Singapore home sales face a US$811mil litmus test
PETALING JAYA: WCT Holdings Bhd shares rose on the announcement of its 20%-stake JV in CORE Precious Development Sdn Bhd that will jointly develop a residential project in Tun Razak Exchange (TRX) with China Communications and Construction Group (CCCG).
This first residential project at the TRX will carry an estimated gross development value (GDV) of RM1.1bil.
It would translate into a value of around RM1.5mil to RM1.7mil for the average selling price.
In a press release, WCT said the project consists of two serviced residence towers and one serviced apartment tower and was expected to be completed by end of 2022.
Sales preview of the said project will SINGAPORE: Barely a week into 2019 and Singapore’s residential home sales market is facing a S$1.1bil (US$811mil) litmus test. Horizon Towers, an older-style building near the popular Orchard Road shopping district, has gone on the market for redevelopment a third time after two failed attempts.
The sellers’ collective has retained its reserve price but other groups of homeowners also seeking so-called en-bloc deals are cutting their asking bids in the hope developers will bite.
For individuals who have held apartments for several years and ridden the property boom, the profits can be handsome. En-bloc, or collective, sales are where a group of apartments are sold to a common developer and the proceeds divided among unit owners. (In general, if a development is more than 10 years old, at least 80% of owners must agree to a sale.)
But government cooling measures introduced in July that increased the stamp duties home builders need to pay when acquiring land have made market watchers sceptical about how many transactions will be a success.
“Billion-dollar en-bloc deals will be very hard to get through,” said Nicholas Mak, an executive director at real estate asset manager ZACD Group.
“Developers are no longer land hungry and are more concerned about selling existing projects.” begin in July 2019, while official launch is slated in November 2019, according to UOBKayHian.
The research house maintained a “neutral” outlook on the announcement, owing to the overhang in high rise projects.
“We do not expect the project to be spared from the lull amid the overhang high-rise residential issues in Kuala Lumpur (on the assumption this residential project offers the same value proposition like other property projects in Kuala Lumpur).
“The details of the project are yet to be announced to the public (i.e pricing) and we believe better value propositions offered would be an added advantage for the project coupled with CCCG efforts to market its first residential flagship project in the overseas market, in addition to its strategic location in TRX.”
MIDF Research, however, said
it did not
Singapore imposed higher stamp duties and tougher loan-to-value rules in early July after residential prices in the city-state rose 7% in the first half of 2018. Extra constraints since then have included curbs on the number of “shoe-box-sized” apartments, limiting transactions at the cheaper end of the market.
That’s a particular blow for en-bloc deals because developers often acquire older buildings with larger units and then redo the floor sizes to accommodate more dwellings.
The new guidelines on size, outlined in October, effectively cut the maximum number of apartments allowed in any one development by 18%.
The changes only affect projects outside the city-state’s central area, and come into effect later this month.
“With expectations of a slowdown in sales in 2019, developers might re-think their land banking strategy, or even stop looking altogether,” said Derek Tan, an analyst at DBS Group Holdings Ltd.
“As the government moves in with more restrictive measures to curb both demand and supply, we expect developers to focus on clearing inventories rather than adding more.”
The South-East Asian lender expects new home sales to drop 20% this year to between 7,500 and 8,500 units, and prices to slip as much as 3%.
Horizon Towers was relaunched for
sale expect material earnings impact from the land acquisition in the near term as earnings may start to kick in only from financial year (FY20) onwards.”
The research house maintains its earning forecast for the financial year 2019 (FY19).
Analysts at MIDF also stated that in reference to its channel check, the purchase price was lower in comparison with previous deals, with price tag averaged at RM4,595 per sq ft in the previous calendar year.
WCT’s stock price spiked to 78.5 sen following the announcement, with 69.96 million shares traded.
MIDF called for “buy” with an unchanged target price of RM1.05, while UOBKayHian called for “hold” with a TP of RM0.79.
PublicInvestment Bank called for a “hold” on the stock with a target price of 90 sen and JF Apex Research listed WCT as among the stocks to watch for. after an unsuccessful attempt last year.
The 99-year leasehold estate, which was completed in 1984, comprises about 210 units and was most recently renovated in 2014.
The first attempt for an en-bloc sale was made a decade ago at S$500mil, but the transaction fell through after a court ruled the sales process was improperly handled.
Park View Mansions is another relaunch, but at a reserve price that’s 22% lower. Gilstead Mansion, a condominium near Singapore’s Little India district, reduced its price guide by S$3mil to S$65mil and still couldn’t find a taker.
“Although some sites have slashed their reserve prices, developers have turned cautious and many won’t be in a hurry to bid for land unless an attractive deal comes to market,” Christine Li, head of research for Singapore at Cushman & Wakefield Inc, said.
Developers spent around S$30bil between late 2016 and June last year acquiring land through government tenders or redevelopment deals, one of the most-active periods since 2013, DBS said.
They’ll need to shell out significantly more after the hike in stamp duties, increasing business risk.
“The en-bloc outlook remains challenging,” Li said. “There’s a mismatch in expectations between developers and sellers -- asking prices are still relatively high and developers are wary about paying top dollar.” — Bloomberg SINGAPORE: Fitch Ratings expects Malaysia’s takaful segment to benefit from the government’s push for affordable insurance and higher insurance penetration, particularly as Muslims dominate the country’s population.
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