Rekindling of residential en bloc sales in 2021?

A revival is likely to be modest compared to the last heated cycle, which could be a healthier, more positive outcome.

THE last residential en bloc sales boom from 2017 to mid-2018 remains fresh in our minds, so it may be a surprise to many to hear of a possible revival in this market after only a few short years.

En bloc sales comprise collective sales and other private property sales for development purposes.

While it raises hopes among owners of potential en bloc sales projects, it is likely to spark unease among policymakers, who in 2018 only had to contend with rising private home prices and upward spiralling land prices which ultimately culminated in their decision to impose cooling measures in July that same year.

LEAD-UP TO NOW

In the first half of 2018, the residential en bloc sales market was still robust, enjoying S$10.3 billion in sales value, but after the cooling measures were tightened in July 2018, sales value plummeted to only S$413 million in the second half of the year. Residential en bloc sales slowed further to S$174 million in 2019 but improved to S$708 million in 2020.

In tandem with the imposition of cooling measures in July 2018, Government Land Sales (GLS) for residential sites were cut from 4,335 units on the confirmed list in 2018, to 2,875 units in 2019 and 1,930 units in 2020.

While total land sales fell from 2018 to 2020, the private residential primary sales market strengthened, with 8,795 new homes sold in 2018, rising to 9,912 units in 2019 and 9,982 units in 2020. The consequence was unsold inventory, comprising both completed and uncompleted private residential units, falling steadily from its peak of 37,799 units in Q1 2019 to 24,341 units in Q4 2020. Developers whose projects are gradually selling down are seeing their unsold inventory declining, and many have begun sourcing for sites to replenish their land banks.

CURRENT MARKET CONDITIONS ARE CONDUCIVE FOR MORE RESIDENTIAL EN BLOC SALES

The strong private residential sales momentum of 2020 has carried over to 2021 as reflected by the 1,632 new units sold in January - the highest sales recorded for the month of January in eight years. Following the 2.2 per cent rise in the Urban Redevelopment Authority (URA) residential price index in 2020, private home prices are expected to increase at a firmer pace this year. Sustained healthy sales will lead to unsold inventory declining further, possibly falling below 20,000 units by the later part of 2021. Residential GLS remained subdued in H1 2021, with a supply of only 1,015 private homes on the confirmed list.

In October 2020, 15 bidders contested for the Tanah Merah Kechil Link GLS site which fetched a top bid of S$930 per square foot per plot ratio (psf pr), the strongest bidding participation since The Garden Residences site at Serangoon North Avenue 1 found 16 developers fiercely contesting for it in July 2017. The keen interest in the Tanah Merah Kechil Link parcel is probably indicative of a growing demand for residential sites. The next residential GLS tender closing will be that of Northumberland Road on Apr 27, 2021, followed by Ang Mo Kio Avenue 1 on May 25, Tengah Garden Walk executive condominium site on May 25 and Jalan Anak Bukit on June 29.

Faced with healthy transaction volumes, rising prices, declining unsold inventory and a limited number of residential GLS sites available, the only recourse for developers is to consider sites offered in the private land sales market. The demand for residential en bloc sale sites has picked up since H2 2020, resulting in numerous sites being sold.

OPTIMISM AND CHALLENGES

Since the last quarter of 2020, the JLL capital markets team has received significantly more enquiries from projects that are starting to explore or already at various stages of preparation for en bloc sales. Most of these projects are those that were unsuccessful in the last en bloc sales cycle in 2016-2018. With the shortage of land supply, and keener interest from developers, many potential en bloc sale owners are exploring whether this is the right time to try again.

However, the outcome of en bloc sales this round will be affected by a couple of significant factors. The cooling measures imposed in July 2018 included a 5 per cent non-remissible Additional Buyer Stamp Duty (ABSD) that applies to all residential land purchases. Developers buying residential land would now have to factor this into their land price computations, which could soften the prices offered for potential en bloc sale sites. In addition, the remissible ABSD has been increased to 25 per cent, raising the risk for developers of large projects if the stamp duty deadline cannot be met.

The URA has also increased the average unit size in non-landed residential projects outside Central Area from 70 square metres (sq m) to 85 sq m and, in some specific areas, to 100 sq m. This affects developers' unit pricing, as larger unit sizes translate to lower psf prices so as to keep absolute prices of housing units affordable. The consequence is that the offer price for en bloc sales sites may not be as optimistic as in the past.

WHAT TO EXPECT IN 2021?

2021 has started with a good number of sites undergoing preparation for en bloc sale and being placed on the market. In addition to these, other developments that could be considering en bloc sales or are already in the preparation process are Spanish Village, Thomson View, Laguna Park, Cashew Heights and others.

It is possible that owners of large, medium and small sites in prime as well as other locations may attempt en bloc sales in 2021. However larger sites require more time to obtain consensus among owners while developers remain mindful of increased risks due to the 25 per cent ABSD, and are likely to be cautious in their offers in order to factor in a greater margin of safety. This could be challenging in meeting owners' price expectations, thereby affecting the chances of success for large sites. Small to medium-sized developments with less than 200 units have a better chance of success as they can be organised for sale more quickly and the absolute land price would be more palatable to developers. Ultimately, successful en bloc sales are likely to be those with realistic pricing.

The magnitude of en bloc sales and its duration during this cycle depends on the GLS supply for the second half of 2021 as well as whether the market uptrend will be sustained or interrupted by cooling measures. While we expect a rekindling of the en bloc sales market this year, it is likely to be modest compared to the heated 2017/18 cycle, which could be a healthier and more positive outcome for the market.

  • Tan Hong Boon is executive director (capital markets) and Ong Teck Hui is senior director (research & consultancy) at JLL Singapore

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