There has been a recent uptick in the residential en bloc market as developers look to restock their land banks in the face of declining unsold inventories, a dearth of supply via the Government Land Sales (GLS) programme, and robust sales at new launches.
As additional sites become available, analysts predict that the en bloc market will continue to experience steady demand over the next several months. However, developers are expected to be selective.
As of July 31st, there have been 9 residential en bloc transactions with a total transaction value of about S$1.81 billion this year. Data from real estate firm JLL indicated that this amount exceeded the S$1.17 billion in value of the eight residential en bloc purchases completed in all of 2021 combined.
The freehold, 16-unit property Vicenta Lodge in Kembangan, which was sold through private treaty in March for S$27.2 million, is not included in the year-to-date total for 2022. The sale was called off in April as the buyer ran into problems transferring money from outside. For the same reason that a developer who attempted to buy the freehold, four-story Kartar Apartments at Thomson Road for S$17.8 million in November of last year was unable to close the deal, the building is back on the market this year, this time for a price of S$18.5 million.
For the most part, under S$300 million has been the magic number for en bloc lands at the city’s periphery, which has attracted the attention of developers. This year’s largest transaction was the private treaty sale of Chuan Park for S$890 million, below the property’s reserve price of S$938 million.
Tan Hong Boon, executive director (capital markets) at JLL, forecasts that additional sites will hit the market this year, although he does not anticipate a big launch year. “Many of the sites under prepared at now are finding it more and more difficult to obtain the 80% approval (needed) from owners,” he noted. This is because, as a result of December 2021’s cooling measures, Additional Buyer’s Stamp Duty (ABSD) rates have increased, potentially discouraging owners from purchasing a replacement home.
According to industry experts, recent project launches including Piccadilly Grand, Liv@MB, and AMO Residence have been met with strong demand, while a paucity of supply under the GLS programme and declining unsold inventories have also contributed to the en bloc market’s current upswing.
Compared to the previous high of 37,799 units in Q1 2019, CBRE’s director of research for Southeast Asia, Tricia Song, found that unsold inventory has reduced to 16,079 units as of Q2 2022. If we take the average yearly number of new sales during the last decade (2012-2021) and divide it by 10, we get a figure that is less than two years, as Song points out.
Lam Chern Woon, director of research and consulting at Edmund Tie, pointed out that even though the government is almost tripling the quantity of private residential units accessible under the GLS Programme’s Confirmed List to around 5,300 units in 2022 from the year previous, supply still lags demand. He said, “This is below the projected main sales volumes of 10,000 units for the year. Therefore, the private land market is still a resource that developers must consider.
Furthermore, Lam believes the government will need to increase the land supply further, but with some restraint.
Savills executive director Alan Cheong estimated that a likely launch date for a collective sale could be over a year from the date of closure, so developers who are looking to the collective sales market to replenish their stock may be betting on a brighter economy by the time the project actually goes to market. It will be late 2023 or early 2024 before they begin advertising the project, he said.
The pressure on developers to reinvest the equity and income from prior projects launched during the 2018-2019 land banking season was another point noted by Cheong.
The residential en bloc market is expected to maintain its pace over the next six months, according to analysts, however developers are expected to be picky about the properties they acquire. Developers may choose the GLS Programme over collective sales as a primary supply of development land because of the higher assurance of contract completion and price control offered by the former. “However,” the article continues, “developers are anticipated to maintain robust demand in smaller to medium-sized collective sites with strong locational features and those facing limited competition from GLS properties, providing asking prices are fair.”
While developers have been wary of committing to premium residential sites due to the 30% ABSD payable by foreign purchasers (up from 20% before), JLL’s Tan believes the tide is shifting.
“More foreigners are joining the market to invest for capital preservation and appreciation,” Tan said, adding that this is because Singapore is still seen as a safe haven. We anticipate that, beginning in the third quarter and continuing throughout the remainder of this year and into next, developers will begin looking at excellent residential sites for luxury builds as their unsold luxury inventory dwindles.
Lam agrees, saying that once Singapore loosened its border controls in the second quarter of 2022, an influx of international buyers returned to the luxury sector. After higher ABSD rates were implemented in December 2021, Lam said, “we are already witnessing a rebound in the foreign share of homebuying demand in Q2 2022.” He went on to say that in the Core Central Region (CCR), purchases by foreign buyers accounted for 12% of demand. This is an increase from the Q1 2021 low of 7.8% but remains below the pre-pandemic average of 15%-18%.
The delayed take-up of prime-located en bloc properties may extend the present en bloc cycle beyond 3 years, according to Karamjit Singh, CEO of property consultant Delasa; traditionally, en bloc transactions fall within a shorter 18-to-24 month cycle. That’s because the new property regulations include higher ABSD rates for homebuilders who don’t sell out all of their units within 5 years of buying a residential lot.
According to Singh, “there is a demonstrable demand for the lower to medium end of the housing market, but there are not enough fairly priced en bloc transactions to make their sale practicable.” Accordingly, the market is seeing a typical example of supply and demand mismatch with prime-located en blocs being in short supply and the remainder of the market having high demand. The current en bloc cycle may extend through 2023 if land prices continue to climb steadily, as predicted by Singh.
Analysts have pointed to many potential negative developments that might affect the en bloc market. These include a US-led recession, rising interest rates, high building costs, and more cooling measures.
Tan pointed out that developers need to carefully calculate their bids in light of rising borrowing rates. He stated, “Developers will integrate this cost into future land acquisitions and propose bid prices correspondingly, with increased interest rates and projected additional rises. Although this is cause for worry, the danger may be contained if the developers account for it adequately in the project’s cost estimates.
Cheong, however, believes that builders would keep looking for available land despite the rise in mortgage rates. Developers, “given the strong launch demand since the beginning of the year and the pressure to reinvest their capital,” Cheong said, “will continue to look for purchasing more sites rather than parking it in a bank or in funds,”.
He also noted that the Total Debt Servicing Ratio protects purchasers from over-leveraging, so interest rate increases have less of an impact on demand.
Singh spoke on the challenges faced by the Singaporean property market, including things like increased mortgage rates and the possibility of a recession. However, he warned that it may weaken if concerns from the United States become more severe.
