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Singapore property rebound just starting as land auctions continue to soar

Singapore's continued land bidding rush has raised concerns about an overly quick rebound that could set off a new round of cooling measures, but industry observers said this market recovery is only just beginning and more record-breaking property deals are to be expected in 2018.

Since the 2017 second quarter, local and foreign developers have been swooping in to secure sites in the city-state, placing their bets on housing prices bouncing back after a nearly four-year decline due to government regulations. Collective or en bloc sales, which take place when a developer purchases an existing site to redevelop it, have been especially hot since the country eased its property cooling policies in March 2017.

In noteworthy deals, Singapore-headquartered GuocoLand Ltd. emerged March 19 as the top bidder for the Pacific Mansion condominium site located on the prime River Valley stretch with a bid of S$980 million, S$42 million above the S$938 million reserve price, and marking the largest en bloc transaction in the current property cycle.

In 2017, two Chinese developers — Nanshan Group and Logan Property Holdings Co. Ltd. — jointly placed a bid of more than S$1.00 billion for a Stirling Road residential plot in a government land tender, while the Amber Park condominium site was sold to City Developments Ltd. and a partner for $906.7 million in what was then a record freehold en bloc sale.

"Buyers have been waiting for the past few years to come back to the market, supporting rising [housing] demand," JLL Singapore National Director of Research Ong Teck Hui said in an interview. "Developers are quite positive about this turnaround."

Driven primarily by the residential sector, sales of properties worth S$10 million and more reached S$35.64 billion in 2017, jumping 57.3% year over year and marking the highest level since 2007, according to Savills data.

Yet analysts say home prices are just beginning to take off.

Singapore's Urban Redevelopment Authority's residential property price index has gained 1.5% in the 2017 second half, compared to an 11.6% decline between the 2013 third quarter and the 2017 second quarter.

Ong said Singapore's home price to income ratio remains around 5, much lower than other top cities in the region. The city-state's market is also currently more attractive for foreign buyers compared to Hong Kong, Melbourne, Sydney or Tokyo, where housing prices are at the high end of the market cycle, Ong added.

"The market is just bottoming out; we'll continue to seek investment opportunities in Singapore," Venus Zhao, head of investor relations and corporate finance at Far East Consortium International Ltd., told S&P Global Market Intelligence. The company in March clinched a collective sale site on Singapore's Holland Road for S$183.4 million.

Singapore housing prices may rise as much as 10% in 2018, Lim Ming Yan, president and CEO of CapitaLand Ltd., told Bloomberg in an interview Feb. 13.

Meanwhile, property developers' robust cash reserves built up by a wave of project completions in recent years are likely to further fuel the land-buying frenzy.

Local developers have at least another S$18.90 billion in cash on hand to support land acquisitions for 1.5 years, Cushman & Wakefield Inc. estimates.

"Developers must invest in new projects if they have a lot of cash, especially listed companies," said Christine Li, director of research at Cushman & Wakefield. "I won't be surprised if land prices reach new heights in the following months."

Government reactions

Singapore's government appears to be concerned and is taking a closer look at bank loans for property development.

The Monetary Authority of Singapore, or MAS, on Nov. 30, 2017, warned that there was "excessive exuberance" in the property market and "considerable uncertainty" over whether so much new supply can be fully absorbed by the market, urging developers, lenders and prospective homebuyers to exercise caution.

MAS is also collecting more data from banks to examine their credit exposure to development projects, The (Singapore) Business Times reported Jan. 9.

Soon after, the government raised stamp duties on the portion of a residential property's value above S$1 million to 4% from 3%.

There is no justification to tighten existing measures further in the homebuyer market, Ong said, but it remains to be seen whether there could be cooling measures introduced for the land sales market.

Developers should be aware of the possible lower-than-expected margins from property sales in the future, taking into account runaway land prices, relatively mild home price growth, as well as the new stamp duties, Li said.

Foreign players may also be underestimating Singapore's investment risks, Li added.

Under current government policies, developers are required to sell every single unit in a development within five years in order to prevent land banking — the practice of amassing land to turn a profit from a future sale. If there are unsold units when the deadline lapses, the developer has to pay a 15% penalty on land prices plus 5% yearly interest.

"It'd be dangerous for developers if property prices start to decline," Li said, adding that the risks would be particularly high for en bloc projects, which usually comprise more than 1,000 units within a single estate, requiring a longer period to sell the stock.

As of March 19, US$1 was equivalent to S$1.32.