Hesitant steps in a quiet place

TWO new suburban condo projects launched over the holiday weekend to mixed results. CapitaLand sold 323 units or 88 per cent of its 368-unit J’den project in Jurong. That makes it the year’s best-selling launch (so far, with about six weeks to go till the end of the year), and at an average price of S$2,451 per square foot that sets a high-water mark for the suburban location.

Hyperlocal factors helped. J’den, a redevelopment of the JCube mall, is the first new condo in the area in a long while. It stands close to the very busy Jurong East train interchange and the upcoming Jurong Lake District. 

Over the same weekend, Hillock Green at Lentor Central, moved 27 per cent of its 474 units. The 131 Hillock Green units sold were priced at an average of S$2,108 psf, more or less matching two earlier launches in the Lentor Hills neighbourhood. Lentor Hills Residences, which was marketed in July, has so far sold 70 per cent of its 498 units at an average S$2,084 psf. The first launch in the area, Lentor Modern, came to market in September 2022 and has sold close to 95 per cent of its 605 units at an average S$2,101 psf. 

That sales were discernibly slower for the Lentor project was to be expected, with two condominiums already marketed in the location and more to come.

In the week before, developers seemed to be betting on the market holding itself up, putting in what were seen as bullish bids for three state land sites. The S$968 million top bid for a plot in Toa Payoh at S$1,360 psf per plot ratio came from a group consisting of City Developments, Frasers Property and Sekisui House, which had also jointly bid for a site in Clementi.

Offers for the Clementi site were topped by a joint venture between MCL Land and CSC Land, which bid nearly S$633.45 million, or S$1,250 psf ppr for the parcel in the west. Another MCL Land joint venture with Sinar Mas Land emerged as top bidder for another western region plot in Pine Grove, with an offer of nearly S$692.4 million, or about S$1,223 psf ppr. 

The government tenders for the three sites were bunched together to close on the same date. One line of reasoning for this is that having multiple parcels on offer at the same time would lead to developers bidding conservatively. Given that land costs can make up around 60 per cent of a project’s development cost, “batched” tenders could then keep a lid on the final selling prices of the properties, in line with the government’s stated aim to keep homes affordable after years of prices running up. 

However, Leslie Yee argues that the grouping of tender closing of multiple sites at the same time may not benefit developers, the government or potential homebuyers. Bunching tenders may lead to overstretched resources for a developer that has put in bids for multiple sites and won. And lower land bids may not necessarily result in lower selling prices. A profit-maximising developer would price the project at a level it thinks the market can absorb and according to prevailing sentiment. In The Level Ground, Leslie makes the case for spacing out tenders for state land sales to maximise proceeds and manage risk.

Another significant part of the supply-side equation for developers is construction costs. While manpower and materials shortages have eased since the pandemic crunch, construction costs are still rising, Samuel Oh finds out. 

Over the last three years, construction costs for condominiums and commercial buildings have risen some 30 per cent, and are expected to stay elevated. By one estimate, the average tender price for construction projects in 2023 is about 8 per cent higher than 2022. Margins - of both construction companies and developers - will continue to come under pressure as long as borrowing costs remain high. 

Sentiment in the real estate trade has dropped to a new low, the Institute of Real Estate and Urban Studies’ latest quarterly survey shows. Adding to higher land and construction costs, the pressures of a slowing property market and higher-for-longer financing costs have increased risks for players. 

Some of these stresses are creeping into the Singapore banking system. While the overall non-performing loan (NPL) ratio stands at 1.7 per cent as at Q2 of 2023, it has been declining since Q3 of 2021. But NPL ratios for two sectors in particular have spiked recently. The NPL ratio for real property and development of land rose to 1.17 per cent in Q2 2023, from 0.63 per cent in Q2 2022. And the NPL ratio for retail trade climbed to 2.12 per cent in Q2 2023, from 1.48 per cent in the same period a year earlier.

Two property players posted lower earnings in their latest financial statements last week.

Frasers Property swung into the red in its second half, posting a net loss of S$74 million as revenue dipped 9 per cent to S$2 billion. Fair-value losses of S$442 million from commercial and industrial assets in Australia, Europe and the UK ate into its bottom line. Gains in its hospitality business were outweighed by lower revenue from residential projects in Singapore and from industrial projects.  

CapitaLand Investment saw its nine-month revenue slip 3 per cent to S$2.1 billion, as a faltering China market dragged on its real estate business. The group also announced last week that it had clinched a six-year contract to manage the Kallang Wave Mall and the retail spaces in the Singapore Sports Hub, until 2030.

On the bright side, some who had bought new condos in the last five years reaped gains from the strong run-up in home prices. Subsale transactions in the third quarter of 2023 hit the highest level recorded since 2013, Jessie Lim reports. Analysts noted that many sellers in Q3 had bought their units between 2018 and 2020, and that the URA’s private residential property price index has risen by about 43.5 per cent cumulatively between Q3 2017 and Q3 2023.

Deals are in the works. A joint venture between Lian Beng Group and Apricot Capital is said to be selling the office and retail space at Wilkie Edge in the Selegie area to Keppel Capital, Kalpana Rashiwala reports. The price is pegged at close to S$350 million, reflecting S$2,200-plus psf based on net lettable area. Negotiations are also underway for the sale of Hong Kong-based Gaw Capital Partners’ Hotel G Singapore in the Middle Road/Bencoolen Street area, for about S$235 million to a CapitaLand-linked entity.