Despite a muted residential property outlook in Singapore, developers are keen to replenish their land banks as they sit on fairly lean unsold inventories, analysts at OCBC Investment Research said.

In particular, there is firm demand for mass market sites on which projects with carefully calibrated prices have the potential to sell briskly, the analysts said, citing the keen competition in a tender last week for a land parcel at Fernvale Rd.

Yesterday, Raintree Gardens in Potong Pasir was sold to a joint venture between United Industrial Corp and UOL for S$334.2 million in the third successful en bloc sale this year.

TODAY understands that the site, sitting on 201,405 sq ft with a maximum permissible gross floor area (GFA) of nearly 564,000 sq ft, drew between five and 10 bids.

The 99-year leasehold land parcel at Fernvale Rd, released from the Confirmed List of the second half 2016 Government Land Sales (GLS) programme, sits on about 185,096 sq ft of land and has a maximum permissible GFA of 555,288 sq ft.

The closely-fought tender attracted 14 bidders and a top bid of S$287.1 million coming from a joint venture formed by Sing Development and Wee Hur Development. The price of the winning tender was somewhat above expectations, and the three highest bids were within 1 per cent of each other, the analysts noted.

“The aggressive bidding points to the fact that developers continue to have significant dry powder at their disposal given their generally firm balance sheets and fluid access to capital with low interest rates,” OCBC Investment Research analyst Eli Lee said.

“The tug-of-war between having capital headroom sit idle and taking a new condominium project in an uncertain residential market is an uneasy one for developers, and all the more so for sites awarded under the GLS system since all units need to be completely sold within five years if the Additional Buyer Stamp Duty is to be avoided,” he added.

At the end of the first half of the year, the national aggregate of unsold inventories held by developers stood at about 21,500 units, well below the 10-year average of 33,500 units, the OCBC Investment Research analysts noted.

“The Fernvale Road site, which is less than 100m from the Thanggam LRT station is attractive because of its meaningful size with a S$620 million estimated gross development value which will move the needle for most developers,” Mr Lee said.

He also pointed out its potential for strong sales in the absence of competing launches coming up in the area and the successful launch last year of the nearby 1,390-unit High Park Residences, now 98 per cent sold.

“Buyers in the market, however, continue to be sensitive to pricing and it is important for developers to exercise cost discipline to protect their margins. We note that the winning consortium has a construction arm which will help in this regard,” he said.

The private residential property index fell 1.5 per cent in the July-to-September period from the previous quarter, according to a flash estimate by the Urban Redevelopment Authority on Monday, the fastest pace of decline in seven years.

Private home prices have now declined for 12 consecutive quarters as weak investor sentiment, a slowing economy and the continued enforcement of cooling measures weighed on the property market. If well-located properties are priced attractively, bargain hunters could come into the market in force, potentially bumping up transaction volumes and keeping developers hungry for land.

Adapted from: TODAY, 7 October 2016

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