Muted comeback for collective sales

The residential collective sales market moves in tandem with the broader residential market cycle, registering stronger activity during upturns while moderating during downturns.

Responding to a rising market between 2005 and 2007, the collective sales market boomed, establishing a record sales volume of $10.9 billion in 2007.

In 2008 and 2009, the global financial crisis resulted in collective sales plummeting to insignificant levels before staging a mild recovery between 2010 and 2013.

The imposition of various cooling measures, culminating in the total debt servicing ratio (TDSR), led to residential collective sales flattening again in 2014 and 2015.

Developers, faced with oversupply and an increasing unsold stock in their inventories, became more cautious and shied away from collective sales.

REDUCTION IN OVERSUPPLY AND IMPROVING HOME SALES

As the residential market eased under the weight of the cooling measures, falling home prices and sales volume, as well as rising oversupply prompted policymakers to cut back supply in the Government Land Sales (GLS) programme.

The recent easing of the seller's stamp duty and the TDSR is a positive signal that could lead more buyers back into the market.

The planned quantum of private homes on the confirmed list in the GLS programme was trimmed by more than 75 per cent in the past five years, from 13,255 units in 2011 to 3,095 units last year.

After the introduction of the TDSR of 60 per cent, transactions plunged, leading to developer sales of private homes registering a low of 7,316 units in 2014.

As the market gradually came to terms with the TDSR, new private home sales stabilised in 2015, with 7,440 units sold.

Last year, new private home sales grew 7.2 per cent year-on-year to 7,972 units against a backdrop of improved sentiment and a perception that the market is close to the bottom.

DEMAND FOR RESIDENTIAL LAND STRENGTHENS

Under these circumstances, developers have been bidding competitively for the limited number of GLS residential sites on the market, driven by the need to replenish land banks and for business continuity.

Last year, we saw an uptick in the collective sales market, with three sites finding buyers - Shunfu Ville ($638 million), Raintree Gardens ($334.2 million) and Harbour View Gardens ($33.25 million) - which led to increased optimism and interest among owners of potential collective sale sites.

MARKET CONDITIONS AUGUR WELL FOR COLLECTIVE SALES

The possibility of the residential property market bottoming and an anticipation of a sustained growth in new private home sales will lead to higher confidence among developers in their quest for sites.

Judging by the strong participation in GLS residential land tenders, especially since the second half of last year, when the number of bidders averaged 12 per site, demand for sites this year is likely to remain robust.

With only five sites on the confirmed list in the first half of this year, many interested parties will still not be able to secure sites and will be compelled to continue bidding for other sites competitively.

Although we may expect increased supply in the confirmed list of the GLS programme for the second half of this year, it is likely to be modest, which will not ease demand pressure for residential land.

HOW DIFFERENT IS IT 
THIS TIME AROUND?

While sales of new private homes have risen in the past two years, the increase has been gradual, due mainly to the dampening effects of the cooling measures.

Prices, in general, have not yet turned around, although their declines have been moderating.

While these signs are encouraging for the market, the medium-term outlook remains uncertain.

With the cooling measures still in force, a V-shaped recovery can almost certainly be ruled out, leaving the more likely possibility of prices trending mildly upwards after they have bottomed out.

The recent easing of the seller's stamp duty and the TDSR is a positive signal that could lead more buyers back into the market.

However, the punitive stamp duties that are applicable to the transaction of physical assets are now applicable to transactions involving transfer of shares in entities that primarily hold residential properties.

This makes it more difficult for developers to dispose of unsold inventory in order to avoid Qualifying Certificate extension charges and additional buyer's stamp duty on the purchase price of the site if they do not fulfil the five-year conditions for upfront remission.

In conclusion, there are prospects for the collective sales market to follow on the momentum of last year, but it is unlikely to be exuberant.

tnp@sph.com.sg

Tan Hong Boon is regional director, capital markets and Ong Teck Hui is national director, research and consultancy, at JLL. A version 
of this article appeared in The Business Times last Thursday