Greater flexibility needed when government assesses bids for GLS sites

A BUYER may pay what many people view as an aggressive price for a home because he is very keen on the property for personal reasons. On the other hand, a property vendor who is in financial distress might sell at a significant discount to the transacted prices of comparable units nearby.

Certainly, a property seller who wants to achieve a good price should be patient and hard-nosed. He may need to reject various offers while waiting for a difficult-to-resist offer.

As the government is financially strong, should it adopt a tough stand when selling land?

From a management-of-resources perspective, it would be prudent to optimise proceeds from a one-off sale of a 99-year leasehold land parcel. In Singapore, the proceeds from selling state land go to past reserves.  

Indeed, delaying a site’s sale in order to fetch a richer price can make good financial sense. Moreover, a housing developer who bought land at a low price may not necessarily sell new homes at reasonable prices.  

Signals from rejecting bids

The recent tender by the Housing and Development Board for an executive condominium site at Tampines Street 95, which was awarded to Sim Lian, drew healthy participation from developers. However, participation by developers at some state land tenders this year has been lukewarm. 

Is the Urban Redevelopment Authority (URA) to be lauded for rejecting the top bids for three sites that were launched for sale under the confirmed list of the Government Land Sales (GLS) programme whose tenders closed this year because the prices were too low?

In February, the URA rejected a GuocoLand -led consortium’s sole bid for the Marina Gardens Crescent white site in Marina South, designated for residential and commercial development, of nearly S$770.5 million or S$984 per square foot per plot ratio (psf ppr).

In September, the URA turned down a bid of S$640 psf ppr, which implies a land price of S$2.5 billion, for the mega Jurong Lake District (JLD) white site from a group comprising CapitaLand Development, City Developments Limited , Frasers Property , Mitsubishi Estate and Mitsui Fudosan (Asia). This site has a big office component and is key to growing JLD as a major business district.

Last month, the URA rejected the Frasers Property-led consortium’s sole S$120 million bid of about S$461 psf ppr for the 60-year leasehold predominantly long-stay serviced apartment site at Media Circle.   

Turning down bids that may stymie the development of homes in Marina South, a key decentralised office location and the new typology of long-stay serviced apartments, takes courage.

Looking at the big picture, the message to developers appears to be that regardless of the larger objectives in Singapore’s urban transformation, developers must always submit sharp land bids or see the bids rejected. While preparing a land tender bid may not cost much, opportunistically submitting what may be “low-ball” bids could be a sheer waste of time.

However, should the government reassess how it evaluates bid prices for the sale of sites under the confirmed list of the GLS programme?

The three cases of rejected land bids may signal to developers not to bother bidding for a site unless they are willing to pay up. This can hurt participation in state land tenders or potentially cause developers to over-stretch in land bids. As land cost is a major component of development cost, a developer who pays an aggressive land price risks having a project go badly wrong, which hurts its cash flow position and business sustainability.

Be flexible in accepting bids

Perhaps the government ought to generally accept the top bid for a GLS confirmed list site except for outrageously low bids. Maybe, the bids for Marina Gardens Crescent, JLD and Media Circle highlighted earlier should have been accepted. If adopting such a stance draws flak from some people for being too developer-friendly, so be it.

A major source of land supply in Singapore is the government. For example, residential and commercial sites are available for sale under the confirmed list or reserve list of the GLS programme. 

A reserve list site is put up for sale if a developer’s indicated minimum price in its application is acceptable to the government. The government automatically launches confirmed list sites for sale. 

Participants in state land tenders typically submit closed bids by a specified deadline. And the sites are usually awarded based on price alone or price of shortlisted bids with acceptable concept proposals.

Having a stable property market is a key government objective. Major falls in property prices can hurt the financial system and economic confidence, while sudden spikes in home prices might render housing unaffordable for many residents and steep office rental jumps could hurt Singapore’s economic competitiveness.

Ensuring adequate supply is vital to achieving a stable property market. This needs forward planning as new buildings take time, say a few years, to be completed and ready for use. 

Arguably, the government plays the most important role in ensuring adequate supply across different property segments. To help fulfil this role, it sells confirmed list sites, which are earmarked for various purposes, under the GLS programme.

By having unsold GLS confirmed list sites, the risk rises that supply of different property types will not be completed in a timely manner. If confirmed list sites with housing components are unsold, there could be a shortage of private homes in a few years’ time, which in turn leads to price spikes and the government possibly rolling out harsher cooling measures.

While a property valuer has sound rationale for assessing any land parcel’s value, the actual price at which a site transacts for will largely be dictated by what buyers are willing to pay for it.

Singapore’s property development market is transparent and has many players. Let’s trust that bids received for state land tenders represent the market’s collective verdict. The government should lean towards selling confirmed list GLS sites to developers, even at prices that are somewhat below expectations, in order to ensure adequate supply across various property segments.