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Sliding premiums could point to cooling in en bloc fever

11 Apr, 2018

A YEAR after en-bloc fever gripped Singapore again, one property analyst thinks that it will hit its peak around the middle of this year.

Developers are paying smaller premiums on average, and are likely to snap up smaller sites as they turn more selective, RHB's Vijay Natarajan said in a report on Tuesday.

While he predicted that 2018 will still see the value of collective sales cross last year's S$8.2 billion mark - with the market "still fairly active" and more than 100 sites reportedly in the pipeline - Mr Natarajan said the cycle should see a peak in the second or third quarter of this year.

Developers have become "very selective", he said, citing channel checks. Meanwhile, the supply of private homes is swelling - with recent collective sales likely to add between 15,000 and 20,000 units - and many real estate players have already managed to restock their land banks.

"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," Mr Natarajan noted.

Some recent transactions where bidders paid just the asking price, and not a cent more, were Brookvale Park, sold to a Hoi Hup Realty and Sunway Developments joint venture for S$530 million; as well as CapitaLand's headline-grabbing S$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 land parcels, which he interpreted as a sign that "developers are now placing equal emphasis on location attributes and amenities".

The 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 in 2018 on growth of 10 per cent to 15 per cent in transaction volume, he said.

But he added that "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 Business Times, 11 Apr 2018