It is time to take note of the low participation rate in land auctions
While the government constructs HDB flats for the public, private developers are responsible for building private homes. The government may not be able to meet its expectations in terms of the number of private homes built.
The Urban Redevelopment Authority (URA), in February, rejected the single bid for the Marina Gardens Crescent white site that had been put up for sale by the Confirmed Listing of the H1-2023 GLS Programme. The bid price was too low for the site that is to be used for residential and commercial developments with approximately 775 private houses.
Sold out
It is becoming more common for GLS sites with housing components to receive only one bid, rather than several. On April 4, the tenders closed for the two Confirmed-List sites that have housing components.
City Developments Ltd.: C09 0%, Mitsui Fudosan and a joint venture of GuocoLand F17 0% and Hong Leong Holdings were the only bidders for the Upper Thomson Road site.
Both sites’ bid prices were lower than expected.
A consortium showed interest in the Jurong Lake District GLS master-developer site. This site will be used mostly for offices and houses. CapitaLand Development, CDL, Frasers Property TQ5 0%, Mitsubishi Estate and Mitsui Fudosan Asia submitted two joint offers with different concept ideas for this site. The tender was closed on 26 March.
The negative attitude among private housing developers may be a result of high construction costs and interest rate coupled with an uncertain demand.
In April 2023, the ABSD rate will be raised for Singapore citizens or permanent residents who buy more than one home and for foreigners not PRs. ABSD applied to non-PRs doubled to 60%.
Do state land auctions attract top bids that are unacceptable to the government, or do they draw no bids?
If the Confirmed List of GLS sites do not produce new private housing, it could lead to an insufficient supply within a few year. The residential en bloc market is sluggish and fewer sites are becoming available for redevelopment.
A shortfall in housing completions is difficult to correct quickly, as new homes can take several years to construct.
A lack of private homes can cause sharp price and rental rate increases. This can affect young, motivated locals who want to buy a private home. Singapore may also be unable to attract the talent it wants from abroad due to the lack of homes available to rent.
The next government auction for housing sites closes on the 14th of May. It is for a location on Holland Drive. There may be a good number of bids for this tender.
Raising interest
Still, the authorities should explore how to boost the level of interest from developers in the Confirmed list GLS housing site.
Lowering ABSD rates can ease concerns over the private housing market. This is especially true for locals, PRs purchasing multiple homes, and non-PR foreigners who purchase any home. If the ABSD was re-imposed at 30% on foreigners who are not PRs, could this reduce the demand for private housing?
Perhaps you could change the way GLS site are sold in order to improve price discovery.
As things stand, developers who bid for housing sites through state tenders must submit their bids in sealed envelopes before a specified date and hour. Sites are generally awarded on the basis of only price.
A possible option is to have interested parties gather at a certain time and place for an open bidding process.
Let representatives from interested parties raise hands and announce bids. You can continue to raise your bid until a final offer is made. The government will then have time to determine if the bid price is acceptable.
By doing this, you may encourage more cautious developers to put in a bid rather than refrain from doing so.
Currently, the profit margin for private housing developments can be anywhere from 10 to 15 percent. Such a return is not attractive on a risk-reward scale.
Take into account that many low-risk assets have seen their yields rise.
Housing developers are exposed to many risks.
For example, they could be liable for a large clawback of ABSD refunds if homes built by them do not sell within the specified timelines.
Think about the fact that property groups are able to choose from a variety of options for where they want to deploy their capital. This includes non-residential real estate here in the United States, as well overseas properties.
Different property groups also have the ability to slow down on development because they can rely on recurring income from their investment properties. Losing money on a project can cause serious financial damage and undermine your credibility.
To ensure that there is a sufficient housing supply, we must have profit-driven developers bravely build new homes. Many residents may find it more difficult to live the condo lifestyle if developers remain inactive.
The authorities must pay attention to the lack of participation by developers at state land tenders. They should also be ready to take steps to encourage more participation.
The government might explore ways to encourage developers to participate in these tenders
It is important that the authorities maintain a sufficient supply of houses and ensure prices are not inflated.
The government has taken a number of measures to prevent speculators and ensure the financial stability of homebuyers. These include: loan-to-value, total debt-service ratio, mortgage-service ratio, Additional buyer’s stamp duty (ABSD) or Seller’s stamp duty.
Housing and Development Boards (HDBs) are building more flats to meet demand. However, buyers of HDBs in prime locations may face tighter restrictions for resale.
The government’s Government Land Sales program (GLS) ensures that private housing is available by putting residential sites up for sale.
