Market uncertainty colours bids for land

THE aggressive bids which poured in for government residential land in the last few months show just how much the property market has improved.

But is the recovery real, and how much more can prices rise? The large divergence in bid values shows that even developers themselves may be unsure about what the future holds.

In August, a site at Chestnut Avenue drew 13 bids, and the highest of $280 per square foot (psf) of gross floor area (GFA) was some 87 per cent more than the lowest of $150 psf of GFA.

The spread between bids grew in the next two tender exercises last month. Another plot at Dakota Crescent pulled in 13 bids ranging from $247 to $508 psf of GFA – 106 per cent apart.

The third site at the corner of Yio Chu Kang Road and Seletar Road – with a commercial component – saw a top bid of $376 psf of GFA, which was 144 per cent more than the lowest bid of $154 psf of GFA.

To put these numbers into context, the spread between top and bottom bids for government residential land in 2007 and 2008 hardly exceeded 60 per cent.

Only two of 14 tender exercises recorded on the Urban Redevelopment Authority’s website in those years showed spreads above that level. So it is unusual that just between August and September, bid values in three consecutive tenders have diverged so widely.

Developers could have sharply different readings of the sites’ potential because of the hazy economic outlook. The property market is at a pivotal point – bulls which believe that demand will stay strong will pay more to secure the sites, while bears which expect weakening ahead will fork out less.

In contrast, there would have been more of a ‘consensus’ among developers during the boom years, when the market’s uptrend was certain.

Not only do developers have to gauge their own pricing power, they also have to guess if their peers would be keen on sites in this market. Knowing that strong home sales have shrunk land banks, some may invest more to ensure they can outbid the competition.

Then there are the usual differences in how developers finance and design their projects, which will affect bids. In terms of design, some developers may have built more small apartments into their plans – a common strategy today to attract cautious buyers. This would allow them to pay more for the land as they can sell the units at a higher psf price later.

Developers have triggered the sale of two more sites – one at Serangoon Avenue 3 and another at Upper Thomson Road.

Tenders have not closed, and market players will have time to analyse the impact of the confirmed list’s impending comeback before bidding.

It will be interesting to see if large differences in the highest and lowest bids persist and, by extension, if the outlook on the property market is clearing.

Source: Business Times, 1 Oct 2009