Enggor Street behind Icon drew a top bid of $717 per square foot per plot ratio (psf ppr) from Allgreen Properties - about 16 % lower than FEO

Some developers yesterday took advantage of the current dip in sentiment caused by the stockmarket turmoil to go fishing for land on the cheap. A state tender for a 99-year condo site at Enggor Street behind Icon drew a top bid of $717 per square foot per plot ratio (psf ppr) from Allgreen Properties - about 16 per cent lower than the $852 psf ppr that Far East Organization paid for the next-door parcel exactly two weeks ago.

Interestingly, Far East’s bid yesterday (it was second-highest tenderer) of $652 psf ppr was 24 per cent lower than its winning bid a fortnight ago. This probably reflected a strategy of attempting to average down its cost, market watchers say.

Yesterday’s tender also attracted one other contender, GuocoLand, whose $600 psf ppr bid was 9.1 per cent higher than the price it offered for the next-door plot earlier this month.

Allgreen, controlled by Malaysian tycoon Robert Kuok, is expected to develop a project about 50 storeys high with about 200 units. The ground level must be developed into commercial space.

‘Their breakeven cost will be about $1,200 psf. Going by current prices for units at Icon, Lumiere and The Clift of between $1,600 and $2,100 psf, Allgreen stands to enjoy a good profit margin when they launch their project,’ according to CB Richard Ellis executive director Li Hiaw Ho.

Market watchers said the lower top bid at yesterday’s tender reflected the erosion in sentiment over the past fortnight due to the stockmarket slide following massive writedowns by major American banks due to the US sub-prime crisis.

However, Mr Li reasoned that yesterday’s tender drawing three bids - against just two for the earlier plot - showed that developers are confident of the prospects for this site.

Agreeing, Knight Frank managing director Tan Tiong Cheng said: ‘Fundamentally, the property market is still sound, so there will be developers taking advantage of the current stock-market turmoil to go fishing. You never know; you may catch something at a reasonable price.’

The averaging down of cost strategy was also very much at play at another Urban Redevelopment Authority (URA) tender earlier this week: that of Marina View Land Parcel B. Macquarie Global Property Advisors’ top bid of $779 psf ppr was about 55 per cent of their winning bid in September for the adjacent plot, also slated for a predominantly office use.

But other factors were also at play in the tender that closed on Nov 13, including a minimum hotel component for the site, and office investors turning cautious as the outcome of the sub-prime crisis may have a direct impact on demand for Singapore office space if big international banks are hit.

The government has also expressly stated recently that it will boost the supply of office land in Singapore over the next few years to alleviate the current shortage.

Separately, URA also made available for application yesterday a 99-year condo site next to Tanah Merah MRT Station. The reserve-list site, with a land area of nearly one hectare, can be developed into a condo with about 250 units averaging 1,200 sq ft.

Jones Lang LaSalle’s head of research (South-east Asia) Chua Yang Liang notes that at the next-door Casa Merah project, seven units have changed hands in the subsale market since August this year, at an average price of $717 psf. ‘Assuming the latest site on offer receives a successful application from a developer this quarter and the new condo on the site is launched say around mid-year 2008, we reckon it could sell for about $850-$950 psf on average.

‘Going by this assumption, the plot would fetch land bids of $425 to $470 psf ppr, translating to breakeven cost for a new condo of about $710 to $790 psf.’

Knight Frank director (consultancy and research) Nicholas Mak predicts a lower price, of $288 to $323 psf ppr, on the assumption that the proposed development will be launched in 12 to 18 months at $800-$850 psf.

Reserve-list sites are only launched for tender upon successful application by a developer who undertakes to offer a minimum bid acceptable to the state.

Source : Business Times - 16 Nov 2007