Aggressive land bids drive premiums up at government sites

Developers have been paying substantial premiums for government land sites recently amid healthy private home sales.

There has been aggressive bidding at public land tenders this year, with developers paying an average of 29 per cent more for residential plots over comparable sites sold in the past five years.

That was sharply higher than 13 per cent average premium in the second half of last year, a Cushman & Wakefield report noted yesterday.“This is testament to greater confidence (on the part of) developers in the residential market, bolstered by the positive response in new project launches in recent months,” it said.

Sales of new homes in the first four months this year were brisk – at 4,696 units – driven by projects such as The Clement Canopy and Grandeur Park Residences. This was more than double the 2,220 new units sold in the same period last year.

The sales lift was partly due to the slight easing of some cooling measures in March and more projects being put on the market.

Cushman & Wakefield noted that developers were more “bearish” in the first half of last year and second half of 2015 – when they bought land at a lower price compared to sites sold previously.

Apart from land costs, the number of bidders at each tender has also shot up, from an average of 8.25 in the second half of 2015 to 13.3 in the first four months of this year.

Notably, the tender for a non- landed private residential site in Toh Tuck Road attracted a record 24 bids, with Malaysian developer S P Setia clinching the plot for $265 million.

A tender in Tampines Avenue 10 won by City Developments for $370.1 million had five Chinese players out of the nine bidders.

“Interest from foreign players has also intensified, with two out of four land tenders awarded to foreign bidders” so far this year, said Cushman & Wakefield.

Local firm EL Development told The Straits Times yesterday that it lost out on tenders for the Tampines Avenue 10 and Toh Tuck Road sites amid more competition.

“As a small developer, we are not price setters… we’ll monitor the tenders and put in bids that we think are right. There’s no point over-bidding for a site,” said managing director Lim Yew Soon.

Analysts expect tenders to be keenly contested, particularly for prime plots, for the rest of the year as land-hungry developers – local and foreign – fight over a limited supply of sites.

The Ministry of National Development, which has cut land supply in recent years, is expected to announce next month what sites will be available in the second half of the year.

“I don’t think the Government will put more sites out in its upcoming land sales programme in view of the large number of vacant units and the weak leasing market,” noted International Property Advisor chief executive Ku Swee Yong.

Cushman & Wakefield said local developers are likely to be outbid by their foreign counterparts “in this strong liquidity-driven market”, leading possibly to more private land acquisitions this year.