S’pore could see first en bloc sale in a year by year-end

Source : Channel NewsAsia – 16 Jun 2009

Singapore has seen a drought of en bloc sales lasting more than a year. But analysts said that could change by the end of this year.

They believe that with developers experiencing lower inventories, and government land sales still depressed, en bloc sales could present a more attractive option.

More than 5,500 private homes have been sold in the primary market this year – already more than the total amount sold in 2008.

Should the momentum persist, analysts project that more than 10,000 units will be sold this year, compared to the market peak of 14,811 units sold in 2007.

Analysts said this has helped draw down developers’ inventories.

Christina Sim, director, Investment, Cushman & Wakefield, said: “Once I think a developer sells more than 50 per cent of the development, they are basically on the home stretch already. So whatever they make on the rest of the units is basically profits. I think in terms of this, their cash flow position is a lot better.”

Karamjit Singh, managing director, Credo Real Estate, said: “Fundamentally, en blocs take place when the market is on an uptrend, when there is enough confidence in the market, and developers wish to step up their acquisitions or redevelopment sites.

“At this stage, the market seems to be turning its corner. There seems to be a resurgence, or confidence back in the market. Quite a few developers have begun to clear substantial inventories to a point where they are very confident in the market tomorrow and day after. And (they) are beginning to buy land today, or at least making enquiries about what is available to buy.”

Site sales were also at a significantly low level last year.

Mr Singh said: “Developers refrain from buying any redevelopment sites, whether from government, en bloc, private market. That market began to move early this year with few developers acquiring from one another and from individual sellers. That momentum is slowly gaining and it is quite strong at this stage.”

And supply isn’t as forthcoming as before.

Mr Singh said: “This is likely to lead to price rises in redevelopment sites, which is the basic raw material for developer to buy so as to be able to do business. As land prices rise, it would lead to a situation where en blocs become viable once again. We are helping quite a number of our en bloc clients re-evaluate the potential of their projects. And we believe that towards the end of this year or early next year, quite a number will materialise once again.”

So developers are likely to look to collective sale sites. Credo is handling about five developments which are restarting, or planning a collective sale. It is also currently marketing some developments, including Laguna Park. Cushman & Wakefield is currently marketing Meyer Place.

Valuations for that project were done during the peak in 2007. But it has since come down almost 30 per cent.

Ms Sim said: “Land value for Meyer Place was actually set at the peak in 2007, and those days, East Coast high-end properties were going at about S$1,800 per square foot up to S$2,200 per square foot. So those were the prices that were set. However, the good thing is that we are maybe about 30 or 20 per cent short of this level. Hopefully, the market will recover by the third, fourth quarter.”

She also said: “I expect they would have to scale down, and a few whom I have spoken to have already said that in the event that a lesser offer comes in, lesser than what the reserve price was, there is always a good chance that (they) can call for an AGM and get the 80 per cent consensus to sign again, and agree to sell at a lower price than the reserve price.”

Owners were previously looking for a premium of about 50 per cent. But Cushman & Wakefield said 30 per cent now will be a very good deal.

Overall, analysts said projects that stand a higher chance of being sold en bloc are smaller ones, in specific locations.

Mr Singh said: “They seem to favour suburban and mid market. Prime, I am sure quite a number of them will be interested in very high-end.”

Ms Sim said: “Well located smaller plots in good residential areas, Meyer Road, Bukit Timah. They will all still have that kind of demand. I think the plots that are maybe below the S$100 million mark, they are still quite affordable by small, medium-sized developers.”

She is hoping for at least one en bloc sale this year, to get the ball rolling.

Credo, on the other hand, is more optimistic and expects more than 10 sales by year-end.

But not all agree with this view. Real estate company ERA Asia Pacific said developers should have banked enough land over the past three years.

Eugene Lim, associate director, ERA Asia Pacific, said: “A lot have not been launched yet. What’s launched now are those bought even earlier. We expect the en bloc scene to probably be low key for now.”

Grace Ng, deputy managing director, Agency and Business Services, Colliers International, said; “They are watching the market carefully. A lot of developers have been keeping en bloc sites and renting properties to wait for market to recover. I think they will tread grounds carefully.”

Today, the gestation period from planning to actual marketing of the site takes at least six months, and can stretch to two years.

That is because of new legislation to ensure en bloc sales processes are conducted transparently.

Previously, getting to the marketing phase could take as little as three months.

A resident in Laguna Park said they were looking for a premium of up to 80 per cent when the idea was mooted in the second half of 2007.

And while she is willing to consider a slightly lower price, she added that a sale is not necessarily urgent.

She said: “If it does not happen, I suppose we will wait for another opportunity. Because you know you can get the 80 per cent, there will always be a second time.”