Developers need to launch properties to avoid holding costs

Singapore homebuyers can expect more private residential properties to be launched in the coming months and at lower prices.

Analysts said that’s because developers are now torn between accepting either weaker profits or high costs of holding on to land.

Brisk sales seen in recent property launches like the Caspian can be credited to lower prices being offered by developers.

Units there were sold at about S$600 per square foot, or S$50 per square foot less than earlier planned.

Analysts said developers have little choice but to cut prices to move sales as the the cost of holding onto a piece of land can be expensive as well. A typical plot of land for mass market homes could chalk up more than S$500,000 of interest annually, including other costs.

Interest on land cost is typically about four to six per cent. Developers normally take a 60 per cent loan on land. This means a mid to mass market plot of land bought for S$20 million will accrue more than S$500,000 of interest in a year. There are other costs too.

Cheang Kok Kheong, COO, Development & Property, Frasers Centrepoint, said: “It’s very good price for the present economic situation and it really meets the kind of needs and budgets our customers have right now.

“We have committed our construction costs. We have gone ahead and developed it and we are looking at our cashflow to ensure that we can build the project on time with little financial difficulties.”

Frasers also wants cash for possible land acquisitions in the near term.

Other developers which have turned to cutting prices include City Developments. It recently launched a new phase of its Livia project in Pasir Ris at about S$620 per square foot, down from S$650 per square foot.

Meanwhile, GuocoLand relaunched its development near Buangkok MRT – the Quartz – at an average price of S$595 per square foot, more than eight per cent lower than the initial launch in 2007.

Another developer, MCL Land, recently made provisions to value its land near current market prices. Analysts said this is normally a prelude to a relaunch at lower prices. But they noted that developers will not keep prices low for too long.

Donald Han, managing director, Cushman & Wakefield, said: “Some obvious strategy would be to go out there, launch as much as you can, depending on where the quota is.

“Then once you hit a certain sales quota, you stop and then you relaunch it when the project can be launched at a better market sentiment and hopefully at a higher price as well.”

Most analysts believe the market will start to pick up in mid-2010.

Source : Channel NewsAsia – 2 Mar 2009

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