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Bids for residential land sites expected to be conservative

Last week, two plots of land for residential development at Fernvale Road saw lukewarm response, and analysts say developers are likely to be more conservative with their bids for residential land sites this year as demand for new homes remains weak. 

SINGAPORE: Sales of new private homes, excluding executive condominiums (ECs), are down by about 55 per cent in the first half of 2014, compared to a year ago. According to figures from the Urban Redevelopment Authority, some 4,400 units were sold, down from 9,950 units in the first half of last year. Analysts say the weaker buying sentiment, coupled with the rising number of unsold units in the market, have led developers to be more conservative with their land bids.

Mr Lim Yong Hock, Key Executive Officer at PropNex, said: "The location itself, if there are many other plots that are available or there are also other projects that are launching, the developer would also be very cautious and make sure they don't over-commit, and make sure that the price they bought at will be sellable especially if this is not a centralised location."

Two sites at Fernvale Road were recently sold for S$235 million and S$252 million, attracting about four bids per site. Analysts say the weighted average land price of about S$443 per square foot (psf) per plot ratio (ppr) for the two sites is about 17 per cent lower than that of nearby Rivertrees Residences at S$533 psf ppr.

Some market watchers expect land cost to moderate, after it peaked in the middle of 2013.

"I think the land prices will continue to stay around 10 to 15 per cent below what has been achieved in recent years. This is partly due to the higher construction cost that the developers have to factor in, and also slower or lower demand for private residences," said Ms Christine Li, Head of Research and Consultancy at OrangeTee

According to some analysts, construction costs have gone up to about S$350 psf, and this will probably limit the developers' ability to cut home prices. Analysts expect developers to be more cautious with their land bids going forward, now that the Government has said that it will not be easing the cooling measures just yet. However, well-located sites should still attract interest from developers.

Mr Donald Han, Managing Director of Chestertons, said: "Moving forward, in line with the current market with the introduction of TDSR (Total Debt Servicing Ratio) - fewer than five bids is going to be quite the norm. If you look at the size of the sale of sites, how big it is, anything which is about half a billion and beyond, would typically attract less than three bids, and if you are looking at sales of sites circa S$200 to S$300 million, you might be able to get up to five bids."

For the second half of 2014, sites on the confirmed list under the Government Land Sales programme can yield about 3,900 private residential units, including 1,500 ECs. The Confirmed List comprises six private residential sites, including three EC sites, two commercial and residential sites and one commercial site.