A case of if you cannot beat them, join them?

Many had expected strong interest and a good fight for a prime private housing site in Bishan when the tender closed last week. Nevertheless, the result still surprised many or should I say “shocked” them – and in more ways than one – when it was announced late on Thursday.

The first surprise was the highest bid submitted: S$550 million or S$869 per sq ft per plot ratio (psf ppr) for the 129,136 sq ft 99-year state plot. The second was that it was about 27 per cent higher than the second-placed bid and a whopping 2.9 times the minimum bid of S$189,831,390 – or what the Chief Valuer must have deemed as fair market value or at least not too far from it.

The last surprise was that the top bid came from CapitaLand, who had on a number of occasions highlighted the speculative chasing for land in earlier tenders. Instead of incurring the risk of overpaying for sites through “blind tenders” for government land sales, the developer had indicated that it preferred private treaty negotiations for collective sales.

Is this a case of “if you can’t beat them, join them?” Or did it reflect the special interest of the developer in the surrounding area as it could create synergy with the Junction 8 mall, which is owned and operated by its unit CapitaMall Trust as suggested by one?

In any case, the Bishan bid was consistent with the record price of S$1.2 billion or S$753 psf ppr submitted for a 30ha mixed-use site in Punggol a week earlier.

The total value of all 19 bids for the Bishan site came up to slightly over S$6.5 billion, reaffirming once more the fact that the market is heavily laden with liquidity. My opinion has always been that with the huge amount of liquidity in the market, hugely profitable developers, of which they are now many, have no choice but to bid higher and higher, just to secure sites.

And if a developer has no choice but to “overpay” for a site, it is immensely preferable to overpay for a choice plot than for one in a run-of-the-mill location.

One alternative would be for developers to venture abroad to do overseas projects that have their own and not necessarily lower risks – which some have already done. Another would be to return the monies back to shareholders and wait for saner prices. However, this would defeat their own raison d’ĂȘtre.

I am not sure which developer triggered the site but the timing was notable as it came soon after the fourth round of cooling measures (CM4). After conducting its own impact assessment, it must have felt that it could get the choice site for a steal given that market sentiment had been severely battered by CM4.

If CapitaLand felt a tinge of disappointment that it could have gotten the site by a much lower margin than the 27 per cent it achieved, it probably felt vindicated when the National University of Singapore released its Singapore Residential Price Index (SRPI) this week that showed prices for high-rise private properties rising by a searing 2.6 per cent in January. This growth rate is equivalent to over 30 per cent per annum in case you are still not sure whether prices are rising quickly or not.

Of course, like many, you may say that the January results were mainly based on purchases concluded before the effective date of Jan 14 for the latest set of cooling measures.

However, as the weeks roll by, one cannot help but feel that CM4 has been more limited in its impact than CM3. It was the first time that showflats stayed open, allowing us to immediately gauge market sentiment.

Short of a buying ban, the sharp hike in sellers’ stamp duties was interference on a scale never seen in other parts of the world before – in the decisions of investors to buy and sell. However effective it was in eliminating those in the market for a quick gain, it appears, for now at least, to have limited overall impact.

By now, the market must be shorn of almost all speculators and short-term investors. What is left is what many are describing as genuine long-term investors. If the buying continues and prices continue to rise, many would probably ask: Is this long-term buying considered a problem?

By Colin Tan – head, Research & Consultancy at Chesterton Suntec International

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