CONDOMINIUM site in Tanjong Pagar raised eyebrows

A CONDOMINIUM site in Tanjong Pagar raised eyebrows yesterday when it drew lower bids than a neighbouring plot, which was sold just two weeks ago.

In a market that has been booming, this is the latest in a series of lukewarm responses to government land sales. Experts say it is further evidence that sentiment in the property market may be fast cooling.

The condo plot, along Enggor Street in Tanjong Pagar, fetched a top bid of $180.8 million when its tender closed yesterday. Allgreen Properties put in the highest offer, pipping bids by Far East Organization and GuocoLand.

Its price works out to $717 per sq ft per plot ratio (psf ppr) - well below the $852 psf ppr achieved by the plot just next to it, which drew only two offers when the tender closed. That prompted market watchers to warn that the mood might have changed. Even then, the high bid, from Far East, was some $70 million above yesterday’s top offer.

The two land parcels, which are located behind the Icon condominium and a stone’s throw from the Tanjong Pagar MRT Station, are of similar size.

The situation mirrors that in Marina View. Two months ago, a site there fetched a record $2 billion bid - but a neighbouring plot managed only half that price when its tender closed on Tuesday.

Earlier this month, an office site in Tampines drew only one bid, at a lower price than most consultants had expected.

These tepid sales come after the Government last month unexpectedly removed the deferred payment scheme for homebuyers in what was seen as a bid to curb speculation. Homebuyers can no longer postpone the bulk of their payments and must now pay progressively.

Although the Government has since come out to say that it has no further plans to cool the property market, the once-powerful winds appear to have shifted.

Yesterday’s tender is a reflection that ‘developers are turning cautious’, said Mr Ku Swee Yong, the director of marketing and business development at Savills Singapore.

He offered several reasons for the lower bids. For one thing, construction costs are surging, but home prices are not rising as quickly, he said. This means developers have to find a way to lower their land costs.

Luxury homes used to cost $300 psf to $350 psf to build, but this has now gone up to about $600 psf because of a construction squeeze, he explained.

At the same time, there are plenty of freehold collective sale sites still on the market that have not found takers. Faced with many options for land, developers might be less attracted to 99-year leasehold sites from the Government, suggested Mr Ku.

In any case, the Enggor Street plot was ‘not exactly a choice site’, he said, adding that it has ’small floor plates, its views are blocked and it is very close to the next building’.

Partly because of this, the top bid for the site, while lower than that for the plot next door, is ‘reasonable’, he said.

With the developer’s breakeven cost estimated at around $1,200 psf or $1,300 psf, finished homes could sell for at least $1,700 psf. Mr Li Hiaw Ho, the executive director of CB Richard Ellis Research, said current prices at nearby projects such as Icon, Lumiere and The Clift are between $1,600 psf and $2,100 psf.

Despite the lower prices being paid for state land now, consultants think this will not translate into cheaper homes, thanks to rising construction costs and still-strong demand from homebuyers.

But Mr Nicholas Mak, the director of research and consultancy at Knight Frank, warned that if the Government continues to release more land, it might result in a supply glut that could cause prices to plunge.

‘We are standing at the threshold of a glut, but it is still preventable,’ he said, adding that the low bids in recent state tenders will not affect existing projects, but will affect future land tenders.

‘If the Government pushes out more land parcels, and bids continue to slide downwards, some of the earlier buyers of state land are going to find it very challenging to sell their developed properties at a profitable rate.’

All eyes will now be on the government land sales programme for next year, which is due out next month. If the Government places many sites on the confirmed list, to be sold at a fixed date regardless of interest, this could lead to opportunistic bidding by developers and push down prices, consultants said.

Apart from the Enggor Street tender, Mr Mak said that the latest home sales data released by the Urban Redevelopment Authority yesterday also points to weaker sentiment.

Homebuyers remained cautious last month, taking up only slightly more new homes than in September. They bought 590 new homes, up from 529 previously, but still a far cry from the 1,720 snapped up in August.

But while sales levels stayed low, home prices kept steady, even inching up for many projects. Homes sold last month were also pricier, with 63 units sold at between $3,500 psf and $4,500 psf, up from 28 in September.

Cheaper condos did even better, said Mr Mak. In fact, the number of units sold in the core central region fell by 53 per cent last month from September, while the number of mid-tier units sold doubled.

Source : Straits Times - 16 Nov 2007