Priced out of Singapore?

As tender bids heat up here, many small-sized property developers are seeing themselves priced out by big players and foreign firms. This has made it more difficult for these smaller developers to get their hands on land for development – a situation that could put their businesses at risk, and things do not improve.

Bid prices and the number of bidders escalated to record highs in the latest tender results for government land – and the gap between the big players’ and smaller firms’ bids are stark.

For instance, boutique property developers like Invest-Ho Properties had submitted a $9.1 million bid for a land parcel at Tampines Road but lost out to the highest tender of $16.25 million by Fragrance Properties.

Invest-Ho Properties Group manager Edwin Ho said it was its first time bidding for a land parcel under the Government Land Sales (GLS) Programme, as buying freehold land and private land has become more expensive.

Adding salt to the wound, these developers are also feeling the pinch from the entry of foreign developers looking to expand here – driving land prices even higher.

“With the current Chinese tightening measures, some Chinese developers are moving to familiar overseas markets to capitalise on their reserves of cash,” said Mr Colin Tan, Chesterton Suntec International research and consultancy director.

Analysts said that if the trend continues, the industry could see a major shake-up that could drive small developers to look elsewhere for business opportunities.

“It’s a little difficult for them to go for en bloc (sales) because some of the prices are very high. As a result, they will turn to land sales – and if the Government does not sell enough of such land, it will affect their businesses,” said Ngee Ann Polytechnic real estate lecturer Nicholas Mak.

Owner expectations from collective sales also pose a challenge for small developers, said Mr Joseph Tan, executive director of property consultancy firm CB Richard Ellis. “The gestation period is longer and by the time the land is available, the market and pricing may have changed,” he said.

But while small and medium property developers may find options with GLS sites, the number of such lands that may be “palatable” to them are limited, said Mr Mak.

The latest tender for the land parcel at Simei Street 3 garnered 18 bids, with CEL Development Pte Ltd submitting the highest bid at $152.69 million by. The parcel is one of the smallest residential sites launched under the GLS in the first half of this year.

Apart from forging joint ventures, some small developers are setting their sights to acquiring land overseas as market watchers say the situation could go even dire for them.

But the road will hardly be a smooth one even with such alternatives as joint ventures requiring competitors to work together will be difficult for smaller companies run by families or centered on personalities,” said Mr Colin Tan.

As for overseas markets, he said smaller developers face the risks of unfamiliarity and inexperience.

For some, they would prefer to wait on the sidelines and rely on other means to generate business.

Vigcon Construction which made and lost its bid of about $9.9 million for the Tampines Road site said that the company has a budget of just “a few millions” for tenders.

Its director, Mr Teo Tiow Guan, said as property development is not its core business, the company can afford to wait for land parcels that could be avaliable and are within their means.

Source: Today, 13 May 2010