Ang Mo Kio sold 366 of its 372 units in July at a median price of S$2,110 psf.
Given this strong demand for suburban condos, developers should be clamouring for land. Surely there is good business to be done by building homes; but in order to do that, developers need to secure sites.
Yet, state tenders for 99-year OCR sites that closed last week – 2 private housing sites near Lentor MRT station and an executive condominium (EC) site along Bukit Batok West Avenue 5 – pulled in fewer bids than had been forecast by most property consultants.
The EC plot in Bukit Batok fetched 4 bids. The top bid of about S$626 per square foot per plot ratio (psf ppr) was 5.4 per cent below the winning bid for the next-door plot at a tender that closed in March, which drew 9 bids.
There were 3 bids for the Lentor Central site, and 2 for the Lentor Hills Parcel B site, with top bids of S$1,108 psf ppr and S$1,130 psf ppr respectively. The top bids are 4.5 to 6.6 per cent higher than the price of S$1,060 psf ppr for the nearby site that will house Lentor Hills Residences, which was sold in January shortly after property cooling measures were introduced in late 2021.
Private home prices appear to have shrugged off the effects of the cooling measures. According to the Urban Redevelopment Authority, they rose 4.2 per cent between the fourth quarter of 2021 and Q2 2022. Prices of private non-landed homes in OCR gained 4.4 per cent. Consultants Edmund Tie and Huttons expect private home prices to rise around 8 per cent this year.
Between Q4 2019 and Q2 2022, prices of private non-landed homes in OCR rose 17.1 per cent; the Housing Development Board (HDB) resale price index jumped 24.6 per cent. With a bullish HDB resale market, many buyers of suburban condos can count on using profits from the sale of HDB flats to fund their condo purchases.
As many buyers of suburban condos are locals, a tight labour market and rising wages in many sectors support demand in this segment. The resident unemployment rate was 2.9 per cent in July. Singaporeans constituted about 92 per cent of buyers at Lentor Modern’s launch, with permanent residents and foreigners making up the rest.
Thus far, home buyers seem unfazed by higher interest rates and worsening economic growth prospects. Why then are developers not being more bullish in bidding for land?
Developers face cost pressures from rising interest rates and construction costs. But rising costs will not matter if buyers can pay higher prices.
Perhaps developers, knowing that the property market moves in cycles, are signalling in their land bids that private home prices are peaking. Besides the tepid response to state tenders for OCR housing sites, prime residential en bloc sale sites Trendale Tower, 5 Oxley Rise and Oxley Garden closed their recent tenders without a sale.
Sure, developers need to have sites to generate development profits. But, private housing developers take on substantial risk. They are subject to 40 per cent Additional Buyer’s Stamp Duty (ABSD), of which 35 per cent may be required upfront, subject to conditions – such as the need to complete the development and sell all the homes within 5 years of the purchase date.
Moreover, the volume of new home sales is slowing: CBRE Research forecasts new private home sales of about 9,000 units in 2022, versus 13,027 units in 2021.
Developers may be happy to forgo forecast net profits of, say, 10 per cent from a housing project in an environment full of uncertainty and after home prices have had a strong run. With the strict conditions for ABSD remission, the cost of taking on a project that does not sell well are elevated.
Looming over developers too is the risk that frenzied buying at recent condo launches pushes the government to unveil further cooling measures, to ensure home prices do not run ahead of economic fundamentals. If there are more cooling measures, developers with housing sites who have yet to launch their projects will be the hardest hit.
Home buyers appear to be bullish, but developers are cautious. Whose view of the homes market will prove to be more accurate? This is a tough call.
Yet, developer sentiment can be a powerful motivator of buyer behaviour.
By bidding less aggressively for land, developers are removing a common marketing point of real estate agents: that prospective home buyers should move fast because future projects will be priced much higher.
Should buying sentiment turn, sales momentum could slow significantly, as many people, who buy for fear of missing out, may opt to wait and see instead.