Confirmed list likely to remain mainstay

COMMENTARY
Confirmed list likely to remain mainstay

By KALPANA RASHIWALA

THE bi-annual Government Land Sales (GLS) announcement is just around the corner and from the look of things, the government is likely to continue supplying land for private residential development mainly through its confirmed list.

In fact, some industry observers say that they won't be too surprised if the government also comes up with further demand-side measures, given that another round of liquidity is expected to be injected into the local property market following the latest quantitative easing measures (QE2) in the US - a move that many believe could potentially create asset bubbles in Asia.

However, here some argue that the authorities may have to come up with broader capital market measures to stem the influx of capital into Singapore - rather than just focusing on measures to curb property demand per se. More on this later.

First a recap of this year's GLS Programme. The current second-half 2010 GLS Programme offers a record supply of land for development into private homes. The confirmed list (where sites are released according to a pre-stated schedule regardless of demand) can generate 8,135 private homes (including executive condominiums or ECs) while the reserve list (where sites are released for tender only upon application by developers) can yield another 5,770 units. In contrast, the H1 2010 GLS Programme offered a bigger supply in the reserve list (7,625 units) than the confirmed list (2,925 units).

In total, almost 14,000 private homes (including ECs) can be potentially generated from sites already sold so far this year and which are scheduled to be sold for the rest of this year. This figure surpasses the previous record in 1997 when the government sold land for about 8,500 units.

Despite this record supply and a couple of rounds of demand cooling measures (most recently on Aug 30), private home prices remain firm and demand by and large resilient.

Given this, and the potential worries about an asset bubble forming in Asian real estate markets because of QE2, the Singapore government may, for the H1 2011 GLS Programme, stick to its current strategy of channelling the majority of private housing land through the confirmed list with the rest delivered through the reserve list.

DTZ South-East Asia research head Chua Chor Hoon says: 'From the government perspective, they are likely to wish to see a steady supply and they'll be more assured of this if they put the bulk of supply into the confirmed list. Whereas if they were to channel supply mostly through the reserve list, they would be depending on developers to trigger the sites.'

She predicts that the authorities may release in H1 2011 land for about 6,000-8,000 private homes through the confirmed list and a further 5,000-6,000 units through the reserve list 'as the government is likely to continue to flood the market with supply to prevent overheating of the market.'

Since the last round of demand-cooling measures announced on Aug 30, developers have generally been bidding less aggressively at state land tenders and the spread between the top two highest bids has narrowed. However, prices of end units are still firm.

Some developers may be launching new projects at prices nearer the lower end of their initial per square foot (psf) target price range. However, final price levels of these new projects are still significantly above prevailing prices in the respective areas, helped partly by the developers' strategy of including smallish units to drive up sales and psf prices.

Demand for new projects, especially well-located ones, continues to be strong. Yesterday, Keppel Land sold about 250 units at a preview of The Lakefront Residences, a 99-year leasehold condo next to Lakeside MRT Station, at an average price of about $1,020 psf - a new record for the area.

With the market awash with liquidity and low interest rates, property remains a preferred asset class among investors. This environment has persisted since last year when interest in property revived after the global financial crash. Now with the expected influx of more capital from the west following QE2, the authorities will be vigilant about asset bubbles developing on our shores.

While some are calling on the authorities to come up with measures to stem the flow of capital into Singapore, this may have a lot of unintended consequences on businesses.

If the worry is about a property bubble, it may be more effective for government to come up with further demand-side measures. These could include further reducing loan-to-valuation ratios on second and subsequent housing loans, raising sellers' stamp duty on sales of properties within three years of purchase and banning subsales (that is, no secondary market trading of properties under construction).

They could also bring back the 1996 anti-speculation measure of treating gains from sale of properties within three years of their purchase as part of taxable income. And if this too fails to cool demand, they could consider the draconian step of introducing a capital gains tax to cream off outright a proportion of the profit reaped from selling a property within a specified period from its purchase date.

Some analysts worry that the private residential market could enter a down cycle next year after the steep price gains since last year, especially if HDB resale prices start to ease. They suggest that the government should revert to making the reserve list the mainstay of the upcoming GLS Programme. However, if the market goes into a tailspin, the government can always pull back the confirmed list as it has done in previous downturns. Or developers can choose not to bid for sites or offer prices so low that the sites won't be awarded.

Source: www.businesstimes.com.sg