Developers ‘not rushing’ into en bloc market yet

MORE projects are expected to be put up for collective sale this year as the property market continues to hot up.

This should bode well for developers keen to beef up their land banks, but they are not rushing into the en bloc market just yet, experts say.

‘The problem in the en bloc market is the gap between what sellers want and what developers are prepared to pay,’ said Ms Chua Chor Hoon, DTZ’s head of South-east Asia research.

Colliers International executive director of investment sales Ho Eng Joo said: ‘Developers are hungry, but they would not take too high a risk to acquire land. The prices en bloc sellers are asking now may not yet be justified by what the new projects nearby are fetching.

‘Given a choice, they would rather bid for a government land sales site than a private plot.’

Government land sales sites are usually located in established residential areas with ready comparable projects, making it easier for developers to work out their sums, he said. The sale process is also neater and faster, experts said.

The collective sale process, they said, can drag on if there are strong dissenters.

Unhappy minority owners have, in the past, taken their estate’s collective sale case to the High Court and the Court of Appeal. This means that timing can be a big problem with collective sales.

In such a sale, both sides want to protect their interests. The developers would not want to bid too high in case the market does not turn out to be as strong as expected, said Ms Chua.

But sellers want to secure a higher price to safeguard their position when the deal is sealed, in case prices continue to rise and they are unable to afford a similar replacement property, she added.

But until prices of new private home launches improve further, the en bloc market may not take off in a significant way yet, said Mr Ho.

In the meantime, developers will still be very keen on government land sales sites. They are particularly interested in mass market sites, considering that most of the launches so far are in the mass and mid-market segments, experts say.

Ms Chua said the slide in developers’ residential stock halted late last year.

Developers’ stock of unsold inventory has improved from the third quarter of last year, when they had 36,481 units on hand, to a total of 40,224 units at the end of last year, she noted.

But they will still need to replenish and buy at a fairly aggressive pace if they continue to sell a lot, she said.

DTZ’s research shows that half of 16 major developers here had fewer than 1,000 residential units left in their land bank as of the end of February.

Sales of new private homes have been brisk in the first quarter, with total sales estimated at close to 4,000 units.

Nevertheless, if such sales come down to a more sustainable level of fewer than 3,000 units a quarter, the tight supply situation should ease gradually now that the Government is pushing out more sites for sale, said Ms Chua.

Source : Straits Times – 6 Apr 2010