Chinese developers pump up Singapore property
Chinese firms are making record-breaking bids for land redevelopment tenders, re-energizing a market that regulators have long aimed to tame
Singapore’s property market is on the upswing, with home prices rising for the first time in four years following a string of aggressive bids from mainland Chinese and other foreign developers offering record-high premiums to clinch top land redevelopment tenders.
The island nation’s property prices had been on a record downturn, dropping 12% over 15 consecutive quarters from their 2013 peak after the government imposed measures to cool the market beginning in 2010.
Those market interventions, intended to guard against a housing bubble, imposed an additional buyer’s stamp duty for non-citizens and buyers of second or third homes, and a stamp duty for sellers for transactions made within four years of original purchase.
To deter excessive vacancies, property developers were required to pay an additional buyer’s stamp duty of 10% or 15% including interest on the total land cost of a project unless all the flats were built and sold within five years.
While those measures remain mostly intact, redevelopment deals known as “en bloc” sales, or the collective sale of apartments in older buildings to developers, have exceeded US$6.34 billion in 2017, the highest such figure since 2007. That’s been a windfall to tens of thousands of property sellers.
Local competitors and construction firms, however, have expressed reservations about the rising clout of deep-pocketed Chinese developers and rising unease that more Singaporeans could be priced out of the private housing market if the trend continues.
In May, a consortium of two Chinese developers, Logan Property and the Nanshan Group, secured a private housing land parcel near the city state’s Queenstown estate with a record-shattering bid of S$1 billion (US$742.5 million).
The offer was 8.3% more than the second highest bidder, Hong Kong’s MCL Land, which purchased a nearby parcel at Margaret Road for S$998 million (US$741.1 million) last December.
A recent report by property consultants Cushman & Wakefield shows the aggressive bidding for public land tenders this year, with developers paying an average of 29% more for residential plots over comparable sites sold in the past five years.
The percentage of foreign bidders for government land sites has also jumped from 25% in 2015 to 34% in 2017, putting new pressure on local developers that are gradually becoming outpaced in their home market.
While firms from Japan, Thailand, Malaysia and elsewhere have also bid for Singapore’s development sites, the spotlight is on Chinese developers due to their aggressive push into global and regional property markets and ability to make bids that set new benchmark prices.
For example, five of the nine bidders on a development site in Tampines estate were Chinese firms, while three of the top five foreign bidders on all tenders from August 2016 were from mainland China and Hong Kong, according to data from Singapore’s Urban Redevelopment Authority (URA) and Housing Development Board (HDB).
Some observers have questioned the rationale behind Chinese firms’ bullish bids given the overall underperformance of Singapore’s property market, especially as cooling measures remain largely in place. Authorities did ease measures related to stamp duties for sellers in March.
China’s expansion overseas is being driven by several factors, industry experts say. Some developers have turned to Southeast Asian property, where prices are generally a fraction of those in Hong Kong, to seek stable rental income and hedge against any possible depreciation of the yuan.
For larger firms, acquiring a prime development in Singapore helps to diversify their portfolios.
“For any major regional investor, Singapore is almost like an asset class,” said Cheng Hsing Yao, group managing director at GuocoLand, a residential property company. “It’s very often part of the diversification of assets, so it is actually extremely competitive whether it is residential, mixed-development or commercial.”
Chinese real estate development in foreign countries hit a record high of US$33 billion in 2016, according to a Global Capital Flows study by real estate and investment management firm Jones Lang LaSalle. The report projected that “Chinese investors will continue to be major movers of capital into global real estate for many years to come.”
The Singapore market’s changing dynamics have unnerved not only local developers facing increasingly thin profit margins and a depleting land bank, but also small and medium-sized construction companies and civil engineering firms who fear being undercut by Chinese competitors.
Chinese construction and engineering outfits are known to retain their entire value chain, the primary and supporting activities that bring products and services to market, without regularly engaging local subcontractors.
Competitors believe Chinese developers utilize cost advantages through economies-of-scale to undercut local rivals with cheaper raw materials and labor. Mainland firms are also seen as giving preference to their own managers.
Aggressive bidding and land scarcity could contribute to inflating Singapore’s property prices broadly, as seen elsewhere in Hong Kong and Taipei, home to some of Asia’s least affordable residential properties.
At present, the average price per square meter for a flat in Singapore’s city center is S$25,127 (US$18, 655), or 41% less than Hong Kong’s equivalent, according to Numbeo, a crowdsourced housing price database.
“Every piece of land sold sets a benchmark for the next piece of land sale. That is the concern,” says Augustine Tan, president of the Real Estate Developer’s Association of Singapore (Redas). “I fear that land prices will run into a situation that may not be healthy. We may not see it now, but in a few years’ times we will.”
For now, analysts view the upward trend and premiums paid by Chinese developers as an opportunity for sellers to fetch higher returns. Owners and tenants of en bloc buildings bought this year are expected to drive demand for new housing over the next 12 to 18 months, providing further buoyancy to the market.
“Each flat owner’s proceeds average S$1.8 million (US$1.3 million). The potential capital inflows [to original owners] could find their way back into the property market, more than the entire value of developer sales in 2016,” says a report issued by Morgan Stanley.
Moreover, Singapore’s home prices are projected to have risen by 3% to 5% in 2017, according to data from Daiwa Capital Markets.
Another consequence of this year’s strong en bloc sales could be a sudden surge of unsold property stock; approximately 20,000 new private dwellings will enter the market before 2020. Indeed, private home sales in October fell by 39.5% year-on-year, according to government statistics.
The Monetary Authority of Singapore (MAS), in its annual financial stability report, expressed concerns about whether the incoming property supply could be fully absorbed by the market.
The constraints on demand include a dramatic population growth slowdown combined with sluggish wages and high condominium and apartment rents, the MAS report said. If supply outstrips demand, MAS believes vacancies will push down rental and property prices again.
“Over the medium term, as these development projects are progressively completed, the private housing stock will grow,” the MAS report says. “If this is not matched by increased occupation demand, it will add to existing vacancies that are already relatively elevated and weigh on rentals and property prices.”
Should MAS allow the Singapore dollar to appreciate against trading partners’ currencies to offset sluggish domestic demand, experts believe private real estate in the city-state would become even more attractive for global buyers, though to the detriment of locals.
Around 80% of Singapore’s resident population still lives in public housing developed by HDB, while the private real estate sector has historically been impacted by frequent government policy interventions.
Record-setting Chinese development bids have been a boon to national coffers, but Singapore’s government has stood firm against unwinding its market cooling measures.
For now, the prospect of more government curbs to tame prices and clamp down on land sales may offset immediate concerns of a property bubble, but others see a precarious upward trajectory looming on the horizon.