En bloc fever set to be tamed, big sites at greatest risk: analysts

Singapore

PROPERTY consultants generally do not expect the latest property cooling measures to bring the current en bloc cycle to a complete halt, though things will slow down drastically.

The hike in residential land acquisition costs for developers will clip the prices they are willing to pay for land. Home buying demand will also take a beating due to higher additional buyer's stamp duty (ABSD) rates and lower loan-to-value (LTV) limits.

Ian Loh, executive director and head of investment and capital markets at Knight Frank, said: "Developers face higher transaction costs. The selling prices for their projects are unlikely to go up, while construction costs are not easing. So land prices have to come down."

Demand for collective sale sites will also depend on their size and location, the profile of owners and above all, their price expectations. Developers will become even more selective in their land acquisition.

Big sites are seen as being at greatest risk.

JLL senior consultant Karamjit Singh said: "Even before the cooling measures, finding a buyer for a site with over S$1 billion reserve price could be a very tall order. But now that the penalty - for failing to sell all units in a new development within five years of the site purchase - has just skyrocketed", it may be more challenging to find buyers for these sites.

Size matters

Under the latest change, which took effect on July 6, developers are subject to a new, non-remissible 5 per cent additional buyer's stamp duty (ABSD) when they buy residential development sites (including collective sale sites).

In addition, the remissible ABSD for residential developers which used to be 15 per cent has been jacked up to 25 per cent. If a developer fails to complete the residential project as well as sell all its units within five years of acquiring the site, it will have to cough up the 25 per cent ABSD with interest.

"From a developer's perspective, the transaction cost could potentially be 34 per cent - comprising 4 per cent buyer's stamp duty, plus ABSDs of 5 per cent and 25 per cent," said Norman Ho, partner at Rajah & Tann.

"A large site that can be redeveloped into say 1,000 units or more involves a greater risk of the developer not being able to finish selling out the project within the five-year deadline and thus being subject to the hefty 25 per cent ABSD remission clawback with interest."

However, smaller sites should continue to be in demand, provided they are priced realistically.

JLL regional director of capital markets Tan Hong Boon said: "Even before the cooling measures, developers had already become very selective and measured in their pricing offer. The market has already seen about 30 residential sites offered through collective sales tenders that have closed this year, but have yet to be awarded. "With these measures, developers will become even more cautious on their next move, but I think the real demand is still there."

Demand for mass-market sites is expected to be more resilient as their mainstay of end-unit buyers are upgraders, who are less affected by the cooling measures.

Market watchers note, however, that for the high-end segment, traditionally foreigners and investors have accounted for a bigger component of buyers, and are hit harder by the new curbs. So developers bidding for high-end sites will adjust their bids accordingly.

Colliers International managing director Tang Wei Leng said: "The cooling measures will likely tame the euphoria among would-be en bloc sellers. Typically owners receive 50 to 60 per cent premium from selling their property collectively; they may now have to accept a lower premium ..."

Mr Tan of JLL said that if by moderating their expectations, the en bloc sale premium to owners is seen as too low, the estate may not get the required 80 per cent consent level. "In such a scenario, I would advise owners not even to start the sale process."

On the other hand, an industry veteran said, while owners are concerned about the price of a replacement property after an en bloc sale, those living in ageing developments with dwindling land tenure may be more prepared to accept a lower premium. "Otherwise, they risk having to wait for the next en bloc cycle, by which time their estate may become even more run-down."

All eyes are on a string of sites priced at over S$1 billion and which are nearing the 80 per cent consent level from owners.

Huttons Asia has secured 76 per cent consent level for Pine Grove in the Pandan Valley area and 70 per cent at Kensington Park Condo in the Serangoon Garden area. "There is no turning back. We hope fence-setters will become more realistic and sign up. We are going to meet the respective sales committees next week," said Terence Lian, head of investment sales at Huttons Asia.

At Ivory Heights in Jurong East, which is being marketed by SLP International, the consent level is more than 72 per cent. At Laguna Park in the East Coast area, marketed by Knight Frank, the consent level has crossed 75 pe cent.

JLL's Mr Tan said his company, which recently launched the collective sale tender for Horizon Towers in Leonie Hill, will advise the sales committee to extend the tender closing date, set for Aug 7 by about a month. The project has a S$1.1 billion reserve price. "We need to give developers more time to digest the measures."

What now?

Mr Singh of JLL said that for medium-sized and smaller sites, there may be a glimmer of hope. Some may require price adjustments by owners to factor the increase in developers' transaction costs.

"Even prior to the Thursday cooling measures announcement, there were en blocs where owners were in the process of getting the reserve price lowered by 5 to 10 per cent. For locations where there is not much new supply of homes, developers that have not bought much land might take this opportunity to buy for less than those who bought in the last several months."

Most consultants are advising collective sale committees and owners to take a breather before making any decisions or doing anything drastic like throwing in the towel.

Mr Singh sums up a few scenarios for collective sales efforts. For those that have not started signing their collective sale agreement, they have an opportunity to recalibrate their minimum price.

"Those who have already started signing, they will probably just have to endeavour to get the 80 per cent and go to the market with the site.

"Those who have gotten the 80 per cent, but have have failed in their tenders, may need to readjust their pricing."