Unsustainable to increasingly buy land at higher prices, warns Redas chief

Singapore

THE head of the developer's body on Wednesday cautioned that the trend of land-hungry developers increasingly buying private residential sites at higher prices has "many significant associated risks".

"Notably, it is not sustainable to continue at this rate. With property measures in place, slow growth in Singapore's population and manpower curbs, we do not see runaway demand in sales transaction volume and property prices in the next few years," said Augustine Tan, president of the Real Estate Developers' Association of Singapore (Redas).

Interestingly, Mr Tan made this point on the same day that City Developments announced that it and Hong Realty had been awarded the Amber Park collective sale site at what is seen as an eye-popping S$1,515 per square foot per plot ratio (psf ppr). This is a record price for freehold residential land in the Katong/East Coast area.

In his speech at the Redas Mid-Autumn Festival Lunch, Mr Tan noted that private home buyers are price sensitive. With slow economic and jobs growth, "many, including displaced sellers from en-bloc sales, may downgrade to public housing", he said.

"Hence, if the prevailing 'bullish' appetite for residential land persists while demand (for end units) is not sustained, it will hasten the compounding effects of increasing supply and high vacancy." Interest rates will continue rising, he added.

"As developers, we value stability in the property market," he said.

Mr Tan also said that despite the recent upturn in the Urban Redevelopment Authority's (URA) private home price index, "private housing rents are still falling and vacancies remain high even as new completions are adding to current inventory at a time when MNCs are either downsizing or recruiting headcount at a cautionary pace".

Based on URA's data, the vacancy rate for private homes stood at 8.1 per cent as at end-Q2 2017, unchanged from the previous quarter. The URA will release the full Q3 private residential property market data later this month. Its third-quarter flash estimate on Monday showed that its private home price index rose 0.5 per cent over the previous quarter, the first increase after the index shed 11.6 per cent over 15 quarters.

Mr Tan went on to highlight that the supply pipeline is set to grow from the sales of residential sites through private-sector channels such as collective sales, as well as through the Government Land Sales (GLS) Programme.

In conclusion, Mr Tan said: "While the residential property market appears to be on the mend and developers are aggressively replenishing their land bank to sustain their business, the length and amplitude of this new cycle is uncertain."

The downside risks of geopolitical uncertainty, global economic activity and monetary policy tightening, coupled with domestic structural challenges to the economy and elevated unemployment rate, are ongoing concerns.

Knight Frank Asia-Pacific president Tan Tiong Cheng said the Redas president's speech "is a somewhat sombre reminder to the government - not that it needs reminding - as well as potential private home buyers that, although prices seem to have reached an inflexion point, the usual downside risks are still ongoing concerns".

Industry players estimate CDL and Hong Realty's breakeven cost for a new project on the freehold Amber Park site at around S$2,200 psf - higher than what a new project on the site would command today. In April, Frasers Centrepoint launched the 99-year leasehold Seaside Residences, which will have unblocked sea views, at close to S$1,700 psf on average. "Clearly developers are buying land on future pricing and their view of future home prices seems bullish," said a seasoned analyst.

In anticipation of the nascent price recovery gaining strength next year, some developers who bought sites before the surge in land prices that began in the later part of 2016, are said to be considering pushing back the launches of their new projects on these sites to the first half of next year.

A few developers that had launched their projects earlier have stopped selling and closed their showflats, with plans to reopen only next year. "Developers that still have some time before the government deadline to complete and sell out their project - know that time is on their side. Prices are turning; by delaying their launches by a few months, they stand to capitalise on rising prices. And don't forget, right now the market is undersupplied, especially in the suburbs," said the analyst.

But at least one developer is going ahead to launch its project next month - a Sing Holdings-Wee Hur tie- up that is developing the 735-unit Parc Botannia in Fernvale Road.

When contacted, Lee Sze Hao, chief executive of Sing Holdings, said: "Sentiment has improved in H2 this year as evidenced by increased volume of homes sales. This is the result of some pent-up demand; and as developers sold down their existing projects, they need to replenish their land bank. Therefore land prices have climbed.

"There are many other factors at play, but it is obvious that the private residential market is turning around. As a developer, it may well be a very good time for us to launch the project now."

Agreeing with this strategy, Mr Tan of Redas said: "If you hold on to your project, and if the market turns down again, then you lose the window."