GLS Tender closing of Zion Road Parcel A and Upper Thomson Road Parcel B

There was only one bid each for the tenders at the two government land sales (GLS) sites at Zion Road Parcel A and Upper Thomson Road Parcel B. The number of interested developers as well as the land price quantums in the bids made at today’s tender reflect a stark turning point in developer sentiment.

While the number of bidders as well as the land rates put into the sole bids at each site are below expectations, this looks to be the start of a new normal. Given the high cost of construction, elevated costs of borrowing together with the government cooling measures, these have all combined together to bring the cumulated risk to seemingly untenable levels that developers are balking at recent GLS tenders.

The writing was on the wall when the number of interested bidders shrank from regularly more than seven in 2021 to frequently less than five in 2023. This is specifically so for central locations, where the doubling of the Additional Buyer’s Stamp Duty (ABSD) rate for foreigners appears to have caused more developers to lose their appetite for prime residential development.  

Zion Road Parcel A

The sole bid of S$1.1 billion at the Zion Road Parcel A site, reflecting a land unit rate of S$1,202 psf per plot ratio (ppr) is not only 30.6% below the closest recent comparable GLS award at Jiak Kim Street of S$1,733 psf ppr in December 2017, but also lower than the land rates at recently awarded Rest of Central Region (RCR) location of Lorong 1 Toa Payoh at S$1,360 psf ppr as well as the Outside Central Region (OCR) site of Clementi Avenue 1 at S$1,250 psf ppr, both awarded not even six months ago in November 2023.

The size of the site would have deterred many with the large ticket size. But nevertheless, it appears that developers no longer have an appetite for large centrally located sites, despite the locational advantages of being above an MRT station (Havelock MRT) with integrated mixed uses, as well as the opportunity to be the first to develop Long-Stay Serviced Apartments (SA2).

Developers could also be reticent about SA2 development as the minimum lease tenure might result in the operator competing with individual private landlords in the same development. Perhaps the only way to mitigate the risk factors, especially that of the punitive ABSD rate for foreigners, might be to lower the land cost so that developers can capture local demand for private homes in central locations for just above fringe and suburban prices. In effect, prime land rates are gravitating towards “mass market” levels.  

At a land price of S$1,202 psf ppr, the breakeven cost could possibly range between S$2,400 psf and S$2,600 psf depending on technical, material and design considerations, with launch prices starting from S$2,700 psf. With a possible average price for the project at about S$3,000 psf when launched, this price range might just prove, not only palatable, but attractive for Singaporean homebuyers and permanent residents, whether for occupation or investment, and therefore be a compelling project in a prime area that is close to Orchard Road and the Downtown Core.

Upper Thomson Road Parcel B

The Upper Thomson Road Parcel B site garnered a top (and only) bid of S$779.6 million or S$905 psf ppr at today’s tender. This land rate of S$905 psf ppr would likely translate into a possible launch price of just under S$2,000 psf. As the Upper Thomson Road Parcel B site would be the first in a fairly undeveloped area without high-rise residences, there is some first mover advantage in a scenic precinct of natural beauty. If the launch price is palatable, this project can be attractive to local homebuyers looking to downgrade from landed housing in the Springleaf vicinity, as well as HDB upgraders from the Ang Mo Kio and Yio Chu Kang estates.