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Surprisingly bullish bids swamp year's first housing land tender

Surprisingly bullish bids swamp year's first housing land tender.

Bullish bids poured in for the first tender closing of 2017. But property consultants can't decide among themselves if it is a sign of market optimism or developers' need for work.

Construction company Low Keng Huat beat 10 other competitors with its unexpectedly bullish bid for a residential site along Perumal Road which comes with first-storey commercial space.

At a tendered sale price of S$174.08 million, it translates to S$1,000.72 per square foot per plot ratio (psf ppr), greatly surpassing some consultants' expectations of bids ranging from S$800 to S$850 psf ppr.

When contacted, Low Keng Huat declined to comment on its plans for the plot of land for now. Its share price added half a cent to finish at S$0.565 on Tuesday.

China Construction (South Pacific) Development came in second with a bid of S$166.7 million or S$958.29 psf ppr. Allgreen Properties came in third with a bid of S$161.5 million or S$928.4 psf ppr.

Competition was more crowded than consultants had expected. At 11 bidders, it exceeded the seven to 10 bidders that most were expecting. Many of the bidders were small and medium-sized developers and construction-backed contractors.

The bullish bidding reflects a positive market outlook. Bidders could have been encouraged by the higher transaction volume and moderating price declines in the property market.

At S$1,001 psf ppr, the top bid is optimistic, exceeding the S$787 psf ppr paid for the (nearby) Sturdee Residences site by 27 per cent (in March 2015).

This could be due to the subject site's closer proximity to Farrer Park MRT, and cost savings that contractor-developers enjoy, such that they can afford to bid higher.

The strong participation by 11 bidders was also a sign of contractor-developers' need to secure fresh development opportunities.

Developers are clearly looking to replenish their depleting inventory and the Perumal plot offers the added bonus of a small size and therefore an affordable quantum of S$174 million.

In terms of psf ppr, the top bid was the second highest among all the submitted bids for government land sales residential sites since 2009 in the Rest of Central (or city fringe) region.

Such a high land price and strong participation rate among developers indicate their urgent need to replenish their land bank. It could also indicate that some developers are betting on the government relaxing the cooling measures in the near future."

Either that, or at least an imminent price recovery. The exuberance displayed by the bidders is not congruent with market performance, which showed private home prices falling 3 per cent in 2016 (according to latest flash estimates), after falling 3.7 per cent in 2015.

This may imply that more developers are expecting prices to bottom out in 2017 and will see prices increase from 2018 onwards when the project is ready for launch.

The site at Perumal Road was offered for sale on a 99-year lease term under the second half 2016 government land sales programme. With a maximum gross floor area of 16,161 square metres, it can yield about 200 units and about 500 square metres of commercial space.

Located right beside Farrer Park MRT station, the site is also accessible to the Central Expressway and Pan Island Expressway for private transport, as well as commercial amenities such as City Square Mall, Mustafa Centre, Farrer Park Hospital and Medical Centre, One Farrer Hotel and the upcoming Centrium Square.

Adapted from: The Business Times, 11 January 2017