2018 Opens on a Positive Note for both Property Developers and Sellers as New Housing Units are Sold and New En Bloc Sales Made
Remember the numerous instant millionaires created in Singapore last year, particularly in the last quarter, courtesy of en bloc sales? Well, it looks like there is no end in sight to the property owners’ winning streak. What makes the future so bright?
- Singapore has buyers with high purchasing power
If property developers are able to sell the new units they already have, this is indication there is demand for real estate property, and that there are interested buyers with the requisite purchasing power.
As such, there is room for the developers to bid for more properties offered en bloc, so they can build more housing units to meet the demand. At the same time, developers who were uncertain of the market towards the end of last year will be encouraged.
Activity in the first few weeks of 2018 has shown developers have no difficulty disposing of their new units. For instance, in just a single day – January 18th – when City Developments Limited (CDL) released finally the much awaited high-end New Futura units into the market, the developer managed to sell 18 of them.
And the price per square foot (psf) was impressive, averaging $3,200. Still in January, owners of a 633,644 sq ft site in Clementi have clinched an en bloc sales deal with the Sing Haiyi Group at a cool S$840.9 million. Clearly, the stars are bright for property developers and owners alike.
- Some en bloc properties are simply irresistible
Property analysts like Brandon Lee of J P Morgan expect developers’ appetite for real estate property to persist, making it easy for property owners to dispose of their properties. Mr. Lee predicts a 3yr market upswing and sees the rise in the value of property stocks last year by between 30% and 40% as a positive market sign.
Besides, some properties are almost irresistible when put on the enbloc market. For example, as Mr. Terence Lian of Huttons Asia avers, the location of Park West Condo, just next to the country’s 2nd Central Business District, makes it very marketable.
The property is also well served by the high-speed rail, with three MRTs within a 3km range. Not only that, numerous Mega Malls are found around the condo. No wonder Sing Haiyi has offered to buy the property at S$841m.
- Fair deals may not last
Developers who are laughing all the way to the bank are mainly those who bought development property before the prices went on a steep rise, and that fact is not lost on stakeholders.
For example, the housing units CDL has just released into the market are built on property that the company bought in 2006 at a paltry S$287.3 million, which resulted in S$1,179 psf.
If the market upswing continues as anticipated, it means soon the average psf will be much higher than it has been in the last few months. Developers may, therefore, wish to nourish their property banks before property rates escalate.
Whether demand for real estate property increases to the level where developers try to outbid one another in en bloc sales, or whether increased supply of land makes property prices irresistible to developers, marketers will always wish to take credit for the vibrant market.
Still, their role in the property market cannot be overlooked. For instance, CDL has enlisted the services of five marketing agencies just to attract buyers for their units at the New Futura condominium. PropNex Realty, Savills, Huttons, ERA Realty and Orange Tree are all in it.
Obviously, the developer realizes how important it is to sell off the completed units before contemplating buying more property for development. And in line with this, Brandon Lee of J P Morgan reckons some properties, such as One Tree Hill and 8 St. Thomas, may be released earlier than their scheduled time, so that the developers can take advantage of the prevailing property buying momentum.
One thing that is very encouraging is the fact that the first Futura units to go were mainly three and four bedrooms, even when there were two-bedroom units available.
This is evidence that buyers are prepared to spend big. It is also important to note that only a third of the buyers were nationals. The rest of the buyers were foreigners and non-Singaporean permanent residents.
If marketing agencies work enthusiastically, they may excite more foreigners into investing in the real estate market, especially buying new launch condo units as they are released into the market.
Mr. Lee can already foresee CDL making a 35% pre-tax profit from its Futura condominium.
Obviously, as the sale of ready new launch units continues and developers’ property banks shrink, marketers will work both ways – encouraging property owners in marketable areas to sell en bloc, and promoting the properties on offer to developers; always a win-win for marketers.
The fact that the recent sale of Futura units averaged $3,200 psf has triggered fresh interest in properties within and around the Core Central Region (CCR), which encompasses Districts 9, 10 and 11.
The prices of the Futura units range from $3.8 million to more than $8 million, and the ones on the higher end of the price range sold more on Day One than the rest.
Hence, there is a new realization that buyers are willing to pay for high end properties around this area. This means developers in the area can sell off their housing units fast and make profits relatively faster than in other areas.
Still, the optimism of some developers might lie in the fact that the Futura property is freehold. Such outlook is bound to give freehold properties going en bloc an extra boost.
Evidently, Singapore’s home prices in the last two quarters have been on the rise, and Bloomberg predicts a further rise of 5.5% in 2018. The interest foreigners have shown in acquiring real estate properties in the country has been a big contributing factor.
Nevertheless, the hike in home prices has not damaged the performance of real estate companies. In fact, going by the benchmark provided by the Straits Times Index, City Developments and the UOL Group, both property developers, were among the five leading performers in 2017.
In 2018, the positive involvement of foreigners in the property market is likely to catalyze developers’ demand for land especially within the CCR. And property owners selling en bloc will be laughing all the way to the bank.
Those who have witnessed the vibrancy of Singapore’s real estate market from 2017 to 2018 may not know that for the previous 3yrs or so the sector was getting quieter by the day.
This followed government intervention in 2013 when property prices seemed to spiral out of control. The government revised the Additional Buyers’ Stamp Duty (ABSD), in early 2013, and in mid-year it restricted the ability of individuals to take loans.
In the latter case, the law stipulated that a person cannot borrow amounts exceeding 60% of one’s monthly income.
However, beginning 2017, a new wave emerged, with owners of old properties becoming more receptive to the idea of letting go of their cherished possessions. Marketing agencies must have played a big role here.
So, en bloc sales increased and soon ordinary Singaporeans began to join the country’s millionaire’s club.
This enticed other property owners to agree to sell collectively, and this caused a surge in market vibrancy. As a result, the FTSE Straits Times Real Estate Holding and Development Index hiked a good 26.8% in 2017.
Even though developers are still making profits, Mr. Vijay Natarajan, an analyst at RHB Research Institute, says recent market competition has ended up making developers cough hefty sums to acquire property.
His view is that property prices are going to rise even more in 2018, probably between 3% and 7%.
A rise in property prices, definitely, means developers must, of necessity, release their new units at higher prices. Nevertheless, this does not seem to be a problem right now as market signs indicate there are ready buyers for the newly developed properties as priced.
The demand for new housing units, especially the high-end properties, has made developers all the more confident, and they are likely to relentlessly pursue available en bloc properties.
Even professional analysts are satisfied with the continuing en bloc fever. Some like Credit Suisse are confident households are in a position to handle any rise in interest rates that may be caused by increased real estate activity in 2018.
Derrick Heng, an analyst at Maybank Kim Eng Securities, says the recent hike in interest rates is still manageable.
As long as en bloc sites are reasonably priced in good demand areas, and developers are able to see themselves making a reasonable profit, en bloc sales will continue.
However, there are over 30 sites that had no bid above the reserve price for the last 6 months and this will give pause to sellers of en bloc projects to be realistic in their asking prices.