Developers to stay keen on GLS sites

While the latest round of property market cooling measures is likely to hit housing demand significantly, developers are expected to bid actively for the sites on the Government Land Sales programme (GLS) for the first half of this year, as most are situated in good locations.

Two days before the Jan 11 announcement of property curbs, the Urban Redevelopment Authority awarded the first GLS site for this year — a plot at Ang Mo Kio Avenue 2 that can potentially yield 670 to 710 housing units. Pinehill Investments, a wholly-owned subsidiary of Wheelock Properties, won the tender with its highest bid of S$550 million, or S$790 per sq ft per plot ratio.

The tender was a closely fought one, with Wheelock’s bid edging out the second- and third-highest bidders by 2.6 per cent and 6.1 per cent, respectively. This suggests that the top bidders have similar outlooks in terms of the future gross development value for the site, with construction costs and profit margins as the key differentiating factors.

Significantly, this plum site prompted Wheelock to re-enter the mass market residential segment after a long hiatus. It also attracted the who’s who of the property industry, with the likes of CapitaLand, Aspial, Fragrance, MCL Land, Keppel Land and City Developments all looking to beef up their land banks.

The confidence of these bidders has probably set a new benchmark for suburban land prices. Indeed, the exuberant performance of the mass market residential segment over the past 12 months may have been the dominant catalyst for the bidding euphoria.

A number of GLS residential sites were sold at record prices, reflecting the strong interest and optimism of local developers, which in turn prompted more foreign developers to jump on the GLS bandwagon.

The tender deadline for the residential GLS site at Jurong West Street 41 has been extended by two weeks to next Tuesday to allow developers time to factor in the effects of the latest cooling measures in their bids. While the bids are expected to be more or less conservative to reflect the investment-demand sifting measures, the real litmus test for the developer’s hunger may be the site at Kim Tian Road, whose tender launch is expected next month.

Last year, the Government awarded 35 residential sites under the GLS programme, which could supply about 15,830 homes. One might wonder if the tender results for the Ang Mo Kio Avenue 2 site spelt the last of its kind, given that the latest curbs will no doubt shrink the demand pool of investors.

While CBRE is of the view that this round of cooling measures may lead to sales volumes dipping by 10 to 15 per cent to below 20,000 units this year, we expect developers’ interest in GLS sites not to wane. This is because most of the sites on the H1 2013 GLS programme are prime plots located in either mature housing estates or in regional centres close to transport nodes with established amenities.

In addition to the Ang Mo Kio Avenue 2 site, the Confirmed List of the GLS boasts sites at Kim Tian Road, Faber Walk, Mount Sophia, Jurong West, as well as Tampines Avenue 10.

The Reserve List also offers attractive residential sites in the Queenstown and Alexandra vicinity, Tampines, as well as a high-density site in Siglap. As a result, it is expected that tenders for more sites could be triggered in the latest Reserve List, surpassing the six in the Reserve List that were triggered and awarded in H2 2012.

Interestingly, the current preference for GLS sites does not seem to have had a big impact on the private land sales market through collective sales, even as there were some signs of a slowdown last year. Generally, smaller sites met with more success, with developers appearing to prefer those priced at S$100 million and below. Last year, there were 28 collective sales worth a total of S$2.2 billion.

Nonetheless, GLS sites are usually favoured as these are usually sold unencumbered, often without the need for complicated demolition or site clearance procedures. The process towards the legal possession of a GLS site is far more clean-cut and straightforward compared to that in a collective sale, which can be fraught with complications.

For example, it has been reported that the collective sale of Thomson View, the biggest in about five years at S$590 million, hit a roadblock when the Strata Titles Boards issued notice of a stop order after 13 of its owners lodged objections to the deal. However, it should be noted that the collective sale process remains the only way to obtain development sites that are freehold in tenure or from established residential projects.

Barring unforeseen circumstances, land bidding for both private and public sites is expected to remain competitive in the next 12 months. With a limited number of choice sites and an ever-growing list of property developers, established and nascent as well as local and foreign, CBRE expects land prices to remain healthy.

By Desmond Sim – Associate Director at CBRE Research

Source : Today – 25 Jan 2013

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