As developers step up Singapore land purchases, slump in home prices may end
Chinese developers a factor in higher bids for sites
SINGAPORE (Nikkei Markets) - Property developers continue to bid aggressively for residential sites in Singapore, a sign that many expect home prices to reverse course after more than three years of decline.
Demand for land in Singapore is also being fuelled by greater participation on the part of foreign developers, especially the Chinese players that have begun expanding in the region.
However, the government's watchful eye on property prices means a sharp rally in unlikely, say analysts. DBS Vickers noted in a report on Friday that the government could try to cool sentiment by increasing the number of sites available for sale in the second half of this year.
On Thursday, a subsidiary of Singapore-listed Hongkong Land Holdings agreed to buy an existing 330-unit housing development for 766 million Singapore dollars ($552 million), well above the S$643 million-S$653 million price indicated when the process of the collective, or en-bloc, sale of the land and the building began in April.
Separately, a government land tender that closed on Thursday drew a robust 11 bids, according to the Urban Redevelopment Authority, pointing to the interest of developers in building their land bank. The highest bid came from Fantasia Holding, one of the many Chinese developers that are now active in the Singapore property market.
"Looking at the way these en-blocs and land bids are transacted, developers seem to be pricing in a recovery in 2018," DBS Vickers analysts Rachel Tan and Derek Tan wrote in Friday's report. The higher prices for the sites will put upward pressure on the cost of homes in the medium term, they added.
Ian Loh, the head of investment and capital markets at Knight Frank in Singapore, said overall sentiment in the real estate market has picked up significantly since March, when authorities lowered the stamp duty imposed on those who sold their residential property within the first few years of purchase.
"Sales have picked up in terms of transaction volume in the past six to nine months and some developers need to sustain their construction arms by bidding for new sites," he said.
Singapore home prices fell for the 14th straight quarter in the three months to March 2017, as the government's cooling measures continued to put a cap on prices.
However, buyers have begun returning to the market, with transaction volumes close to levels last seen in 2014 when fears of overheating prompted the authorities to intervene.
In March, the relaxation of some rules lifted sales of new private homes to 1,780 units, the highest in nearly four years. April sales of 1,555 new private homes was more than twice the 750 units transacted in the same month last year.
According to a recent report from property services firm Cushman & Wakefield, developers are now paying on average 29% more for land in the city-state, judging by the average premium of winning bids over prices for comparable land parcels in the vicinity.
In the second half of 2016, the premium was around 13%, while land sold during the first half of last year tended to be priced below what had been paid for comparable sites.
Knight Frank's Loh said the Chinese presence has been more keenly felt in Singapore than elsewhere in Southeast Asia, partly because of the relatively low barriers to entry. Unlike in some markets, the bidding process at government land auctions is transparent and there are clear rules governing transactions in the property market.
Although DBS Vickers cautions that the government is likely to act if developers get overzealous about building their land-bank, the brokerage is keeping its "overweight" recommendation on the group. Its top picks are City Developments and UOL Group due to their relatively large stock of unsold apartments that are now likely to fetch higher prices.