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Collective sale fever to peak soon: Analyst

11 Apr, 2018

The collective sale frenzy that has been sizzling nationwide for a year will peak in a few months, according to property analyst Vijay Natarajan of RHB.

He noted in a report yesterday that developers are paying close to asking prices now and are likely to snap up smaller sites as they turn more selective.

While he believes collective sale values this year will exceed the $8.2 billion racked up in 2017 - after all, there are more than 100 sites reportedly in the pipeline - Mr Natarajan said the cycle should peak in the second or third quarter.

Developers have become "very selective", he said, while the supply of private homes is swelling.

Recent collective sales will likely add between 15,000 and 20,000 units to the market eventually.

Many real estate players have already restocked their land banks, Mr Natarajan added. "The fatigue is starting to be reflected in the premium developers have paid over the reserve price, which has halved to 5 per cent this year compared (with) 10 per cent in 2017."

Bidders at some recent transactions paid just the asking price and not a cent more. These include Brookvale Park, which was sold to a Hoi Hup Realty and Sunway Developments joint venture for $530 million, and CapitaLand's headline-grabbing $728 million purchase of Pearl Bank Apartments.

Collective sale projects may also have lost some of their lustre after tighter rules on redevelopment kicked in, Mr Natarajan said.

Moves such as higher development charges are likely steering developers towards "small-to mid-sized sites that have good location attributes and amenities".

He noted that collective sale sites from the beginning of last year have been almost evenly split between freehold and leasehold plots, which he sees as a sign that "developers are now placing equal emphasis on location attributes and amenities".

The RHB report added that developers are also keeping an eye on the sites to be released in June under the Government Land Sales programme for the second half of the year. The scheme could present an alternative source of land to collective sales.

On the whole, Mr Natarajan held to an "overweight" call on the real estate sector, with a positive near-term outlook. Home prices are expected to rise by 5 per cent to 10 per cent this year on a growth of 10 per cent to 15 per cent in transaction volume, he said.

But "we remain cautious on the longer-term outlook and sustainability of steep price increases", on the back of factors such as the possibility of interest rate hikes and a weaker market for rentals and public resale flats.

Adapted from: The Straits Times, 11 Apr 2018