Mass-Market Site Draws Strong Developer Interest

Source : The Business Times, August 20, 2009

Hong Leong puts in top bid of $280 psf ppr for the plot in Pasir Panjang

An impressive 13 bids were received for a residential site at Chestnut Avenue in Bukit Panjang at the close of the tender yesterday, reflecting the renewed interest and the growing positive outlook among developers for mass market residential projects.

And the top bid of $143.7 million - or $280 per square foot per plot ratio (psf ppr) - put in by two companies in the Hong Leong Group stable was also much higher than expected by analysts, who had predicted a top bid of $200 psf ppr just a month ago.

Analysts said that developers are looking to restock their landbanks after selling a large number of homes - mostly in the mass market - over the past few months.

'The level of interest shown by the bidders of this site at Chestnut Avenue indicate a growing appetite for mass market projects, especially so with suburban condominiums selling well in the present market,' said Leonard Tay, director of CBRE Research.

'With developers' landbank of suburban sites running low, more of the suburban land parcels on the government land sales reserve list are likely to be triggered in the remainder of the year.'

Colliers International's director for research and consultancy Tay Huey Ying agreed. While most developers still have fairly large high-end and luxury landbanks (as sales in these segments have been slow), their mass market landbanks have diminished greatly since the start of the year, Ms Tay said. And since mass market sites are hard to come by in the private sector, the government's land sales programme is expected to be popular.

Among the bidders were large property groups such as Far East Organization, Sim Lian Land, Ho Bee Investments, Allgreen Properties and Frasers Centrepoint. Far East Organization made the second highest bid of $129.1 million, or $252 psf ppr.

The 99-year leasehold site in the state's reserve list was triggered for launch last month, marking the first time in a year that the government has offered a residential site for tender. Then, the applicant who triggered the tender agreed to bid at least $62 million for the site, which works out to $121 psf ppr.

Under the reserve list system, the state offers a site for sale only if there is an application by a developer undertaking to bid at a minimum price acceptable to the government.

Property consultants said then that the successful bid for the site could come in anywhere between $136 and $200 psf ppr.

The top bid by Hong Leong Group is some 132 per cent above the minimum bid price.

The estimated breakeven price for a residential project based on a land price of $280 psf ppr should be around $550-580 psf, said CBRE's Mr Tay. So the eventual selling price might be around $650 psf to $700 psf when the project is ready to launch, he added.