More Collective Sales Expected To Be Launched In 2022, But Many Will Be Overpriced

Published: Apr 09, 2022 by 
PropertyGiant Singapore

Realistic price expectation from the onset would increase the chances of success and avoid the disappointment and frustration of wasting much time and effort in preparing for the sales.

IT WAS a promising year for the collective sales market in 2021, with S$2.19 billion worth of deals being concluded (see Figure 1), an increase from 2019 and 2020 when collective sales value amounted to S$348.88 million and S$127.3 million, respectively.

The improving sentiment and confidence in the collective sales market was also seen in average deal sizes of S$69.8 million in 2019, S$31.8 million in 2020 and S$269.3 million in 2021.

Before the latest cooling measures were imposed with effect from Dec 16, 2021, the collective sales market was expected to strengthen further in 2022 in response to a buoyant residential market and rising home prices.

However, the residential market has slowed since the measures were imposed, altering the outlook for the collective sales market in 2022.

Uncertainty and Caution In The Short-Term

Among the tightening of the cooling measures, is the increase in the additional buyer's stamp duty (ABSD) for entities to 35 per cent from the previous 25 per cent, which is applicable to developers buying land for residential development.

Although the ABSD is remissible, it is of concern to developers, in case they are unable to sell all the units in their projects within the 5-year deadline. This would cause developers to be even more cautious in purchasing large residential sites. The existing ABSD of 5 per cent which is non-remissible and payable for the purchase of residential land remained in effect.

The rest of the cooling measures which impact investors and foreigners more significantly, are also of concern to developers as they affect project sales.

Developers will have to assess how demand from buyers will be affected in their decisions on land purchases and the prices to pay.

An early reaction to the cooling measures was Shun Tak Holdings pulling out from the purchase of the High Point collective sale at S$556.7 million, just days after the measures were announced.

After the measures took effect, there were several collective sale tenders that closed without successful bids, such as Sixth Avenue Centre, Thomson View Condominium and Lakepoint Condominium.

Key Factors In The Resumption Of Collective Sales

In the 2017/2018 collective sales boom, the total value of collective sales was S$8.22 billion in 2017 and S$10.35 billion in 2018.

Including purchases of Government Land Sales (GLS) residential sites, developers had substantially replenished their land banks during that period. Unsold inventory of private residential units was 31,912 as at Q3 2018 and reached a peak of 37,799 units as at Q1 2019.

In 2021, replenishment of land supply by developers was still ongoing and unsold inventory was at a low level of 14,333 units as at Q4 2021 (see Figure 2). Therefore, there is still impetus for land purchases to continue, either via GLS or private land stock, including collective sales.

In H1 2022, the GLS programme has 5 residential sites on its confirmed list, generating some 40 per cent more supply of units than the 4 confirmed list sites in the H2 2021 programme. However, the number of sites offered under the GLS confirmed list is still limited, so, developers are likely to resort to the collective sales market to acquire sites.

Private home prices are expected to continue rising in 2022, but at a moderate pace compared to last year, due to the low inventory of unsold units. This could bolster developers' market confidence, as stable or rising prices reduce their risks, and they would be more forthcoming in land purchases.

Expected Trends In 2022

On Jan 18, 2022, tenders closed for 2 GLS sites in Jalan Tembusu and Lentor Hills Road (Parcel A). The former attracted 8 bidders, with the top bid at S$768 million or S$1,302 per square foot per plot ratio (psf ppr) while the latter had a more measured response from 4 bidders and a top bid of S$1,060 psf ppr). That tender shows that despite the cooling measures, developers are still on the hunt for sites but could be more site-selective and measured in pricing.

While the High Point collective sale was not successful, Gloria Mansion, an apartment block in Pasir Panjang Road, became the first collective sale to be concluded after the latest cooling measures.

Fetching a price of S$70.3 million (S$1,098 psf ppr), the sale indicates that developers could still be confident enough to proceed with buying collective sale sites, despite market uncertainties, provided pricing is realistic.

Another recent successful collective sale is that of Tanglin Shopping Centre, which was sold to Pacific Eagle Real Estate for S$868 million (S$2,769 psf ppr). Since the site is zoned commercial, at least 60 per cent of the gross floor area (GFA) must be for commercial use should the purchaser keep to the commercial zoning. Having a very prime location in Tanglin Road, the 50-year-old freehold property is ripe for redevelopment and is expected to be a new landmark in the area.

Since developers are now more cautious, they would prefer residential sites that present lower market risks, such as GLS sites and generally small to medium-sized sites with a value of up to S$500 -700 million. Very large residential sites with a value close to S$1 billion or more and/or those sites capable of generating above 1,000 residential units would be seen as risky and be in lesser demand.

More collective sale sites are expected to be offered for sale in 2022, but it is likely that many will be over-priced by the sellers and end up being unsuccessful. Therefore, collective sales momentum in 2022 may not differ significantly from last year, and land prices are likely to be stable, rather than rising.

Some Advice

Collective sale owners should understand the trends outlined in this article and contend with a more cautious buying mood among developers, who have to factor in rising construction costs, a non-remissible ABSD of 5 per cent, an increased remissible ABSD of 35 per cent, rising interest rates and increased uncertainty in demand from buyers due to the cooling measures.

Even before the cooling measures, developers have been bidding cautiously, often just matching or slightly exceeding the reserve price set by the owners.

In the case of a more attractive site, there could be numerous viewings, but after the developers carry out their due diligence in preparation for tender, there may be just a few bids for the site.

For owners of sites initiating collective sales the first time, a realistic price expectation from the onset would increase the chances of success and avoid the disappointment and frustration of wasting much time and effort in preparing for the sales.

For unsuccessful collective sales, it might be timely to review the possibility of tempering the asking price, to improve the chances of getting through the next sales attempt.

Tan Hong Boon is Executive Director, Capital Markets, JLL Singapore. Ong Teck Hui is Senior Director, Research & Consultancy, JLL Singapore.

Credit: Business Times

Property Prices
Buying Properties

Connect With Us

Have questions on real estate market trends, exclusive listings or opportunities in Singapore? Get connected with our team and speak to a professional.
Thank you! Your submission is successful.
If you did not hear from us within 24 hours, please call or WhatsApp our Hotline at +65 6100 6199.
Oops! Something went wrong while submitting the form.

Just Listed Properties For Sale

More Articles

Why now is the best time to buy property in District 10

Read More >

New Cooling Measures: Tighter Housing Loans, 15-Month Wait for Private Home Owners to Buy HDB Flats

Read More >

Top 5 Largest Property Agencies in Singapore in 2024

Read More >
whatsapp us logo
Chat With Us