Singapore Property - DBS Research 2017-07-28: Blossoming Serangoon Gardens

Singapore Property - DBS Vickers 2017-07-28: Blossoming Serangoon Gardens Singapore Property Sector Outlook Property Developers Stocks Government Land Sale

Singapore Property - Blossoming Serangoon Gardens

  • S$1bn invested at Serangoon Gardens in 3 days.
  • Serangoon North Avenue 1 GLS site won by Keppel Land – Wing Tai JV for S$446mn (S$965 psf ppr).
  • Serangoon Ville en bloc sold to Oxley consortium for S$499mn (S$835 psf ppr).
  • Keen competition in both tenders; large developers top the GLS bidders list.

What’s New 

S$1bn invested at Serangoon Gardens in 3 days. 

  • Two tenders for land sites closed in the past 3 days, with a total of S$1bn to be invested. The sites are located opposite each other at Serangoon Gardens and within 1km of the Hundred Palms EC, which was fully sold at its launch last weekend.
  • The Oxley consortium bagged the Serangoon Ville en bloc site (tender reportedly closed on 25 July 2017) for S$499mn (S$835psf ppr) while Keppel Land-Wing Tai JV won the Serangoon North Avenue 1 GLS site for S$446mn (S$965 psf ppr). Serangoon Ville has a maximum GFA of almost double that of the Serangoon North Avenue 1 land site.

1) Serangoon North Avenue 1 GLS site tender – Keppel Land-Wing Tai JV 

Premium paid for a faster launch of Serangoon North Avenue 1 site. 

  • The Serangoon North Avenue 1 land site tender closed today, with the Keppel Land-Wing Tai JV winning the bid at S$446mn (S$965 psf ppr) over 15 other bidders and a tight winning margin of 7%. FCL came in second with a bid of S$905 psf, followed by the UOL-Singland JV and City Dev.
  • The price was 16% higher than what Oxley paid for the Serangoon Ville en bloc deal (commentary made this morning), which is located opposite this site. However, the premium could be justified by a cleaner acquisition process for a GLS site and hence, the ability to launch this site much faster (typically within 1 year); an en bloc sale typically takes roughly 2 years.
  • The estimated breakeven is S$1,500 psf and the implied launch price could be above S$1,650 psf vs c. S$1,000 psf of recent transactions within the area.

Top 4 bidders were large local property developers.

  • Key interesting trends to note: 
    1. the top 4 bidders were the larger local property developers; 
    2. there was more participation from local developers, with a few foreign developers such as Qingjian (JV), China Construction (South Pacific) and Greatview (Haojing Investment Group) in the mix; 
    3. Oxley bid a slightly higher price (S$850 psf) to its en bloc price (S$835 psf); and 
    4. Among the large-cap developers, CapitaLand did not participate in this tender.

2) Serangoon Ville en bloc deal – the Oxley consortium 

7th en bloc in 7 months. 

  • The Oxley consortium had just closed Singapore’s 7th en bloc deal year-to-date – buying Serangoon Ville for S$499mn (S$835 psf ppr including development charges). The estimated breakeven price is S$1,300 psf, which implies a launch price of more than S$1,400psf. 
  • Oxley’s partners are Lian Beng, KSH assoc and Super Group’s Teo family, the same team which bought Rio Casa en bloc in May 17.

Competition building up for en bloc bids. 

  • Interestingly, it was reported that the bid was very competitive involving more than 5 bidders. Competition is building up now in the en bloc bids. 
  • Other potential en bloc sites coming up include Dunearn Court (tender close on 6 Sep), Ville D’Este, Tampines Court and Normanton Park.

Will the bidders make money? The writing is on the wall.

Will Upper Serangoon be moving up a notch in pricing when these two projects come to market in late-2018? 

  • While people may be wondering whether the bidders can even make money at this price, we believe that there’s potential to turn in a profit if the spread between home prices in the Rest of Central Area (RCR) and Outside Central Area (OCR) (see chart below) widens. 
  • Another strategy could be to build smaller units averaging < 70sqm and keeping prices at around S$1.3m-S$1.5m, which is the price range of most transactions today.

Continued optimism in bids as developers compete to landbank. 

  • We continue to see optimism in the land bids, both for GLS and en bloc sites as developers compete to GLS site replenish their landbank and ride on a turn in the sentiment on Singapore’s property market. However, we note that increasingly developers / contractors are forming consortia or partnerships to bid for land, potentially to raise their pricing capabilities and to share risks.
  • We remain positive on the Singapore property market. Top picks are UOL and City Development as proxies to Singapore’s property market.

Happy Hundred Palms buyers. 

  • We believe buyers of Hundred Palms will be happy – the development was sold within a day, at S$830 psf to S$880 psf.

Rachel TAN DBS Vickers | Derek TAN DBS Vickers | http://www.dbsvickers.com/ 2017-07-28