About 12,000 new private homes could potentially be generated from the 10 residential collective sales that have been transacted since last year as well as another seven launched whose tenders have yet to close or be awarded.
While the above analysis suggests a substantial supply of private homes that could be launched - mostly in the second half of 2018 and in 2019 - this will be timely as the pipeline supply of unsold uncompleted private homes has dwindled to 15,085 units as at the end of the second quarter of 2017 - from 21,489 units a year earlier, and the recent peak of 39,184 units as at the end of the fourth of 2011. These figures from the Urban Redevelopment Authority (URA) are for projects with planning approvals.
Furthermore, developers' private home sales are poised to increase this year to about 11,000 to 12,500 units - from the 7,000-plus units in each of the past three years.
Analysts noted that developers' sales in 2014, 2015 and 2016 were not the natural steady state of demand but rather a reflection of the suppressed demand following the rollout of the total debt servicing ratio framework in late-June 2013.
The increased transaction levels now is an expression of pent-up demand for private homes created over the past three years.
The 17 residential collective sale sites launched since last year have 3,141 existing homes - which will be withdrawn from the market when the collective sale transactions are completed and the sellers move out.
This will also create fairly immediate demand for replacement homes. For owner-occupiers with a single property, they will have to source for a replacement home. This could be a private residential unit or even a Housing & Development Board resale flat. The public housing option may be palatable to some, especially if they wish to keep some of the en bloc sale proceeds for their retirement.
Agents note that a number of the collective sales since the revival last year have been in privatised Housing and Urban Development Company (HUDC) estates, where many owners are retired or semi-retired.
For owner-occupiers who own one or more other residential properties in other developments, they could relocate to one of them and may or may not buy another unit due to the ABSD (additional buyer's stamp duty). For the same reason, investors who own one or more other residential properties may or may not purchase a replacement property.
Assuming that six or seven out of 10 owners in the 17 residential collective sale sites launched since last year (up to Aug 30, 2017) decide to look for a replacement home in the private residential market, this could boost demand for completed private homes by 1,800 to 2,200 units, with the bulk of purchases taking place in 2018.
In the private housing market, there are a number of avenues for these en bloc sellers to source for a replacement home. As at end-Q2 2017, there were 1,844 unsold but completed private homes on the island, according to URA data. Buyers may also pick up a private home in the resale market.
What will happen is that the demand arising from en bloc sellers will improve the resale market and that in turn will give rise to demand spilling over to the primary market.
While the potential supply of new homes from the redevelopment of collective sale sites launched so far is not expected to rock the boat in the short term, the picture may change further down the road - depending on how many more en bloc sales are launched and sold, and their sizes. According to some estimates, there are a further 60 or so collective sales at various stages - including small freehold sites.
Demand for private homes will also be affected by the overall economy and government policies, for instance those relating to the property market and immigration, say analysts.
There are also risks for developers who buy large collective sale sites, as they have to finish developing the new project on the site and sell all of its units within five years from the collective sale order granted by the Strata Titles Board or the High Court - as part of the conditions for upfront remission of the 15 per cent ABSD on the land price.
A veteran property consultant who declined to be named highlighted that a number of the en bloc sales launched since last year involve huge sites, each of which may potentially be redeveloped to more than 1,000 new homes. Examples include former HUDC estates such as Tampines Court, Serangoon Ville, Eunosville, Rio Casa, Florence Regency and Shunfu Ville.
"New projects on these sites could be launched around the same time - say within six to 12 months of each other. If these developers cannot finish selling all the units within the five years stipulated, they are going to reduce their prices and that will hit everybody," he said.
He highlighted that projects such as The Interlace and d'Leedon built on large sites (the former Gillman Heights and Farrer Court respectively) sold during the 2007 en bloc boom are still left with unsold units.
What has fuelled the current en bloc sale boom is developers' voracious appetite for residential land. Their inventory of unsold private homes has run down and thus they need to replenish that vital raw material - land.
The Ministry of National Development took a conservative approach in its second-half 2017 Government Land Sales Programme. The planned quantum of 2,025 private housing units in the current Confirmed List is 13.1 per cent lower than the 2,330 units in the first half of this year. Of course, developers are free to trigger sites from the Reserve List, which have a few choice offerings.
In the meantime, the launch of collective sales in the private sector provides a welcome respite for residential developers seeking land.
Adapted from: The Business Times, 4 September 2017