Receive $80 Grab vouchers valid for use on all Grab services except GrabHitch and GrabShuttle when you subscribe to BT All-Digital at only $0.99*/month.
Find out more at btsub.sg/promo
[SINGAPORE] Developers' profit margins for new condominium launches have halved from a year ago, a focused study by Knight Frank suggests.
Looking at condominium launches on 99-year leasehold sites acquired through the government land sales (GLS) programme, the global consultancy estimated that new launches this year could have seen margins dive to 5-10.3 per cent.
This came on the back of a slew of government cooling measures that have subdued an otherwise hot market last year when record prices allowed developers to churn margins of 15.6-22.5 per cent for new launches.
Knight Frank studied a total of 24 project launches on GLS sites, but excluded freehold sites. Of these projects, four condominium projects were launched this year, 12 last year, and eight in 2012. They are all located outside the core central region (CCR).
The average take-up rate in condominium launches has also fallen to 32.3 per cent this year, down from 67.2 per cent in 2013 and 96.9 per cent in 2012, based on the study.
Alice Tan, head of research and consultancy at Knight Frank, noted that further margins compressions could occur if the selling prices at these new launches are further reduced to boost sales amid rising construction and financing costs.
"Offering attractive deals such as setting more palatable price quantum for various unit sizes, combined with unique design innovation, could be the current strategy for developers to quickly clear their units, before further competition sets in with upcoming project launches," she added.
"Moving forward, we are likely to see limited margin compression for the rest of 2014 and 2015, particularly for sites purchased after the implementation of the total debt servicing ratio (TDSR), as developers would have taken the impact of the TDSR into consideration," Ms Tan said.
The margins estimates assumed a range of construction costs depending on the condominium type, full gross development value for each project, and an average transacted price for all units in each project based on caveats lodged till end-July.
Ms Tan explained that only GLS sites are examined as they are the most competitively sought after and offer price transparency. The development costs for GLS sites are also more predictable than sites bought through private treaty, which will involve costs such as brokerage fees, development charge and legal liabilities.
The Panorama is among the four projects launched this year on GLS sites - the others being The Santorini at Tampines, Lakeville in Jurong and Waterfront@Faber at Sungei Ulu Pandan.
After Wheelock cut prices for the Ang Mo Kio project by as much as 10 per cent during its re-launch in May, units moved at a median S$1,240 per square foot (psf), down from the earlier median price of S$1,342.5 psf. There are still some 496 unsold units for the 698-unit project as at end-June.
Alan Cheong, Savills senior director for research and consultancy, said he expects margins to come down further for new launches this year if developers decide to offer further discounts to move unsold units.
"It is not just an issue of margins but also the pace of sales. If the pace of sales is slow, the developer needs a higher margin because it cannot use the sales proceeds to fund the development," Mr Cheong said.
He noted that a 10 per cent margin on development sales translates to a return on equity of 5-6 per cent per annum - a level deemed too low for the risks that developers bear.
Ong Teck Hui, the national research director at JLL, reckoned that developers will likely moderate their land bids to ensure a bigger buffer for their margins. But bids for very attractive sites could still be competitive, he said.
Meanwhile, developers are split over the strategy of price-cutting to move sales.
Tuan Sing group chief financial officer Chong Chou Yuen said that while the group is not under pressure to cut prices, "it can be more flexible in pricing for genuine buyers who are buying to stay".
There are some 31 units left unsold in Sennett Residence, 35 units at Cluny Park Residence and 13 units in Seletar Park Residence as at end-June. Mr Chong said there is sufficient margin buffer given that the land sites were acquired three to four years ago when the prices were not as high as now.
Roxy-Pacific executive chairman Teo Hong Lim said the group has yet to decide on whether to trim prices for its freehold project Trilive in Kovan, which so far moved only 19 units. The 222-unit project sits on the former Yi Mei Garden that was bought in a collective sale last year.
But Roxy is "refreshing" the showflat. Mr Teo felt that there are other ways to differentiate the project, such as a freehold versus a leasehold status. Roxy's new condominium launches this year have seen gross margins hovering around 13-14 per cent.
As at end-June, there are some 28,436 unsold private homes. They include 1,412 in completed projects and 27,024 in uncompleted projects, of which 20,713 units are not launched for sale yet, according to Knight Frank.