Weak participation in state land tenders is a problem that needs to be addressed
Single bids
Today, GLS residential sites are more likely to attract a single bid than multiple ones. Both of the Confirmed Listing sites with residential components that had tenders close on April 4 also received only one bid.
City Developments Ltd. (CDL) and Mitsui Fudosan were the sole bidders on the Zion Road site. The site will be used to build serviced apartments and homes for long-term stays. A joint venture between GuocoLand and Hong Leong Holdings (F17 0%) was the single bidder on the Upper Thomson Road housing area.
Bid prices on both sites were well below expectations.
One consortium was interested in the Jurong Lake District Master-developer GLS tender, which will be used mainly for homes and office space. CapitaLand Development, CDL, Frasers Property (TQ5 0%), Mitsubishi Estate and Mitsui Fudosan Asia all submitted joint bids, each with a different concept proposal, for this location. The tender closed Mar 26.
Private housing developers’ negative attitudes could be caused by high construction and interest costs, as well as uncertain demand.
The increase in ABSD from 30 to 60 percent for non-PRs and Singapore citizens who purchase multiple homes or any home, will have a negative impact on the demand for homes located in prime locations. ABSD on non-PR foreigners increased from 30 to 60%.
Are there increasing risks that state land tenders will not attract any bids, or may even draw the highest bids.
In a couple of years, there could not be enough private housing if the Confirmed List site GLS housing supply does not materialise. This is true in particular because the residential en block sale market is not very active, leading to fewer redevelopment opportunities.
The construction of new homes takes several years, so any housing shortage would take time to correct.
The lack of available private homes could lead to an increase in rent and prices. This is bad news for locals with a strong desire to own a home. Singapore’s efforts to attract foreign talents may be hindered by the lack suitable rental properties.
On May 14, the next government tender to build a new housing development on Holland Drive will close. It is possible that this tender will have many bids.
Raising interest
Nevertheless, it may be time for authorities to look at ways to increase interest in housing projects on the Confirmed Listing GLS.
ABSD rates could be reduced for locals to ease the concern over private housing. Would a return to the 30 per cent ABSD for non-PR foreign buyers of homes be able to curb demand without killing it, but still allow the government to collect revenue?
Maybe you can change the price of GLS sites to make it more transparent.
Developers who are bidding to build housing in state-sponsored tenders typically have to submit their bids sealed in envelopes, by a particular date and time. Sites are awarded in general based solely on price.
For example, interested parties who are looking for housing in Confirmed List sites GLS could gather on a date and time specified for an auction.
Let representatives of the interested parties raise and announce their offers. It is up to the other parties to make higher bids before a final price is set. The government is then given time to decide whether the bid price was acceptable.
If you do it this way, you might encourage hesitant developers to submit a bid and not to refrain.
The government can explore ways of increasing developer participation at these tenders
There are many authorities who work hard to keep the supply of homes adequate and to prevent prices from escalating.
There are a variety of measures that have been implemented to discourage speculation and encourage financial prudence in home buyers. They include the loan to value ratio (LTV), total debt servicing, mortgage servicing, Additional Buyer’s and Seller’s Duty.
Housing and Development Board (HDB), the government-owned housing authority, is building more HDB flats as a result of the increasing demand. HDB flats located in high-demand locations are subject to stricter resale regulations.
Through its Government Land Sales Programme (GLS), which sells residential land, the government ensures that there are enough private homes.
The government does build HDB apartments, but private developers are left to build private homes. This could mean that the government’s land-sale programme may not produce as many private homes as it had planned.
In February, the Urban Redevelopment Authority, or URA, rejected the one and only bid that was submitted by the Marina Gardens Crescent White Site, which had been listed under the Confirmed Liste of the H1 2023 GLS Programme. The bid was considered too low. This site is intended for residential and business development, with an estimated 775 homes.
The net profit margin of private housing projects could be 10 percent today. This return could be considered unattractive on a reward-risk basis.
You should also consider the fact that many instruments with low risk have increased their yields. Housing developers have many risks. One of them is that they may lose ABSD remissions if they fail to sell their homes within the time frame prescribed.
Consider that property companies have a wide range of choices for investing capital. They can invest in both non-residential and residential properties, here or overseas.
Some property groups have the luxury of taking their time in developing property, because they are able to rely on investment properties for a steady income. Entering into a losing project could damage credibility and result in major financial losses.
But we still need profit-driven builders to courageously build new houses to ensure there is enough private housing. If developers do not take action, it will be harder for residents to realize their condo dreams.
The authorities need to pay attention to low participation rates in the state land auctions for housing sites and be ready to act to boost participation.
