Published November 9, 2010
Developers mind the gap in bids for land
As caution sets in, the difference between winning bids and the rest starts to narrow
By KALPANA RASHIWALA
(SINGAPORE) Developers looking to build homes are no longer bidding with wild abandon at Government Land Sale tenders as the impact of the property cooling measures kicks in.
This can be gauged from the fact that the gap between the top bidder and next highest bid for residential sites and sites with residential components has started to narrow.
The gap peaked in August and early September before declining in recent weeks as the impact of the Aug 30 measures gradually took effect, according to an analysis by Jones Lang LaSalle.
The gap (measured by the difference between the top two bids divided by the second highest bid) peaked at 31 per cent for the condo plot at Miltonia Close next to Orchid Country Club in the Yishun area offered at a tender which closed in August.
Another tender that closed on Sept 1, a residential-commercial plot next to Bedok MRT Station, also saw a relatively high winning margin of 21 per cent.
The trend persisted into early September, with a tender for a condo plot at Jalan Eunos/Foo Kim Lin Road drawing a 26 per cent winning margin from top bidder Far East Organization when it closed on Sept 7.
Since then, the margin has slipped to single-digit per cent levels, mostly between one and 4 per cent. Between Jan 1 and July 31 this year, the winning margin ranged from one to 17 per cent, with the 17 per cent premium paid by a Far East Organization-Frasers Centrepoint tie-up for a private condo plot at Yishun Ave 2/Canberra Drive offered at a tender which closed in June.
Market watchers suggest that the margin being at its widest in August and early September reflected the bullish sentiment prevailing in the property market at the time that led the government to rein in the market on Aug 30.
JLL's South-east Asia research head Chua Yang Liang says: 'The trend of thinner winning margins reflects a more cautious stance by developers as a result of the latest anti-speculative measures.'
When the market is bullish, a more optimistic developer may be willing to pay a higher premium than its competitors.
But when developers turn conservative, there tends to be a greater consensus of views, including on land price, he added.
Knight Frank chairman Tan Tiong Cheng said that the wide spread between the top two bids at land tenders back in August and early September reflected a divergence in views among developers.
'Some were bullish while others were less so. Then came the Aug 30 measures and developers became more circumspect. Everybody seems to have become more careful, translating to less divergence in their market views and hence a much smaller winning margin at more recent tenders.'
Agreeing, DTZ executive director (consulting) Ong Choon Fah said: 'Sentiment was generally bullish in August but there was also a lot of 'noise'.
'People read the market differently as some were concerned about the government coming up with more steps to cool the property market. Since the government announced the measures, there is less uncertainty and hence greater consensus of views.'
Knight Frank's Mr Tan says that another reason that winning bidders at state tenders have been less aggressive of late is that the Aug 30 measures were thought to have a greater impact on the upgrader market and the sites on the government land sales programme are mostly in this market segment.
Mrs Ong reckons that the trend of a narrow winning margin could continue in the near future, but some sites will be hotly contested and their winning margins could again widen - for instance, smallish plots, as these will draw a bigger pool of contenders including boutique developers.
Close to 14,000 private homes (including executive condominiums) are estimated to be generated from sites sold and to be sold under the government land sale programme this year.
This figure includes 9,790 units that can be built on sites sold so far this year, and 3,470 units on seven sites that are pending - either the tenders have yet to close or have yet to be awarded.
In addition, a site in Punggol Walk/Central that can be developed into 685 homes will be launched later this month.
Source: www.businesstimes.com.sg
