TWO state land sites to test the waters for a new type of rental housing were launched for sale on Monday (Dec 4), with analysts anticipating a cautious response from developers for the new proposition.

One site on Zion Road will produce a huge project with up to 1,170 residential units, including 435 serviced apartments, sitting on the fringe of the prime River Valley residential district and close to Orchard Road.

The other site, a parcel at Upper Thomson Road, would yield 640 residential units including 100 serviced apartments, in an area being developed as a new housing precinct.

The two sites were part of a batch of four plots released by the Urban Redevelopment Authority (URA) on Monday under the 2023 Government Land Sales (GLS) programme.

The sites in Upper Thomson Road (parcels A and B) and Zion Road (parcel A) are on the confirmed list, while Zion Road (parcel B) plot is available for application under the reserve list.

The four sites are expected to yield about 3,360 residential units in total, including the new long-stay serviced apartments, with two large projects of about 1,000 units each. The pilot to include the new category of serviced apartments in GLS sites was announced last week on Nov 29.

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A minimum stay of three months – compared with seven days for regular serviced apartments – is required, in a change designed to meet increased rental demand that has pushed up residential rents in recent years.

The Zion Road (parcel A) plot is “a plum site”, said PropNex Realty’s head of research and content Wong Siew Ying, but the size of the project may deter bidders.

Bids are expected to come in at well over S$1 billion, with Wong anticipating a top bid at between S$1.47 billion and S$1.66 billion, based on a unit land cost of S$1,600 to S$1,800 per square foot per plot ratio (psf ppr).

The last GLS site to be sold in the area now houses the 455-unit Riviere along Jiak Kim Street. The site drew 10 bids and was awarded to Frasers Property for S$955.4 million or S$1,733 psf ppr in December 2017, Wong said.

Riviere was launched for sale in May 2019 and is fully sold, Wong added, achieving an average selling price of S$3,066 psf, based on caveat data. The Jiak Kim Street project also comprises a block of 72 serviced apartments.

Developers are likely to partner up for the latest Zion Road site tender, potentially with a large group that has hospitality experience such as CapitaLand, Frasers, City Developments Ltd and Far East Organization.

Huttons Asia’s senior director of data analytics Lee Sze Teck noted: “Not all developers have the expertise to operate a serviced apartment... and the capital expenditure for serviced apartments will be front loaded and requires ample liquidity from developers.”

Current manpower tightness in the hospitality sector would also require “a rethink of how service can be delivered better with less manpower”, Lee added.

He said however, that the separate strata titles for the residential and serviced apartments would make the project attractive to developers who may look to divest the serviced apartments to their real estate investment trusts (Reits).

Wong added that overall risk may also be reduced with a portion of the development built as serviced apartments, “as developers technically have fewer residential units to sell within the stipulated five-year timeline for Additional Buyer’s Stamp Duty remission”.

A minimum stay of three months may translate into lower operating costs compared with the running of a typical hotel or serviced apartments with shorter turnaround time, she said.

Upper Thomson Road, meanwhile, is “an area untested for serviced apartments and developers would have to price in significant risks”, noted Lee.

PropNex’s Wong expects developers to be cautious about both the two Upper Thomson Road Sites, “given their relatively less-bustling location amid landed housing, and the large supply of new private homes in the nearby Lentor area”.

The tender for Upper Thomson Road (parcel A) could draw a top bid of around S$636 million to S$723 million or SS$1,100 to SS$1,250 psf ppr, Wong said. She expected the larger Upper Thomson Road (parcel B) site to see bids of up to S$862 million to S$948 million, equivalent to S$1,000 to S$1,100 psf ppr.

Most recently, a tender closed in September for a plot at Lentor Central which went for S$435 million or S$982 psf ppr. The site was the sixth plot to be sold by the government in the area, where close to 3,000 new private homes will sprout up.

Closer to the Upper Thomson sites being offered is The Essence in Chong Kuo Road, built on a site awarded in February 2018 for S$43.95 million or S$681 psf ppr. One recent sub-sale transaction saw a unit at The Essence changing hands at S$1,301 psf, noted Wong.

The two Upper Thomson sites, located near the Central Catchment Nature Reserve, will also require “biodiversity-sensitive urban design strategies in their proposed developments”, URA said.

The development of the Upper Thomson Road (parcel B) plot also has to be integrated with the conserved building of the former Seletar Institute.

“With three large plots released at the same time, out of which two have almost 1,000 units each, we may see relatively fewer bidders in total for this round of land tenders,” said Justin Quek, deputy chief executive officer of OrangeTee & Tie. “Elevated interest rates, macroeconomic uncertainty, geopolitical developments and high construction costs will also continue to weigh on developers.”

The tenders for Upper Thomson Road (parcel B) and Zion Road (parcel A) will close on Apr 4, 2024; while the Upper Thomson Road (parcel A) tender will close on Jun 19, 2024.