Collective sales this year to outshine 2017, says Colliers

The collective sale fever in the residential market is likely to continue at least for the rest of the year, paving the way for total transaction values to surpass those of 2017, says Colliers International in a report on April 3.

In 1Q2018, 17 residential collective sale sites worth a total of $5.83 billion were transacted — up 29.3% from $4.51 billion worth of deals in 4Q2017. With a large pipeline of developments — estimated at 140 to 150 sites — at various stages of the collective sale process, Colliers believes this year’s collective sale transactions will trump 2017.

“The collective sale cycle, which started in 2016 and hit fever pitch last year, does not appear to be losing steam anytime soon,” says Tang Wei Leng, managing director of Colliers International. “Brisk collective sale activity in 1Q2018 as well as the premiums paid on land price by developers for some sites signalled that there was still a healthy appetite for well-located developments.”

She cautions, however, that with the deluge of sites on the market, the balance has tilted in favour of developers, which are likely to cherry-pick the best sites or those that are realistically priced.

From January 2016 to 1Q2018, there were 47 residential collective sales valued at $14.97 billion, which represented 68.7% of the $21.8 billion in deals done in the previous collective sale cycle from 2005 to 2007.

Shift from suburban to prime sites

Eight sites worth $2.32 billion in the Core Central Region, mainly in prime Districts 9 and 10, were sold via collective sale in 1Q2018, compared with eight worth $1.05 billion sold in 2017. The proportion of prime sites in terms of collective sales value so far has jumped to 40% compared with just 13% in 2017.

Colliers expects sites in prime areas to continue to find favour among developers in tandem with sales and price recovery in the high-end residential segment.

The top three collective sale deals by value in 1Q2018 were Pacific Mansion in River Valley (sold for $980 million), Park West in Clementi ($840.9 million) and Pearl Bank Apartments in Outram ($728 million). Pacific Mansion is also the largest collective sale deal since Farrer Court was sold for $1.34 billion in 2007.

Pacific Mansion was sold for $980 mil, the second largest collective sale deal on record (Picture: CBRE)

Colliers’ Tang believes large sites will continue to appeal to developers. “Bigger plots allow more functional facilities and lavish landscaping, a luxury many smallish projects in prime locations are unable to offer,” she says.

According to her, young families, both local and expatriate, increasingly appreciate more sizeable and spacious residential developments that offer recreational and social areas, complementing modern housing formats.

Narrowing premium

Ten of the 17 successful deals in 1Q2018 were sold at a premium of 0.7% to 26.7% to the owners’ asking prices. The development with the highest premium last quarter was Fairhaven on Sophia Road, which was sold in March to a subsidiary of Singapore-listed Lafe Corp for $57 million — 26.7% over the asking price of $45 million. Katong Park Towers was sold to listed group Bukit Sembawang Estates for $345 million, 19.8% above the asking price.

On the other hand, Riviera Point was sold for $72 million, slightly below the asking price of $75 million; and Ampas Apartments was sold nine weeks after the tender closed in January, at $95 million, 9.5% below the asking price of $105 million.

Meanwhile, Pearl Bank Apartments, Cairnhill Mansions, Brookvale Park and Makeway View met the owners’ asking prices.

According to Tricia Song, head of research for Singapore at Colliers International, premiums have narrowed from an average of 10.5% in 2017 to 4.9% in 1Q2018. Song attributes this to higher indicative prices and development charges as well as more selective bidding by developers.

Nevertheless, Song says attractive sites that are realistically priced will continue to find developer interest. She points to Katong Park Towers, which saw 10 bids at a 20% premium.

Developers more selective

Amid a slew of private redevelopment sites sold since 2016, 11 have yet to find buyers since their tenders closed. Data tracked by Colliers International Research shows that mixed commercial and residential sites appear to be less popular, as are those in areas with large impending housing supply from recent government land tenders as well as collective sales.

In certain cases, developers may have needed more time to assess the redevelopment potential and pricing of sites beyond the close of the tender. In 1Q2018, six sites were sold via private treaty after the tender period lapsed. They were Cairnhill Mansions, Riviera Point, Pearl Bank Apartments, Brookvale Park, Makeway View and Ampas Apartments.

Speed to market and a realistic asking price are crucial, as sites launched in high-supply areas, coupled with higher selling prices, find themselves out in the cold. For example, Kovan Apartments and Kovan Lodge could be less appealing to developers in view of impending new supply from a handful of sites in the vicinity: Serangoon North Avenue 1 from the government land tender; and three collective sale sites: Serangoon Ville, Rio Casa and Florence Regency.

The same could be said of Casa Meyfort in Marina Parade, which was surrounded by a string of collective sale transactions last year — The Albracca, Nanak Mansions, Amber Park and Parkway Mansion.

Collective sale outlook for 2018

With the current pace of transaction and sizeable pipeline of redevelopment sites, Colliers expects the collective sale market to outperform from 2017, barring unforeseen events. The positive outlook is further supported by broadening economic growth, pent-up demand for homes and developers’ push to replenish their landbanks and depleting inventory.

According to Colliers, there is growing interest in development sites in Singapore among many Hong Kong and Chinese developers that could be more active in the collective sale market this year.

“Singapore developers are also sharpening their pencils and bidding smartly against the foreign competitors,” says Tang.

Since September 2017, Colliers International has successfully brokered four collective sales valued at more than $1.3 billion: Jervois Gardens, Parkway Mansion, City Towers and Pearl Bank Apartments. It is marketing Tulip Garden in prime District 10 in a collective sale tender that will close on April 11.

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