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Singapore home sales face crucial litmus test
IT'S only the second week of 2019 and Singapore's residential home sales market is already facing a S$1.1 billion litmus test.
Horizon Towers, an older-style building near the Orchard Road shopping district, has gone on the market for that price, gunning for redevelopment a third time after two failed attempts. The sellers' collective sale has retained its reserve price but other groups of homeowners also seeking so-called en bloc deals are cutting their asking bids in the hope developers will bite.
For individuals who have held apartments for several years and ridden the property boom, the profits can be handsome.
En bloc, or collective, sales are where a group of apartments are sold to a common developer and the proceeds divided among unit owners. In general, if a development is more than 10 years old, at least 80 per cent of owners must agree to a sale.
But after the government introduced cooling measures last July that increased the stamp duties home builders need to pay when acquiring land, this has made market watchers sceptical about how many transactions will be a success.
"Billion-dollar en bloc deals will be very hard to get through," said Nicholas Mak, an executive director at real estate asset manager ZACD Group. "Developers are no longer land hungry and are more concerned about selling existing projects."
Singapore imposed higher stamp duties and tougher loan-to-value rules in early July after residential prices in the city-state rose 7 per cent in the first half of 2018.
Extra constraints since then have included curbs on the number of "shoe-box-sized" apartments, limiting transactions at the cheaper end of the market.
That's a particular blow for en bloc deals because developers often acquire older buildings with larger units and then redo the floor sizes to accommodate more dwellings.
The new guidelines on size, outlined in October, effectively cut the maximum number of apartments allowed in any one development by 18 per cent. The changes only affect projects outside the city-state's central area, and come into effect later this month.
"With expectations of a slowdown in sales in 2019, developers might re-think their land banking strategy, or even stop looking altogether," said Derek Tan, an analyst at DBS Group Holdings. "As the government moves in with more restrictive measures to curb both demand and supply, we expect developers to focus on clearing inventories rather than adding more."
DBS expects new home sales to drop 20 per cent this year to between 7,500 and 8,500 units, and prices to slip as much as 3 per cent.
Horizon Towers was relaunched for sale after an unsuccessful attempt last year. The 99-year leasehold estate, which was completed in 1984, comprises about 210 units and was most recently renovated in 2014.
The first attempt for an en bloc sale was made a decade ago at S$500 million, but the transaction fell through after a court ruled the sales process was improperly handled.
Park View Mansions is another relaunch, but at a reserve price that's 22 per cent lower. Gilstead Mansion, a condominium near Singapore's Little India district, reduced its price guide by S$3 million to S$65 million and still couldn't find a taker.
"Although some sites have slashed their reserve prices, developers have turned cautious and many won't be in a hurry to bid for land unless an attractive deal comes to market," Christine Li, head of research for Singapore at Cushman & Wakefield, said.
Developers spent around S$30 billion between late 2016 and June last year acquiring land through government tenders or redevelopment deals, one of the most active periods since 2013, DBS said.
They will need to shell out significantly more after the hike in stamp duties, increasing business risk.
"The en bloc outlook remains challenging," Ms Li said. "There's a mismatch in expectations between developers and sellers - asking prices are still relatively high and developers are wary about paying top dollar." BLOOMBERG