This insight first appeared on Singapore Investment Research and SmartKarma – a global independent research network .

Image result for collective sale

The collective sale market in Singapore continues to perform strongly. For the year to date, property developers have snatched up 26 sites worth S$8.5 bil and this has already exceeded the collective sale transactions for the entire 2017.

This insight provides a review of the activities in the collective sale market in Singapore for the year to date:

Collective Sales Data at a Glance
  • 27 collective sale transactions were concluded for the year to date, surpassing the 26 transactions done in the entire year of 2017
  • The combined value of the collective sale transactions for the year to date was S$8.5 bil, 5% higher than the combined value of all collective sale transactions in 2017
  • Average value per transaction for the year to date was S$315 mil per transaction, similar to that in 2017 (S$311 mil)
  • There were 2,564 en-bloc sellers who benefitted from collective sales for the year to date, 22% lower than the number of en-bloc sellers in 2017. This was due to the concentration of collective sale transactions in the higher value prime properties in 2018
  • Out of the 27 collective sales transaction for the year to date, 17 of them are in the prime districts, 9 of them are in the city fringe area and 1 of them is an industrial building. No suburban collective sales were done for the year to date. This is in stark contrast to the situation in 2017, when 9 out of the 26 collective sale transactions were suburban condominiums, accounting for 41% of the total collective sale transaction value in 2017
Districts with Most Collective Sale Transactions
  • Redevelopment sites in prime District 10 were the most sought-after sites by developers for the year to date, with 8 out 27 collective sale transactions involved condominiums in District 10 and total transaction value of condominiums sold en-bloc in District 10 was S$2.26 bil. This was in stark contrast to the situation in 2017, when redevelopment sites in the suburban District 19 were the most popular among developers.
  • Freehold estates are back in favor, with 25 out of the 27 transactions involving freehold/999-year leasehold estates. There are 2 possible explanations for this phenomenon. Firstly, a developer that acquires a leasehold property for redevelopment is subject to the payment of lease top-up premium that is dependent on the Development Charge set by the government, which is revised semi-annually. The long collective sale process may expose the developer to an upward revision in Development Charge and potentially higher land cost. Buying a freehold redevelopment site would remove this element of uncertainty in developers’ profit planning. The second reason relates to the current trend of land-banking of prime land by developers. The target market of these high-end redevelopments is likely to be the HNWIs in the region. For these buyers, purchase considerations are more driven by the unique attributes of a development and they are less price sensitive. Hence, a freehold prime development might be more appealing to such buyers, instead of a leasehold property.
  • The average premium over reserve price paid by developers for the year to date has fallen to +5%. In 2017, developers paid a higher average premium of +13% above the reserve price. Declining premiums could be a case of higher reserve prices set by sellers and greater supply of redevelopment sites available for collective sale this year.
  • The 26 residential developments collectively sold for the year to date could potentially yield up to 8,650 new units for future launch, of which 3,669 units (42.4%) were in the prime district and 4,982 units (57.6%) were in the city fringe. No new supply (via collective sale) was added to the suburban area for the year to date.
  • Out of the 26 collective sale transaction for the year to date, 13 of these sites were acquired by consortiums of developers. These sites tend to be the bigger sites with higher transaction value. By forming consortiums, developers can mitigate their risk exposure in a single large-scale development project.

There has been a fundamental shift in developers’ land replenishing strategy in 2018. Developers have shifted their focus from the mass market segment to the luxury property segment and building up their development landbank in the prime districts. This comes as no surprise as new launches of luxury properties in Singapore (such as New Futura) have done surprisingly well despite the high price quantum and there is growing evidence of foreign buyer returning to the Singapore property market.

Despite the surge in collective sale activities in the prime districts, potential new supply in the prime district does not look excessive at this stage, with an estimated 4,405 units that could potentially enter the supply pipeline, probably a year later. The actual number of units could be lesser as it is likely that developers may build bigger size luxury units for sale.

In the mass market segment, potential new supply from collective sale transactions does not look excessive as well, with an estimated 6,946 units that could potentially enter the supply pipeline. Developers will start launching some of these units as soon as within the next 1 to 2 months. According to public announcements, Oxley Holdings Ltd (OHL SP) is planning to launch Rio Casa and Serangoon Ville redevelopment in 1H 2018.

Most of the future supply from collective sale transactions are in the City Fringe area, with an estimated 10,480 units that could potentially enter the supply pipeline. These developments tend to be in well-established mature estates that are highly sought-after by buyers.

Potential Supply of New Units for Future Launch

In total, the supply of new units from collective sale sites is estimated to be around 21,830 units. This is subject to change, depending on the final submitted plans and approvals from authorities. This new supply will enter the market in a staggered manner, depending on the speed of getting Strata Title Board’s approval for the collective sale transaction and relevant authorities’ approvals for redevelopment.