Sole low bids for large plots in River Valley, Thomson show developers turning frosty and defensive

BIDS for two large residential plots offered by the government came in below market expectations in tenders that closed on Thursday (Apr 4), showing a distinct chilling in developers’ sentiment as the housing market slows.

A City Developments Ltd (CDL)-Mitsui Fudosan tie-up placed the sole bid in the tender for a site in Zion Road, which will be the first of its kind to pilot a new category of long-stay serviced apartments.

The consortium made a S$1.1 billion bid for the site, which sits on the fringe of the prime River Valley residential district and close to Orchard Road. The parcel would yield over 1,000 residential units.

The bid of S$1,202 per square foot (psf) per plot ratio (ppr) fell below the S$1,300 to S$1,700 psf ppr that most analysts polled by The Business Times expected. They had expected to see up to three bids.

Another site in the Upper Thomson area for 940 units also drew just one bid - from a joint venture between GuocoLand and Hong Leong Holdings, at around S$780 million or S$904.60 per square foot per plot ratio (psf ppr). 

“The number of interested developers as well as the land price quantums in the bids reflect a stark turning point in developer sentiment,” said Alice Tan, Knight Frank Singapore’s head of consultancy. “The writing was on the wall when the number of interested bidders shrank from regularly more than seven in 2021 to frequently less than five in 2023. This is specifically so for central locations, where the doubling of the Additional Buyer’s Stamp Duty rate for foreigners appears to have caused more developers to lose their appetite for prime residential development,” added Tan.

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Market watchers speculated that the Urban Redevelopment Authority may not award the Zion Road plot if the single bid is deemed to be too low. A white site in Marina South which drew only one bid of nearly S$770.5 million or S$984 psf ppr from a GuocoLand-led consortium was rejected in February.  

CDL and Mitsui Fudosan’s bid was 30.6 per cent lower than the last government land sales (GLS) site to be sold in the area. The hotly contested Jiak Kim Street parcel went to Frasers Property in December 2017 for S$955.4 million or S$1,733 psf ppr.

And, as one property veteran noted, the offer for the River Valley area plot also came in lower than what previous state tenders had drawn for city-fringe parcels in Toa Payoh and Pine Grove. The Toa Payoh site went for S$1,360 psf ppr in November 2023, while the Pine Grove plot was sold at S$1,223 psf ppr in the same month.

The size of the Zion Road site and cost involved would have sidelined many developers. But the chill that has descended on prime segment sales appears to have outweighed any advantage to be gained by being the first player in the new serviced-apartment game, market watchers said.

The tender of a nearby River Valley Green GLS site which will close in June may also have diverted some developers from bidding for the Zion Road site, said Chia Siew Chuin, JLL’s head of residential research, research and consultancy. “The River Valley Green site, which is designated for a pure residential development for sale, is smaller and likely entails a lower capital outlay and development risks, potentially making it more appealing to developers.”

Tricia Song, CBRE’s head of research for Singapore and South-east Asia, said: “Service apartments often require higher upfront capex whereas with condominium developments, developers are able to use the funds received from progressive payments to finance ongoing construction activities.” She added: “There could also be more caution regarding the financing of projects that is associated with short-term rental income.”

With the rents moderating, “there may be a preference to develop purely residential projects instead”, said Justin Quek, CEO of OrangeTee & Tie.

The serviced apartments in the Zion Road site may still offer a new stream of recurring rental income, which could help mitigate risks associated with developing residential projects, particularly during periods of low home-buying demand and sluggish sales in Singapore, Chia said.  

Sherman Kwek, CDL’s group CEO, said that the project would complement the group’s focus on expanding its living sector portfolio. “Together with our valued partner, we look forward to transforming the River Valley enclave with a new sustainable landmark.”

At 15,277.9 square metres (sq m), the Zion Road site can house up to 1,170 residential units, including 435 serviced apartments.

It is zoned residential with commercial at the first storey and includes a 600 sq m space designated for a childcare centre. 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.

Along Jiak Kim Street, Frasers launched the 455-unit Riviere in May 2019 and Fraser Residence River Promenade comprising 72 serviced apartments. Riviere is now fully sold, achieving an average selling price of S$3,066 psf, based on Urban Redevelopment Authority caveat data.

Based on the land bid of S$1,202 psf ppr, the new Zion Road project may be priced from S$2,700 to S$3,000 psf when it is eventually launched, analysts said. 

Another three GLS sites with serviced apartment components are on the table. An Upper Thomson site, which will include 100 serviced-apartment units, will close on Jun 19. A Media Circle site in one-north, which can yield about 515 serviced apartment units, will also be offered, while another River Valley Green site, to yield about 580 units including 220 serviced apartments, is available under the reserve list.