SINGAPORE: The halting of an en bloc purchase by Tee Land reflects the turn in sentiment among property developers in Singapore who have begun re-doing their sums on the back of the latest cooling measures, industry observers told Channel NewsAsia.
This cautious approach is especially the case for smaller players that may not have the same financial muscle as their bigger rivals, they added.
AdvertisementHowever, while the U-turn may be a “rational” move for Tee Land, experts expect this to be a “one-off event” as developers will likely opt to be more selective in future land acquisitions instead.
Last Thursday, Singapore-listed Tee Land said it has decided not to exercise its option to purchase Teck Guan Ville via a collective sale that would have been worth S$60 million. For this, it will forfeit its one per cent deposit.
The boutique developer in an SGX filing attributed the move to “adopt a more prudent and circumspect approach towards new projects” to the impact of recent property curbs on market sentiment and purchasers’ interest.
Experts have said that the unexpected policies announced on Jul 5 fuelled two worries for property developers.
AdvertisementAdvertisementFirst, the prospect of higher land acquisition costs given an extra non-remissible five per cent Additional Buyer's Stamp Duty (ABSD) for residential land purchases.
Second, the fear of a demand slowdown as home buyers face a hike in ABSD rates and tightened loan-to-value (LTV) limits. This worries developers, particularly due to an increase in the remissible ABSD rate to 25 per cent, which can only be waived if they sell all their units within five years.
For Tee Land’s U-turn, the latter was likely a key consideration since the extra acquisition tax will not be applicable with the deal being done prior to the new cooling measures, experts said.
“There might be some worries about matching demand with supply that is coming in, especially with the fears of softening demand” said CBRE’s research head for Singapore and Southeast Asia Desmond Sim, who estimated new units coming on stream to be “in the region of 45,000 to 50,000” following an en bloc fever for more than a year.
“Losing out on the deposit for a relatively smaller piece of land is still probably cheaper than going ahead to incur development cost and ABSD, which are costly for small- to mid-scale developers,” he added.
Throw in additional risks, such as a rising interest rate environment and currency fluctuations due to lingering trade tensions, and it was a “prudent” move on Tee Land’s part, said International Property Advisor's chief executive Ku Swee Yong.
“They are a relatively small player so their cost of borrowing is not low. If you combine that with expected slower pace of sales and how you have to incentivise your property agents with higher fees to move the product, the project may not be that attractive after all.”
Associate Professor Sing Tien Foo from the National University of Singapore (NUS) agreed that smaller property developers are more vulnerable to the latest round of cooling measures.
“They may not have enough financial strength or a big land bank compared to bigger developers who can afford to hold and adjust the portfolio accordingly,” he said, while adding that it is “rational” for smaller players like Tee Land to take on a more cautious approach.
Despite that, experts do not expect more of such U-turns even as the housing curbs look set to put a damper on the buoyant collective sale market.
“What happened shows that the measures have pushed a lot of developers to re-work their sums and rejig their strategies, but I think most of them that have acquired land will most likely want to hold on to what they have,” said Mr Sim. “Because as a developer, your biggest raw material is land.”
Instead, developers will likely turn to becoming more selective when adding to their land bank, scrutinising sites for their size, location and price expectations, experts added.
“When the developers think about bidding for a site, they have to consider an extra ABSD and higher interest expense over the next few years. Even if your site is very attractive, they are very likely to bargain for a lower price because these eat into their expected profits,” said Mr Ku.
EN BLOC HOPEFULS HOLDING ON
For en bloc hopefuls, the U-turn by a property developer will likely dampen confidence further though some are holding out.
Mr Terence Lian, investment sales head at Huttons Asia, said Tee Land’s announcement further reaffirmed its decision to extend the tender deadlines for two of its projects – Katong Plaza and Fortune Park.
“(News about Teck Guan Ville) really caught us by surprise as it is a smaller site and I believe the number of units that will be redeveloped should be cleared within five years,” he told Channel NewsAsia.
“This sends another signal to the market that developers are really adopting a wait-and-see attitude.”
For Fortune Park, a 68-unit freehold condominium in Kovan, Mr Lian said that since the tender was launched two weeks ago, developers have expressed their need for “more time to re-evaluate the impact” of the new cooling measures.
Extending the closing date to Sep 14, from the previously announced Aug 17, will also give property developers leeway to digest the review of the development charge rate set for September, he added.
For its mega sites, such as Pine Grove and Kensington Park, work to garner the 80 per cent mandate remain underway though Mr Lian stressed that there is “no hurry” so as “to let the dust settle first”.
At Pine Grove, Huttons Asia has attained approvals from 77 per cent of owners, while it is planning for further engagement with homeowners at Kensington Park where there has been “very little progress” from its current consent level of 70 per cent.
Meanwhile, the tender closing date for the second collective sale attempt of Horizon Towers has also been postponed by another month to Sep 12.
Developers have similarly expressed the need for “more time to observe and re-assess the market going forward”, according to marketing agent JLL.
However, JLL’s regional director of capital markets Tan Hong Boon remained cautiously optimistic, while noting that none of the firm’s en bloc projects have been put on hold due to the cooling measures.
“Now, it’s about adjusting to the prices, both for the buyers and sellers, but we think the market will recover because fundamentally, the demand-supply equilibrium is pretty OK.”
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