State Land Sales In Demand As En Bloc Fever Cools

Source : The Business Times, January 22, 2008

Developers find pricing of GLS sites more in tune with market realities

Developers seem to be turning increasingly to state tenders instead of en bloc sales to restock their residential landbanks. This is because land pricing at state tenders is more responsive to the current bearish market conditions.

Also, the Government Land Sales (GLS) programme, with its staple of mass-market, suburban residential sites, is currently just what developers want, as this market segment is expected to shine after the steep run-up in high-end home prices last year.

Figures compiled by Credo Real Estate show that while collective sales languished in the last two quarters of 2007, sales of GLS residential sites spiked in Q4. Developers picked up slightly more than $1 billion worth of 99-year leasehold residential sites sold through the GLS programme in Q4 of last year alone, surpassing the $865 million of such sites they had bought in the first nine months of the year.

In contrast, only $1.28 billion of residential collective sale sites changed hands in Q4 last year, down drastically from $11.2 billion in the first nine months.

Credo Real Estate managing director Karamjit Singh says: 'En bloc sales have rigidity in their pricing mechanism; once the reserve price has been set in the collective sales agreement (CSA), it is difficult to lower it, as you'll have to go through all the majority owners who agreed to the sale to sign a supplemental CSA.'

'In contrast, the pricing for a state site offered through the GLS programme can be more reactive to the mood of the day, presenting an opportunity that developers are seizing today,' he added.

Knight Frank executive director Nicholas Wong says: 'Collective sales have a higher chance of success when the market is trending up as the reserve price in the CSA is always pegged to the last done transaction of a similar property. But when the market is flat or on a downturn, en bloc sales become more difficult to transact - unless the site boasts some unique propositions such as a landmark location, proximity to MRT stations, etc. Owners will have to price their sites reasonably to find buyers.'

Putting things in perspective, a seasoned market observer said: 'Because the market has slowed, the spread between what developers are willing to pay and en bloc owners' expectations has widened. En bloc sales involve many owners and it takes time for them to realise they have to lower their expectations.

'Whereas for state land tenders, the minimum pricing is decided by the Chief Valuer, who is on top of the market and is more nimble to changes in market moods and values.'

The usual government policy is to sell a site if at least 85 per cent of the Chief Valuer's price has been met.

For sites sold through the confirmed list, Chief Valuer's assessment is made on the tender closing date. For sites sold through the reserve list (which are triggered for release only upon successful application by a developer), the Chief Valuer's assessment is made before the government opens any application by a developer seeking the release of the site.

DTZ executive director Ong Choon Fah also says developers find it 'more straightforward' to pick up a site at a state tender, unlike the hassle of going through the Strata Titles Board and potential court hearings in the case of collective sales. 'Developers are also balancing their portfolios. After the run-up in high-end home prices, the mass-market is expected to shine this year,' Mrs Ong added. Residential sites in the GLS programme are largely in suburban locations, suitable for development into mass-market condos catering to upgrader demand.

Mrs Ong expects developers to continue preferring GLS sites to restock their landbanks in the months ahead - especially if the government offers more 99-year private condo sites in mature Housing & Development Board estates near MRT stations.

Credo's Mr Singh expects the volume of residential collective sales deals to ease from last year's record $12.5 billion to about $4-6 billion this year. With weaker market sentiment, owners will have to be more realistic about their pricing, especially in the suburban market where the GLS is a formidable source of alternative land supply for developers, albeit on 99-year leasehold tenure.

'But there will still be en bloc sales because they are the only credible source of prime sites right now. Previously, Sentosa Cove used to be an alternative source of supply of high-end residential sites. But land sales there have come to an end. En bloc deals involving prime sites will take place - if prices are realistic,' he added.