Rekindling of residential en bloc sales in 2021?

April 14, 2021

Introduction

The en bloc sales market is an important aspect of Singapore’s private residential sector as it is a source of land supply to residential developers at certain times of the market cycle. This white paper aims to examine recent trends in the en bloc sales market for the benefit of en bloc sellers, developers, professionals involved in en bloc sales and buyers and sellers in general.

The last residential en bloc sales boom from 2017 to mid-2018 remains fresh in our minds, so it may be a surprise to many to hear of a possible revival in this market after only a few short years (en bloc sales comprises collective sales and other private property sales for development purposes). While it raises hopes among owners of potential en bloc sales projects, it is likely to spark unease among policymakers, who only, in 2018, had to contend with rising private home prices and upward spiraling land prices which ultimately culminated in their decision to impose cooling measures in July, that same year.

Lead-up to the current situation

JLL Rekindling of Residential En Bloc Sales in 2021

In the first half of 2018, the residential en bloc sales market was still robust, enjoying SGD 10.3 billion in sales value, but after the cooling measures were tightened in July 2018, sales value plummeted to only SGD 413 million in the second half of the year. Residential en bloc sales slowed further to SGD 174 million in 2019 but improved to SGD 681 million in 2020. In tandem with the imposition of cooling measures in July 2018, the government land sales (GLS) for residential sites were cut from 4,335 units on the confirmed list in 2018, to 2,875 units in 2019 and 1,930 units in 2020.

While total land sales fell from 2018 to 2020, the private residential primary sales market strengthened, with 8,795 new homes sold in 2018, rising to 9,912 units in 2019 and 9,982 units in 2020. The consequence was unsold inventory comprising both unsold completed and uncompleted private residential units, falling steadily from its peak of 37,799 units in 1Q19 to 24,341 units in 4Q20. Developers whose projects are gradually selling down, are seeing their unsold inventory declining and many have proactively begun sourcing for sites to replenish their land banks.

Figure 1: Residential Transaction Volumes and URA Property Price Index (Source: URA, JLL Research)

Developers whose projects are gradually selling down, are seeing their unsold inventory declining and many have proactively begun sourcing for sites to replenish their land banks.

Current market conditions are conducive for more residential en bloc sales

The strong private residential sales momentum of 2020 has carried over to 2021 as reflected by the 1,632 new units sold in January, the highest sale recorded for the month of January, in eight years. Following the 2.2% rise in the URA residential price index in 2020, private home prices are expected to increase at a firmer pace this year. Sustained healthy sales will lead to unsold inventory declining further, possibly falling below 20,000 units by the later part of 2021. Residential GLS remained low key in 1H21, with a supply of only 1,015 private homes on the confirmed list.

In October 2020, 15 bidders contested for the Tanah Merah Kechil Link GLS site which fetched a top bid of SGD 930 per sq ft per plot ratio (psf/pr), the strongest bidding participation since The Garden Residences site at Serangoon North Avenue 1 found 16 developers fiercely contesting for it in July 2017. The keen interest in the Tanah Merah Kechil Link parcel is probably indicative of a growing demand for residential sites. The next residential GLS tender closing will be that of Northumberland Road on 27 April 2021, followed by Ang Mo Kio Avenue 1 (25 May), Tengah Garden Walk executive condominium site (25 May) and Jalan Anak Bukit (29 June).

Faced with healthy transaction volumes, rising prices, declining unsold inventory and a limited number of residential GLS sites available, the only recourse for developers is to consider sites offered in the private land sales market. The demand for residential en bloc sale sites has picked up since 2H20 resulting in numerous sites being sold and their details are provided in Table A below.

Faced with healthy transaction volumes, rising prices, declining unsold inventory and a limited number of residential GLS sites available, the only recourse for developers is to consider sites offered in the private land sales market.

Figure 2: Developers’ Unsold Inventory and Residential En Bloc Sales Volumes (Source: URA, JLL Research)

Optimism and challenges

Since the last quarter of 2020, the JLL capital markets team has received significantly more enquiries from projects that are starting to explore or already at various stages of preparation for en bloc sales. Most of these projects are those that were unsuccessful in the last en bloc sales cycle in 2016-2018. With the shortage of land supply, and keener interest from developers, many potential en bloc sale owners are exploring whether this is the right time to try again.

However, the outcome of en bloc sales this round will be affected by a couple of significant factors. The cooling measures imposed in July 2018 included a 5% non-remissible Additional Buyer Stamp Duty (ABSD) that applies to all residential land purchases. Developers buying residential land would now have to factor this into their land price computations, which could soften the prices offered for potential en bloc sale sites. In addition, the remissible ABSD has been increased to 25%, raising the risk for developers of large projects, if the ABSD deadline cannot be met.

The URA has also increased the average unit size in non-landed residential projects outside Central Area from 753 sq ft to 915 sq ft and in some specific areas, to 1,076 sq ft. This affects developers’ unit pricing as larger unit sizes translate to lower per sq ft prices so as to keep absolute prices of housing units affordable. The consequence is that the offer prices for en bloc sales sites may not be as optimistic as in the past.

With the shortage of land supply, and keener interest from developers, many potential en bloc sale owners are exploring whether this is the right time to try again.

What to expect in 2021?

2021 has started with a good number of sites undergoing preparation for en bloc sale and being placed on the market as shown in Table B. In addition to these, other developments that could be considering en bloc sales or are already in the preparation process are Spanish Village, Thomson View, Laguna Park, Cashew Heights and others.

It is possible that owners of large, medium and small sites in prime as well as well as non-prime locations may attempt en bloc sales in 2021. However, larger sites require more time to obtain consensus among owners while developers remain mindful of increased risks due to the 25% ABSD and are likely to be cautious in their offers, in order to factor in a greater margin of safety. This could be challenging in meeting owners’ price expectations, thereby affecting the chances of success for large sites.

Small to medium size developments with less than 200 units have a better chance of success as they can be organised for sale more quickly and the absolute land price would be more palatable to developers. Ultimately, successful en bloc sales are likely to be those with realistic pricing.

JLL Offices:

Asia Pacific
1 Paya Lebar Link #10-08 PLQ2 Singapore 408533 | tel +656220 3888 | fax +65 6438 3361

Americas
200 East Randolph Drive, Chicago IL 60601 | tel +1 312 782 5800 | fax +1 312 782 4339

EMEA
30 Warwick Street, London W1B5NH | tel +44 20 7493 4933 | fax +44 20 7087 5555

Contributor:

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

About JLL:

JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. JLL shapes the future of real estate for a better world by using the most advanced technology to create rewarding opportunities, amazing spaces and sustainable real estate solutions for our clients, our people and our communities. JLL is a Fortune 500 company with annual revenue of $16.6 billion, operations in over 80 countries and a global workforce of operations in over 80 countries and a global workforce of more than 91,000 as of December 31, 2020. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit jll.com.

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Jones Lang LaSalle © 2021 Jones Lang LaSalle IP, Inc. All rights reserved. The information contained in this document is proprietary to Jones Lang LaSalle and shall be used solely for the purposes of evaluating this proposal. All such documentation and information remains the property of Jones Lang LaSalle and shall be kept confi dential. Reproduction of any part of this document is authorized only to the extent necessary for its evaluation. It is not to be shown to any third party without the prior written authorization of Jones Lang LaSalle. All information contained herein is from sources deemed reliable; however, no representation or warranty is made as to the accuracy thereof.

Credit To: JLL

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