DBS: New limits on residential unit numbers ‘final nail’ in en-bloc coffin

Mural of construction gear in Singapore's Little India neighborhood.Mural of construction gear in Singapore's Little India neighborhood.

Singapore’s fresh limits on the number of residential units in new developments have put the “final nail in the coffin of the en-bloc market,” with land bids also set to take a hit, DBS said in a note on Thursday.

“We believe this will effectively end all hopes of further en-bloc activity going forward. Developers are unlikely to meet current reserve prices as the new rules are likely to have an impact,” DBS said.

Once-hot en-bloc, or collective sale, activity had already largely dried up after Singapore’s government imposed a fresh round of property cooling measures in July.

The en bloc, or collective sale, cycle began in 2016 and reached S$14.97 billion as of the first quarter of this year, with S$5.83 billion over 17 deals in the first quarter alone, up from S$4.51 billion in the fourth quarter of 2017, according to Colliers data.

On Wednesday, the URA said it would revise the guidelines for the maximum allowable number of dwelling units for all new residential developments outside the central area to an average 85 square meters, up from 70 square meters previously. It also set nine areas where the average would be 100 square meters as the cumulative effect of new developments could “pose a severe strain on local infrastructure.”

The guidelines will be applied to development applications submitted to URA from 17 January, URA said.

DBS said those measures would reduce the maximum number of allowable units from government land sale sites and from en-bloc projects by up to 20 percent from 2019.

“Together with hefty additional buyer stamp duty (ABSD) charges, we believe that this set of new rules will push developers to be more cautious in future land tenders and to recalculate their bids/costs,” DBS said. “This will potentially bring about a cooling in land prices for upcoming government land sales (GLS) or future en blocs.”

If developers are aiming to keep price levels at around S$1.5 million a unit with a 10 percent profit margin, that could spur 20 percent or 40 percent drop in land prices for the 85 square meter and 100 square meter rules, respectively, DBS estimated.

DBS said it expected developers’ share prices would remain under pressure, potentially testing trough valuations, implying a near-term downside of up to 10 percent.


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