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Economy

Singapore land grab continues despite central bank warning

Developers undeterred by the prospect of higher interest rates, weak home prices

SINGAPORE (Nikkei Markets) -- Singapore's central bank may be concerned about growing risks in the property market, but its warning last week failed to dampen sentiment among developers, who drove land bids to a fresh record Tuesday.

The aggressive bidding raises the possibility that the Monetary Authority of Singapore may resort to action rather than moral suasion to temper the market.

However, the return of local players to these auctions also shows growing conviction about the recovery in the housing sector and the fear of losing out.

According to data released by the Urban Redevelopment Authority late on Tuesday, a prime site along the Singapore River attracted a top bid of 955.4 million Singapore dollars ($709 million). The bid works out to S$1,733 per square foot per plot ratio, which is a record high for new residential land in the city-state.

Singapore-listed Frasers Centrepoint submitted the top bid, narrowly edging out a rival bid by companies linked to the Hong Leong Group, the unlisted parent of local property heavyweight City Developments, which put in the next highest bid of S$950 million. A total of 10 groups participated in the tender.

Christine Li, director of research at Cushman & Wakefield in Singapore, said Frasers Centrepoint's winning bid was 40% higher than that paid by a developer for a nearby site in June 2016 on a per square foot per plot ratio.

"Despite the authority flagging the risk of excessive exuberance in the property market and the simultaneous closing of two large state land tenders, the bidding for choice sites has not shown any sign of slowing," she said.

A second government land auction attracted seven participants and a top bid of S$553 million, or about S$1,540 per square foot per plot ratio, from Allgreen Properties, a developer linked to Malaysian billionaire Robert Kuok.

The bid price for the site in the upmarket Bukit Timah suburb comfortably exceeded the reserve price of S$448.8 million although, on a per square foot, per plot ratio basis, it was below what Allgreen paid when it won the tender for two nearby developments that were offered via collective sale.

DBS Equity Research said Tuesday's land auctions saw the return of several local players to the market for new sites. For example, Frasers Centrepoint's winning bid was its first in two years, while Bukit Sembawang and Wheelock Properties had been absent for several months.

Singapore developers have bid aggressively for new and existing sites to replenish their land banks following a surge in apartment sales over the past year, pushing land prices to record levels. But while sales have been brisk, private home prices are down about 12% from their peak - they edged up 0.7% during the third quarter following 15 straights quarters of decline.

The frenetic bidding prompted a warning from the MAS, which said last Thursday that developers should take the upcoming supply of housing units into account when vying for land.

"With slower population growth and relatively high vacancy rates, there is considerable uncertainty as to whether the new supply coming on stream can be fully absorbed by the market," MAS said in its annual Financial Stability Review.

In a separate note, the central bank said it is "closely monitoring market conditions, together with the Ministry of National Development and the Ministry of Finance."

MAS also warned about rising interest rates, which would cap potential increases in property prices. According to data compiled by the Straits Times newspaper, Singapore's three local banks, DBS Group, Oversea-Chinese Banking Corp and United Overseas Bank, raised mortgage rates by 10-20 basis points last month.

The MAS review looks at the risks facing the Singapore economy and the financial system's ability to withstand potential shocks.

Despite the central bank's warnings, many analysts remain bullish about prospects for Singapore developers due to the turnaround in market sentiment and the recovery in the city-state's economy.

"We expect developers' net assets values to be revised up in the event of strong sell-through rates and pricing, which supports further outperformance of the sector," said John Woods, Credit Suisse's chief investment officer for the Asia Pacific.

--Kevin Lim

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