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Property Herald: Low GLS Prices Won’t Necessarily Lead to Low Condo Prices for Buyers




Summary


(1) The government decided to sell two Government Land Sale (GLS) sites at prices that are lower than prices of nearby land parcels. Its decision to sell both sites means that either the government is acknowledging that land prices have fallen, or there could be other considerations. 

(2) If the government decided not to award the inaugural site for the Long-stay serviced apartments at Zion Road, other developers could be discouraged from biding in future GLS tenders for land with such serviced apartments. 


(3) The government’s action signal that the government will sell the GLS site even if there is only one tender bid. In addition, the government will sell the GLS sites at prices which others may deem to be low.


(4) Homebuyers may not necessarily enjoy lower property prices when these condominium projects at Zion Road and Upper Thomson Road are launched in the future because developers are profit-maximising entities that will sell the properties at the market rate.


(5) The government needs to adjust the way that GLS sites are sold to ensure that low land prices could lead to lower home prices for consumers.


Introduction


The Singapore government awarded the tenders for two residential land parcels to the sole bidder of each site.


The land parcel at Zion Road (Parcel A) will be sold to the joint venture (JV) of City Developments Ltd & Mitsui Fudosan at $1.107 billion or $1,202 per square foot per plot ratio (psf ppr). In addition, the condominium site at Upper Thomson Road (Parcel B) will be sold to the JV of GuocoLand and Hong Leong Holdings at $779.555 million. Both residential sites are sold at land rates that are lower than those of the GLS sites in the respective vicinity.


The GLS site at Zion Road
The GLS site at Zion Road

Lower land prices


The government’s decision whether to sell the land depends on whether the developer’s bid meets or exceed the government's reserve price. The reserve price of each GLS site is based on the government’s assessment of the value of each land parcel. 


The government’s decision to sell both GLS sites at prices that are lower than the prices of nearby GLS land parcels indicates that either the government is acknowledging that land prices have fallen, or there could be other considerations.


Other considerations for awarding the GLS tenders


Firstly, the Zion Road (Parcel A) land parcel will be the first site where the new long-stay serviced apartment concept (named SA2) will be developed. Since it is a new housing concept, there are some uncertainties about the demand and profitability of such development. 


For the developer to build, operate and hold the serviced apartments as an investment asset entails certain amount of financial and investment risks. Therefore, the developer would factor in the risks by submitting a lower bid in the GLS tender.


If the government decided not to award this inaugural site for such serviced apartments, other developers could be discouraged from biding in future GLS tenders for land with such serviced apartments. This could mean that this new housing concept would be strangled in the crib.


Presently, there are two other GLS sites where the Long-stay serviced apartments will be developed. The government will launch these two new sites for sale in the first half of this year. 


The second GLS parcel, located at Upp Thomson Rd
The second GLS parcel, located at Upp Thomson Rd

A second consideration is that the government wants to push ahead with its plan to sell enough residential land to meet the expected future private housing demand. If the government does not award the tender of these two sites due to the low tender bids, fewer developers may participate in the upcoming GLS tenders or bid at very low prices.


If the government continues not to sell those GLS sites in the upcoming tenders, for example, due to low land price bid by developers, it could result in a shortage of new private housing launches in 2025 and 2026. This could potentially lead to a spike in property prices if housing demand were to rise in the next two years. 


Thirdly, the government may be taking a calculated risk that by awarding these two sites today, it could attract more developers to bid for the other upcoming GLS tenders, which could result in higher land rates being submitted. 


The higher land prices for the future GLS sites could help to cover the lower revenue from the sale of these two sites awarded today.


Implications on the property market


The government’s decision to award the tenders for these two sites send two messages to developers.


First, the government will sell the GLS sites even if there is only one bid. 


Second, the government will sell the GLS sites at prices which others may deem to be low.


Property developers will use the land prices of these two sites as references for future land tenders. It could encourage them to submit opportunistic bids in the upcoming GLS tenders in the hope to acquire a residential site at a bargain.


Low land prices may not benefit homebuyers


Homebuyers may not necessarily enjoy lower prices when these condominium projects at Zion Road and Upper Thomson Road are launched in the future because property developers are profit-maximising entities.


As a result, developers will likely launch the new condominium projects at the highest price level to attract just enough buyers to sell off all the strata units in each project. 


For example, if there are 700 units in the condominium project, the developer will price the property to attract about 700 buyers who are willing to pay top dollar for the housing units. This usually means that even in a market condition where property prices are rising at a gradual pace, the new private housing project would be launched at a new benchmark price for that neighbourhood.


The way forward


The government needs to adjust the way that GLS sites are sold to ensure that if the residential land parcel is sold at a relatively low land price, the new housing project on that land parcel will be launched at reasonable low prices to the homebuyers.


The current GLS system compels the developer to accept significant level of development risks. Hence, the developer would feel justified to launch the housing project at the highest price that the market could bear and earn above normal profits if they have the opportunity to do so.


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