Singapore Property: The fight for land continues

By Foo Sze Ming
Mon, 7 Jun 2010, 08:48:56 SGT

Last week, the URA closed the tender for a residential site near Potong Pasir MRT station. This land tender was the first to be closed after the announcement of increased land supply under the GLS programme. The aggressive bids continue to signal the bullish view of property developers on the residential market. Year to date, bids put in by developers are still reasonable, in our view. With the onset of the euro-zone crisis, the low interest rate environment could continue for a longer period and this could help to sustain the demand for properties. As new GLS sites could be launched 6-7 months after being awarded, we believe that there are still opportunities available for developers to ride on the current upcycle of the property market via the upcoming GLS in 2H10. We remain positive on the residential segment but on the whole, our rating on the property market is NEUTRAL due to the weaker outlook for the office market.

The fight for land continues. Last week, URA closed the tender for a residential site near Potong Pasir MRT station. 15 bids were received and the highest was from Qingdao Construction, which bid S$113.7m (S$607 psf ppr) for the site. Interestingly, the top 2 bids came from overseas developers – the second highest bid was from Malaysian developer SP Setia. We estimate that Qingdao’s breakeven cost is around S$952 psf. Based on Qingdao’s targeted average selling price (ASP) of S$1,000-S$1,050 psf, pre-tax margin is thin, at 7.2%-8.7%. This land tender was the first to be closed after the announcement of increased land supply under the Government Land Sale (GLS) programme for 2H10 on 21st May. Aggressive bids for this residential site continue to signal the bullish view of property developers on the residential market, despite the upcoming supply of land.

Insights on recent land bids by developers. Year to date, developers under our coverage have all participated in the GLS programme. So far, bids put in by these developers are still reasonable, in our view. We estimate that they are targeting ASPs ranging from S$682-S$964 psf for mass market sites. Interestingly, CapitaLand and Keppel Land (KepLand), which had been focusing on the mid-high end residential segments, have started to bid for mass market land again. KepLand added a mass market site near Lakeside MRT station to its land bank and this raised some concerns due to the expensive price that KepLand paid (S$499 psf ppr). However, with the development of the Jurong Lake District and the good location of the site, we think that it is still possible for KepLand to make some profit. Soilbuild has been focusing on industrial sites and this is in line with its focus on capital efficiency as industrial land cost is lower, and takes up a smaller portion of the total development cost.

No concerns on depleting land bank. With the onset of the euro-zone crisis, the low interest rate environment could continue for a longer period and this could help to sustain the demand for properties. As new GLS sites could be launched as soon as 6-7 months after being awarded, we believe that there are still opportunities available for developers to ride on the current upcycle of the property market via the upcoming GLS in 2H10. As such, we are not overly concern on the depleting land bank of developers. We remain positive on the residential segment but on the whole, our rating on the property market is NEUTRAL due to the weaker outlook for the office market.

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