Monday, April 5, 2010

Developers’ landbanks running low

Many caught by surprise by strong home sales; trend likely to continue this year

Major developers, caught by surprise by strong home sales in the past year, are now faced with fast depleting landbanks.

Research compiled by property firm DTZ shows that out of 16 major developers in Singapore, half had less than 1,000 residential units left in their landbank as of end-February this year. Another five developers had between 1,000 and 2,000 units.

The numbers do not take into account strong home sales in March – which means that many developers’ landbanks would have shrunk further by the end of last month.

Sales in March include all 202 units in Hong Leong’s 76 @ Shenton. At Sentosa Cove, Ho Bee Investment recently launched Seascape, and City Developments, The Residences at W Singapore Sentosa Cove.

Analysts said that developers put off buying sites during the downturn, when the outlook for the property market was bleak.

‘During 2008 and 2009, many developers did not add sites to their landbanks,’ said Chua Chor Hoon, head of DTZ’s South-east Asia research team. ‘Hence some were suddenly low on inventory when demand rose and they brought forward their launches.’

In late February, Real Estate Developers’ Association of Singapore (Redas) president Simon Cheong warned that many developers are now facing depleting land banks following brisk home sales in recent months. Developers, he said, were surprised at the speed of the recovery in the property market.

The hunt for fresh residential sites has led to a spike in both the price and the number of bids for state land tenders.

In December last year, for example, a landed housing site at Jurong West put up for sale by the government drew a whopping 32 bids. The winning bid of $38.5 million, or $254 per sq ft of land area, came from Chappelis, a unit of Wee Cho Yaw’s privately held Kheng Leong. At other tenders, the top bids were sharply higher than analysts’ estimates.

In response to the intense competition for sites, the government has in recent months stepped up land sales. More residential sites are also likely to be added to the second half 2010 government land sales programme.

‘Tender bids last year were aggressive,’ noted Ms Chua. ‘We expect competition to be less aggressive this year as can be seen from the less aggressive, though not low, bids in the first quarter.’

But the hunt for new residential sites is likely to continue unabated in the short term.

Boutique property group EL Development, which launched and sold-out a few high-profile projects last year, has just one more development (with 32 units) left in its portfolio.

‘We have been looking to acquire new sites for a while now but we have not been successful so far,’ said managing director Lim Yew Soon. ‘It (business sustainability) is really a pressing issue for us. We have been looking very aggressively for new sites over the last few months.’

UOL Group’s chief operating officer Liam Wee Sin also said that his group is looking to replenish its landbank. But he said that his group gets its income from a variety of sources such as residential sales, rental income from its commercial properties and its hospitality business. So the company’s need is not as compelling.

‘We will look at the merits of each and every site put up for sale and then consider if we need to replenish,’ Mr Liam said. UOL has 1,074 units left in its landbank, according to DTZ.

Other developers are worse-off. DTZ’s research shows that Singapore Land had just 206 units left in its landbank as of end-February while Wheelock Properties had 209 units.

The 16 developers’ landbanks amount to 21,886 units in all, which means that they hold over half of all the unsold residential supply in the pipeline.

Official figures from the Urban Redevelopment Authority show that there were 34,234 unsold, uncompleted units of private housing in the pipeline as of end-2009. But this number does not include projects without planning approvals.

For the year ahead, developers expect home sales to remain strong. Some 1,480 new homes were sold in January this year, followed by another 1,196 units in February – pushing the estimated number of new home sales in Q1 to about 4,000 units.

Demand for new homes is expected to be around 3,000 units for the second quarter, analysts said.

The buying activity has however moved slightly to the high-end and luxury segments, where developers have a higher proportion of unsold units, says Tay Huey Ying, Colliers’ director for research and advisory.

That will work in some developers’ favour. ‘Low landbanks are really an issue for the mass market but for the high-end segment, developers still have ample supply because of all the collective sale sites they bought during the last boom,’ Ms Tay said. ‘But high-end landbanks will also run out if sites are hard to come by.’

Source: Business Times, 5 Apr 2010

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