Weak participation in land bid a problem that needs address
There are many authorities who work hard to keep the supply of housing adequate and ensure that the prices do not go up.
There are a variety of measures that have been implemented to discourage speculation and encourage home buyers to be prudent. They include: the loan-to value ratio; total debt servicing ratio; mortgage servicing ratio.
Housing and Development Board (HDB), the government-owned housing authority, is building more HDB flats as a result of increased demand. HDB flat buyers in high-demand locations are also facing tougher resale regulations.
Government Land Sales (GLS), a programme that sells residential land, ensures that the private housing market is well-supplied.
In February, the Urban Redevelopment Authority, or URA, rejected the one and only bid that was submitted by the Marina Gardens Crescent white site. This site had been listed under the Confirmed Liste of the H1 GLS Programme. The bid was considered too low. This site is intended for residential and business development, with 775 homes estimated.
Today, GLS residential sites are more likely to attract a single bid than multiple ones. Both of the Confirmed Listing sites with residential components that had tenders close on April 4, attracted only one offer.
The government does build HDB apartments, but private developers are left to build private homes. This could mean that the government’s land-sale programme may not produce as many private homes as it had planned.
City Developments Ltd.: C09 +0.66% and Mitsui Furdosan teamed up to bid for a Zion Road land, where homes and serviced long-stay apartments will be built. GuocoLand-Hong Leong Holdings partnered to bid for an Upper Thomson Road residential site.
Bid prices on both sites came out below expectations.
Private housing developers’ negative attitudes could be caused by high construction and interest costs, as well as uncertain demand.
The increase in ABSD from 30 to 60 percent for foreigners and Singaporeans who are permanent residents and buy multiple houses, as well as for Singaporeans buying any house. ABSD on non-PR foreigners increased from 30% to 60%.
Are there increasing risks that state land tenders will not attract any bids, or may even draw the highest bids.
A consortium was interested in the Jurong Lake District GLS site tender, which will mainly be used for offices and houses. CapitaLand Development, CDL, Frasers Property (TQ5 0%), Mitsubishi Estate and Mitsui Fudosan Asia all submitted joint bids, each with a different concept proposal, for this location. The tender closed Mar 26.
In a couple of years, if Confirmed List Sites GLS do not deliver the planned private housing supply, then there will be a shortage in private housing. This is true in particular because the residential en block sale market is not very active, leading to fewer redevelopment opportunities.
The construction of new homes takes several years, so any housing shortage would take time to be rectified.
J’den Condo pricing is attractive with huge URA Masterplan transformation coming up.
The lack of available private housing may lead to sharp rises in rent and prices. This is bad news for locals with a strong desire to own a home. Singapore’s efforts to attract foreign talent may be hindered by the lack suitable rental properties.
On May 14, the next government tender to build a new housing development on Holland Drive will close. It is possible that this tender will have many bids.
It might still be a good idea for authorities to look at ways to increase interest in housing projects on the Confirmed Listing GLS.
ABSD rates could be reduced for locals, PRs purchasing multiple homes, and non-PR foreigners. Would a return to the 30 per cent ABSD for non-PR foreigners buying homes reduce, but not eliminate demand?
Maybe you can change the price of GLS sites to make it more transparent.
Developers who are bidding to build housing in state-sponsored tenders typically have to submit sealed envelopes with their bids within a set date and time. Sites are awarded in general based solely on price.
For example, interested parties who are looking for housing in Confirmed List sites GLS could gather on a date and time specified for an auction.
Let representatives of the interested parties raise up their hands to announce their bids. It is up to the other parties to make higher bids before a final offer. The government is then given time to decide whether the bid price was acceptable.
If you do it this way, you might encourage developers to make a bid, instead of not bidding.
Today, the margin on net profit for private housing development could be between 10 and 15 percent. This return could be considered unattractive on a reward-risk basis.
You should also consider the fact that the yields of many low risk instruments have increased. Housing developers have many risks. One of them is that they may lose ABSD remissions if the homes built do not meet prescribed deadlines.
Consider that property companies have many options on how to deploy capital. They can invest in both non-residential and residential properties, here or overseas.
Some property groups have the luxury of taking their time in developing property, because they are able to rely on the income generated by investment properties. Entering into a losing project can undermine your credibility, as well as cause you to suffer financial losses.
But we still need profit-driven builders to courageously step up to build more private homes. This will ensure that the housing stock is sufficient. Many residents will struggle to realize their condo dreams if developers do not act.
The authorities need to pay attention to low participation rates in the state land tenders. They should also be ready to act to get developers to participate more at these tenders.
