Pay attention to low participation in State Land Tenders
The sole bidder
On today’s market it is more and more common that GLS housing sites only receive one bid. In addition, each of the Confirmed Sites with Housing Components whose tenders closed on 4 April also attracted a single bid.
City Developments Ltd., C09 0% with Mitsui Fudosan won the bid for a Zion Road land that is intended to be developed into homes and apartments for extended stays. GuocoLand, F17% 0% with Hong Leong Holdings was the winning bidder of an Upper Thomson Road residential site.
Both bids were priced below market expectations.
A consortium of developers expressed interest in a tender for the Jurong Lake District GLS site. The GLS site is to be primarily used for offices and residences. CapitaLand Development, CDL, Frasers Property – TQ50%, Mitsubishi Estate, and Mitsui Fudosan Asia (Asia), submitted two joint bids on this site. The concept proposals were different. The tender closes on Mar 26.
Uncertain demand and high construction costs combined with interest rates could be the cause of negative feelings among private housing developers.
The demand for prime properties has been affected by the increase of ABSD in April 2023 for Singaporeans, permanent residents and foreigners purchasing any home. ABSD applies to non PR foreigners was doubled.
matter residences balance units chart
Is it becoming more likely that government land tenders are not attracting any bids – or only the highest ones – as they used to?
In a matter of years there may not be enough housing for private households if Confirmed List Sites GLS do not become available. In particular, the market for residential enbloc sales is very quiet, and this means that there are fewer available redevelopment sites.
Because new houses take several years for construction, it would be difficult to fix any housing shortfall quickly.
Rents and prices can rise dramatically if there are not enough private homes. This impacts young locals seeking to buy their own homes. Singapore could also lose out on attracting the talents it is looking to attract from abroad if there are no suitable homes for lease.
The next government bid for a residential site will be closed on May 14. It is located at Holland Drive. The number and prices of bids may be good for this government tender.
Raising interest
Even so, it would be a good idea for the authorities and developers to find ways to increase their interest in sites on the Confirmed Liste GLS.
ABSD rates should be lowered to 30 per cent for non-PR foreigners and for PRs who are buying multiple properties. The government could still collect revenue by imposing a 30% ABSD on foreign non PR home buyers.
Perhaps you could tweak the way GLS websites are sold to better ensure price discovery.
Currently, developers who wish to bid on state-run tenders for housing are required to submit sealed envelopes with their bids within a set date and deadline. Sites will then be awarded based solely upon price.
The interested parties of the Confirmed List housing sites could meet on a set date at a predetermined time to conduct an open bid process.
Let representatives raise their hands to announce their bids. Other parties may offer higher offers until a bid is received. The government may then be allowed time to assess whether or not the price of that bid is acceptable.
It may encourage cautious developers, who might otherwise refrain from bidding, to instead step forward and bid.
Currently, private housing developments may have a net profit of around 10%. In terms of risk and reward, this return may not be very attractive.
Be aware that yields have increased on many low risk instruments.
The government may explore ways to boost developer participation during these tenders
The authorities in this area work hard to maintain an ample supply of housing, and to ensure prices do not go up.
In order to avoid speculation, as well as to encourage homebuyers to be prudent, a range of measures has been introduced, including a loan-tovalue ratio and varying levels of mortgage servicing and Additional Buyer Stamp Duty.
Housing and Development Board(HDB) is building more HDB units to meet the demand. HDB buyers in good locations now face stricter resale rules.
Government Land Sales (GLS), a programme that sells residential lots, ensures a supply of housing for private households.
While the government builds HDB homes, private developers are in charge of building private houses. This means the supply of homes for private buyers may fall short of the amount the government envisioned from its land-sales programme.
In February, Urban Redevelopment Authority(URA) refused the only bid received for the white Marina Gardens Crescent Site that had been offered for sale in the ConfirmedList of the GLS H1 2023 Programme. The bid price, which was set for a residential and commercial site with an estimate of 775 private homes on the property, was deemed to be too low.
Housing developers take on many risks.
Consider also that property groups have several options on where to deploy the capital. These include non-residential homes here and overseas properties.
Many property groups can afford to be slow in their property development. They have regular incomes from rental properties that help them pay the bills. Making a loss on a property project could cause major financial damage as well as undermine credibility.
Profit-driven developers must bravely take the initiative to build enough new housing to meet demand. If developers are not active, many residents won’t be able to live their condo dreams.
Authorities should take note of the low participation rate in state land bids for residential sites and act quickly to increase developer participation.
