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En bloc effect: Smaller shoebox units?

11 Apr, 2018

Singapore is in the throes of en bloc fever. Since the end of 2016, there have been about 50 to 60 residential projects sold collectively, or en bloc, to developers to be knocked down and redeveloped into new units.

Many of these fetched record high prices at public tenders and private collective sales as developers rushed to replenish their land banks in a market that is rapidly heating up. The total value of these sites have netted a whopping $15 billion so far.

Will en bloc fever heat up the larger property market? And what will be the impact of a large number of units being knocked down, and then being rebuilt, in the next few years?

IMPACT ON PRICES

Analysts agree that the robust response to collective sales has helped fuel a recovery in the property market.

Already, the latest first-quarter flash estimates by the Urban Redevelopment Authority showed a 3.1 per cent jump in private residential prices. This is the strongest quarterly increase since the 5.2 per cent rise in second-quarter 2010 and since the index bottomed in the second quarter of last tear - a clear signal of the market's upturn.

The slew of sales will likely result in around 20,000 new units coming into the market over the next three to four years.

Colliers International managing director Tang Wei Leng said it will likely take more than 1.5 years for the new homes to be absorbed, assuming a 2007-2017 historical average take-up of 12,400 units per year.

"But the jury is still out over whether the completion of the new units... will cause a supply glut - much will depend on the state of the economy, market sentiment and job prospects at that time," Ms Tang said.

As for concerns over a sudden sharp spike in supply, analysts point out that many developments are still at various stages of the process, including obtaining planning permission. But sites like Harbour View Gardens at Pasir Panjang are among those confirmed to be launched this year by Roxy-Pacific Holdings, which has an edge as an early bird, having acquired its current land bank of 10 sites from as early as November 2015.

And as National University of Singapore real estate professor Sing Tien Foo notes, developers have leeway to start selling their new developments even before breaking ground, way before a project reaches its temporary occupation period of completion. This gives developers room to insulate against possible future price declines.

One concern is whether these collective sale deals will lead to a further rise in land prices. Of the 17 successful sales in the first quarter this year alone, 10 were done at 0.7 per cent to 26.7 per cent premium over the owners' asking prices, Colliers said. But going forward, land prices may not necessarily rise at the record pace in the past year as land banks have been partially restocked.

Still, escalating land prices have stoked concerns about higher home prices. Analysts say several newly launched projects contributed to the increase, and in the secondary market, there are now fewer resale private units available due to the en bloc fever.

With more than 5,800 households displaced and searching for replacement homes - if they are all home owners - they could drive demand and further price growth in the next few quarters.

Savills Singapore research head Alan Cheong estimates average new launch prices of leasehold condominiums in the mass market segment could range upwards of $1,500 per sq ft, from the current $1,200-$1,300 psf.

For freehold properties, prices could hit north of $2,300 psf by the second quarter of this year, he estimated.

Oxley Holdings sold 129 of the 170-unit The Verandah Residences at an average of $1,815 psf during the past weekend's launch of the freehold condominium near South Buona Vista. And for those in the super-prime districts, prices could clear $4,000 psf by the start of next year, Mr Cheong said.

But tempering this growth is the fact that many home owners in the mass market segment remain price sensitive as existing loan curbs and concerns over future interest rate hikes may weigh on their ability to buy expensive homes.

International Property Advisor chief executive Ku Swee Yong warned of adding supply to a market with shrinking end-user demand and high existing vacancies. "The problem is, unlike the previous cycle, we have a lot of vacant units today due to decreasing expat population and weak job market.

As of fourth-quarter 2017, there are 27,940 and 3,080 vacant private residences and executive condominiums respectively."

"We may be building a house of cards," he warned.

IMPACT ON SIZES

Apart from setting new norms in prices, analysts also expect new developments coming on stream to set new trends in space usage. Some developers are likely to build more smaller units to keep the overall prices affordable.

They may also not raise prices too sharply as a slew of cooling measures remain in place. The Additional Buyer's Stamp Duty and Qualifying Certificate rules require developers to complete and sell their units within a stipulated time frame.

As such, they have to pace their launches and price them competitively to get buyers.

Some analysts see the latest increase in buyer's stamp duty to 4 per cent on the portion of a property's value that is more than $1 million as an additional cooling measure. Many believe that these measures will not be removed in the short term.

Even smaller shoebox units could be built to keep home prices affordable, analysts say. The URA has mandated a minimum average size of 70 sq m per unit in a development for projects outside of the Central area. This rule is meant to prevent overcrowding in a project, particularly those made up of a large number of shoebox units.

Shrinking home sizes will not be favoured, but with smaller family units, more singles and an ageing population seeking to downsize, such units may eventually find more acceptance here, analysts say. Signalling changing lifestyles, younger couples today may not need a big kitchen, given the proliferation of online food delivery services such as Deliveroo.

Another downside is developers adopting a "disposable goods" mentality, or building homes that last no more than 20 years since these can be redeveloped en bloc once deterioration sets in, Mr Ku said.

"Our en bloc rules may encourage developers to reduce quality to the specifications required. There is no love for good quality build such as the Fullerton Hotel building," he added.

IMPACT ON DENSITY, UPGRADING DREAMS

Redevelopment en bloc is a critical aspect of estate renewal, where older properties can be redeveloped at a higher density, allowing more homes to be built on the same parcel.

But intensification of land use can strain existing roads, infrastructure and other services in the neighbourhood. This can create traffic and public transport bottlenecks.

To mitigate this problem, developer Sim Lian Group, which was awarded the Tampines Court site in August last year, will have to make road improvements, including building a new link to the slip road leading to the Pan-Island Expressway. This is so that it can increase the number of units from 560 now to about 2,000.

Some industry observers also warned that if average prices of mass market condos trend up as a result of developments en bloc, home owners' upgrading aspirations may be thwarted, and a key facet of the Singapore Dream increasingly frustrated.

"A schism will develop if Singaporeans buy into the idea that private property is a more efficient store of value than public housing, and those who own HDB flats feel that private property is slipping out of their reach," Singapore Management University (SMU) law don Eugene Tan warned.

In the past, HDB flat owners could bank on the Selective En bloc Redevelopment Scheme (Sers), which pays a generous compensation to those whose flats are acquired for redevelopment.

But many flat owners no longer count on this after National Development Minister Lawrence Wong's reminder in March last year that not all HDB flats will be chosen for Sers and those flats which are not selected will eventually have to be returned to the state.

The increased awareness of this stark reality has made older resale HDB flats less appealing to home buyers who want longer leases.

While the spate of collective sales in the past year has boosted resale prices in districts such as Bukit Timah, River Valley and Holland Road, as well as drive up home sales, it is too early at this stage to tell if the market is over-reacting to the en bloc fever. Nor is it at all certain what will happen when the supply of new units hits the market in full force in three to four years.

For now, it is reasonable to conclude that while en bloc fever will eventually cool, the stream of new units coming on stream will have an impact on home buyers' expectations, perhaps setting new higher norms for mass market prices, and setting new lower norms for acceptable sizes of family homes.

Adapted from: The Straits Times, 11 Apr 2018