Steps to buoy the market

Source : Today - 6 Nov 2008

Did land-sale changes come too late?

IN A market where sentiment rules, the Urban Redevelopment Authority’s (URA) recent changes to the land sales programme have quite naturally cheered up developers.

But has the intervention, which included cancelling the ongoing tenders for two sites, come a little late, and does the nature of the changes hint at the authorities being caught off-guard by the sharp fall in demand?

Last week, the URA announced that it was lifting a ban — which was due to last until the end of next year — on the conversion of office space in the central area.

At the same time, it said it would move most of the land sites on its confirmed list this year to the reserve list, and suspend its confirmed list of sites for sale in the first half of next year. The moves were intended to “allow the market time to assess and respond to the dynamic economic conditions”.

Analysts concur that URA’s latest moves — two-and-a-half years after the authority resumed releasing sites through its confirmed list — would safeguard land value by deterring vulture investors.

“Government for-sale sites are not distressed assets,” said Cushman and Wakefield managing director Donald Han, “You might get opportunistic bids.. or no bids at all, which is worse, as it sends out the signal that there’s no interest in prime land in Singapore.”

The writing was on the wall when two sites on the confirmed list — a residential site in Tampines and a transitional office site at Mohamed Sultan Road — were left unsold when tenders closed in August and September, as the bids were too low.

Still, the measures have been met with isolated grumbling from businessmen, who feel they would artificially maintain land prices — and indirectly, office rent levels.

“When bids are too low, they are always seen as not reflective of the market, which is not entirely true. It’s like the ratchet effect … prices can only keep going up,” noted Chesterton Suntec International director Colin Tan.

Still, the changes are necessary, given that demand for office space has “shrunk dangerously low”, he said. Based on his data, the net additional demand fell to just10,000 sq m in the second quarter of the year, compared to the average quarterly figure of46,000 sq m over the decade.

But did the changes come too late, given that signs of a potential supply glut were already obvious in the second quarter?

“The authorities must have responded to the falling demand and they wanted to inject confidence immediately,” said an analyst, pointing to the “unprecedented” cancellation of tenders for the transitional office site at Mountbatten Road and the white site bordered by Rochor Road and Ophir Road.

A URA spokesman told Today that the latest measures “were not in response to any drastic changes in demand or prices”. She added: “Cancelling the tenders for the Rochor/Ophir and Mountbatten sites also does not remove their availability for sale to interested parties, as they are now placed on the Reserve List and can still be triggered for sale if there is demand.”

There is also the argument that the rise of office Reits (real-estate investment trusts) and major office landlords in the last few years could have distorted market signals. Given their large inventory, it is argued, such Reits and landlords could prop up rents while allowing occupancy rates to drop.

Overall office rents declined 0.8 per cent in the third quarter. But a CB Richard Ellis report last month showed that rents for prime office space remained sticky as vacancies for Grade A offices doubled from 0.6 per cent in the first two quarters to 1.2 per cent.

Citing the “wide array of office buildings in Singapore which are owned by different landlords”, the URA spokesman rejected suggestions of oligopolistic behaviour in the market.

She said: “The URA compiles detailed and comprehensive information on the rentals, prices, occupancy, take-up, supply, as well as supply in the pipeline of properties across various property sectors, including the office sector, and take all these information into account in calibrating our land use policies.”