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Analysis on Singapore’s Government Land Sales Programme for H2 2020

As Singapore is headed for its worst recession since independence, the authority has decided to err on the side of caution, releasing only 1,370 residential units through the Confirmed List in the 2H 2020 GLS programme. 

This is the lowest number of units released through the Confirmed List in over a decade, since the second half of 2009 when no site was released in the Confirmed List. The low level of new supply is in line with the current market conditions where there is an expected demand shock to the residential market coupled with ample unsold inventory due to dampen investment sentiment and employment prospect. To ensure sufficient supply in the event there is a V-shaped recovery in the residential sector, the government is still putting the bulk of the supply through the reserve list, at 5,300 units. As such, the combined total units in the residential market is even higher than what was announced last December for the 1H2020, before the Covid-19 situation emerged. 

The authority has to strike a balance between demand and supply to ensure sustained and stable development of the residential market in turbulent times like this. Although heightened global economic uncertainties are affecting affordability and appetite for residential market, the asset class continues to remain attractive as an investment instrument given the low interest rate environment and lack of alternative financial assets. It is therefore wise not to have reactive measures which could potentially contribute to subsequent sharp rebound in asset prices should the situation improves significantly. The current approach allows the government to be more calibrated in terms of flexibility of the market supply. 

Although the hospitality and commercial sectors are relatively more impacted by the Covid-19 situation, authorities still decided to roll over the sites from the 1H2020 GLS programme to ensure that there is still ample supply should the economic activities in the commercial and hospitality sectors return. This is because the real estate sector has very long gestation period which could wait out the short term volatility or even pandemic. 

Since the significant commercial spaces are injected through the Woodlands Avenue 2 sites, it looks like the government is still pushing ahead with its decentralisation initiative and tighten future supply in the CBD. This is a wise move. Over the medium to long-term, the impact on office demand appears to be mixed. The institution of social distancing requirements has resulted in a decrease in office density, so more space is needed to accommodate the same number of workers. On the other hand, given that office occupiers moving forward will embrace a total workplace ecosystem, which allows employees to work from office, home and third places, there could be a shift towards decentralised office spaces over the medium to long term. Developers looking at longer term strategy of acquiring decentralised office assets at a slightly attractive prices could consider triggering the Woodlands site. 

Hospitality sector will see a total of 1,070 rooms through both the white site and hotel sites through the Reserve List. The hospitality sector is hit relatively hard by the pandemic and there is uncertainty over the duration of the crisis and when tourism will return to the pre-pandemic levels. Given that the pipeline supply for the sector is also elevated at 2,309 rooms between 2020 and 2023, the likelihood of these sites to be triggered is low. 

All three residential sites in the Confirmed List are new sites. The Tengah Garden Walk EC site could be of interest to many developers. EC sites have enjoyed healthy participation (average of 7.6 bidders over the last 5 EC sites) from developers. ECs remain highly sought after by buyers, given their lower price points and limited supply. As of May 2020, there are only 805 unsold EC units from launched projects. The site will be served by the upcoming Jurong Regional Line, whose first phase is expected to open in 2026, which should be just in time when the project achieves TOP. However, EC demand in Tengah is untested as this is the first EC launch in the area. So, though developer participation could still be good, bidding is expected to be cautious for this site. We expect that the top bid to be in the range of $480 - 530 psf ppr, and attracts 5 – 10 bids.

The Northumberland Road site may also see good developer participation, given her city fringe location and close proximity to Farrer Park MRT Station, Farrer Park Hospital, City Square Mall. The last site that was sold in the vicinity, is the current Uptown @ Farrer. The site was sold in 2017 and attracted a total of 11 bids. We expect top bid to be in the range of $1000 – 1050 psf ppr, and attracts 4 – 8 bids.

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