Healthy appetite for land sales in Singapore

Two tenders for land sites closed in the past three days, with a total of S$1b invested. The sites are located opposite each other at Serangoon Gardens and within 1km of the Hundred Palms executive condominium (EC), which was fully sold at its launch last weekend.

The Oxley consortium bagged the Serangoon Ville en bloc site (tender reportedly closed on 25 July 2017) for S$499m (S$835psf ppr) while Keppel Land-Wing Tai JV won the Serangoon North Avenue 1 government land site (GLS) site for S$446m (S$965 psf ppr). Serangoon Ville has a maximum gross floor area (GFA) of almost double that of the Serangoon North Avenue 1 land site.

1) Serangoon North Avenue 1 GLS site tender – Keppel Land-Wing Tai JV

The Serangoon North Avenue 1 land site tender closed on Thursday, with the Keppel Land-Wing Tai JV winning the bid at S$446m (S$965 psf ppr) over 15 other bidders and a tight winning margin of 7%. Frasers Centrepoint came in second with a bid of S$905 psf, followed by the UOL-Singland JV and City Dev.

The price was 16% higher than what Oxley paid for the Serangoon Ville en bloc deal, located just opposite. However, the premium could be justified by a cleaner acquisition process for a GLS site and hence, the ability to launch this site much faster (typically within 1 year); an en bloc sale typically takes roughly two years.

The estimated breakeven is S$1,500 psf and the implied launch price could be above S$1,650 psf versus about S$1,000 psf for recent transactions in the area.

Interesting trends to note: 1) The top four bidders were large local property developers; 2) there was more participation from local developers, with a few foreign developers such as Qingjian (JV), China Construction (South Pacific), and Greatview (Haojing Investment Group) in the mix; 3) Oxley bid a slightly higher price (S$850 psf) to its en bloc price (S$835 psf); and 4) among the large-cap developers, CapitaLand did not participate in this tender.

2) Serangoon Ville en bloc deal – the Oxley consortium

The Oxley consortium had just closed Singapore’s seventh en bloc deal year-to-date – buying Serangoon Ville for S$499m (S$835 psf ppr including development charges). The estimated breakeven price is S$1,300 psf, which implies a launch price of more than S$1,400psf. Oxley’s partners are Lian Beng, a KSH Holdings’ associate, and Super Group’s Teo family, the same team which bought Rio Casa en bloc in May.

It was reported that the bid was very competitive, involving more than five bidders. Competition is building up in the en bloc space. Other potential en bloc sites coming up include Dunearn Court (tender closes on 6 September), Ville D’Este, Tampines Court, and Normanton Park.

While some may be wondering whether the bidders can even make money at this price, we believe that there’s potential to turn in a profit if the spread between home prices in the Rest of Central Area (RCR) and Outside Central Area (OCR) widens. Another strategy would be to build smaller units averaging less than 70sqm and keeping prices at around S$1.3-S$1.5m, which is the price range of most transactions today.

We continue to see optimism in the land bids, both for GLS and en bloc sites as developers compete to replenish their land bank and ride on a turn in sentiment in Singapore’s property market. However, we note that increasingly, developers/contractors are forming consortia or partnerships to bid for land, potentially to raise their pricing capabilities and to share risks.

Source: DBS July 2017

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Healthy appetite for land sales in Singapore

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