DEVELOPERS may be bidding more cautiously now, factoring the difficulty of selling their units into their bidding prices, but the competition for land remains healthy, BNP Paribas said in a recent report.
It may come as a surprise but tender exercises are seeing more bids per site as local players rush to replenish their land bank, foreign players look to invest in Singapore and construction players are bent on diversifying from the difficult construction market.
Like-for-like comparisons on plots sold this year compared to earlier sites in the vicinity show that bidding prices have come off quite a bit. But demand remains intense, with an average of nine bids per site from January to September 2015, up from 7.3 in 2014.
Part of the reason could be because developers are anxious to restock following recent land supply cuts in the Government Land Sales (GLS) programme, said BNP Paribas analyst Chong Kang Ho, who spliced data from 185 winning GLS sites from 2007 to September 2015 to come up with his findings.
Studying the margin buffers, he found that developers' bidding behaviour has become more cautious, with margin buffers generally above the mean of 12.1 per cent. But they are still not "outright pessimistic", since the margin buffers are below the one standard deviation of 17.7 per cent.
The margin buffer of a winning bid refers to the difference between the prevailing price of launches taking place near the land tender site and the development project cost of that land.
The greater the margin buffer, the more cautious the developer is in its bid to protect against the risk of falling home prices. Conversely, the smaller the margin buffer, the more aggressive the developer is in its bid.
In the second quarter of 2008, for example, developers' margin buffers widened to a peak of 25 per cent, reflecting heightened caution as developers braced themselves for home prices falling when the world entered the global financial crisis.
Mr Chong also tracked the gap premium between winning bid values versus their median bid values, and found them to be widening again in 2015 - an indication that bidders have differing views on the housing market outlook, possibly due to rising uncertainty in the global economy.
A widening gap usually occurs during volatile times, such as a global crisis or after new policy measures are introduced, he said.
"One reason could be that developers may have differing views on policy impact, which lead to greater discrepancies in bid value for a period of time," he said
Developers are suffering, meanwhile. Mr Chong said the slower decline in land cost compared to steadily falling home prices (down another 1.3 per cent in the third quarter of 2015, according to official flash estimates) could hurt Singapore developers' margins, especially if selling prices keep falling in the primary sales market.
"Based on our analysis, net margins of developers' new projects fell to 11.8 per cent in 2014. This is down from 12.6 per cent in 2013, and down from 22-25 per cent in 2010-2012." (See chart)
Mr Chong also noted that the still intense competition for land and the increased participation from non-traditional developers are making it difficult for traditional Singapore developers to restock their depleting land bank.
He considers non-traditional players to be foreign developers, boutique local developers and construction-related firms, all of which are eager to expand their market share here to enjoy more economies of scale.
So far this year, traditional developers such as City Developments, Frasers Centrepoint, UOL, CapitaLand, Keppel Land and Far East Organization have not won any site. Even when they took part, they were outbid by new players.
There were, on average, 1.8 foreign developers that bid for every site this year, compared with 1.4 in 2012, he said.
Increasingly, more developers are also forming consortiums to submit their bids, which is probably to share risks in this precarious market.