Is it time to take Cheque book out from SafeBOX?

[Scb11980]

Developers' bids signal likely dip in home prices

 

13 March 2012

Straits Times

DEVELOPERS here are becoming more cautious with how much money they are willing to pay for private home sites.

 

They seem to be getting more worried that private home prices could fall, perhaps by up to 8 per cent this year, according to a new research report.

 

So they have to factor the potentially lower prices of the homes into their sums when deciding how much to offer for a plot on sale.

 

The BNP Paribas research report analysed about 100 government land sale bids since 2007 up until last month.

 

When developers look at how much to bid for a site, they consider the likely 'break-even' figure. That is, how much they would have to pay for the project, taking into account the cost of building the condo and various other finance, marketing and administration costs.

 

Then, of course, they add a bit on top to make it worth their while, in terms of profits - which means they would offer less for the land than break-even.

 

The report said developers were lowering the figure they are willing to pay for land, as they can no longer feel sure that prevailing home prices will hold up by the time they are likely to sell the project.

 

Starting in mid-2011, the difference between the expected break-even price and current selling prices started to widen to 19.8 per cent, well above the mean of 12.1 per cent, the report said.

 

The mean of 12.1 per cent would tend to represent the profit margin developers have been achieving, on average.

 

This difference of about 8 percentage points is likely to represent developers' efforts to guard against the possibility of future average selling prices heading south.

 

A similar pattern was also observed in the second quarter of 2008, right before home prices tanked, when margin buffers widened in similar fashion, BNP Paribas property analyst Chong Kang Ho noted.

 

The wider spread of bids for each site, which indicates differing views among developers, and the shorter turnaround of launches also reflect concerns of an uncertain outlook in the market, he added.

 

Developers' nervousness is reflected not just in their bid prices, but also in their haste in pushing out new launches.

 

The average turnaround time between securing a site and launching a project has been cut to just eight months for sites awarded in the past two years - down from more than 10 months, generally, for sites awarded in 2009.

 

'This is despite the trend of bigger land sites being offered, typically associated with longer preparation and approval times for launch,' BNP's Mr Chong said. 'Shorter turnaround launches reflect developers' expectations of a narrower window of opportunity to sell their new launches at higher prices. This is especially true in the light of upcoming supply.'

 

Another likely trend is even more enthusiasm for sites right near MRT stations and retail malls, the report said.

 

Developers feel buyers will go for homes built on these plum sites even if times get a little rough.

 

The Government has ramped up its twice-yearly land sales programme since the second half of 2010 as it sought to stem rising home prices.

 

This led to a record number of 77,089 uncompleted private homes in the pipeline as at the fourth quarter of last year - the highest figure since data was first available in 1999 - according to the Urban Redevelopment Authority.

 

But while recent new sales data has been encouraging, longer-term fundamental concerns remain.

 

The rising number of unsold homes, tighter immigration rules set to dampen demand and more sites on the way have all taken the rosy hue out of the market.

 

BNP's Mr Chong expects it to correct by 5 to 7 per cent. He says the ample loans on offer at low mortgage rates help.

 

But other experts note that lower land prices do not necessarily mean lower home prices as selling prices often depend on market conditions at the time of launch rather than just developers' costs.

 

HSR Property Group special adviser Donald Han said developers, not surprisingly, price projects based on market values at the time they go on sale.

 

'While developers might price a new project lower than a nearby project to ensure good take-up at its initial launch, prices will not sway far from general market prices even if the land cost was lower,' he added.

 

 

[Chewbacca]

That's good.....very good.....

[Roh96]

Yeah, good news for those aiming to go in.

[Sabian]

bluff one lah...all kehkeh say put in cautious bids but all still put in their (lower) bids.

 

Then when launch, still same psf. (This is then what you call raiding the reserves.)

Edited March 13, 2012 by Sabian

[Roh96]

bluff one lah...all kehkeh say put in cautious bids but all still put in their (lower) bids.

 

Then when launch, still same psf. (This is then what you call raiding the reserves.)

 

Those developers are really clever, bid low and quickly launch the proj at current market rate. Transfer the risk to consumer and they can laugh their way to bank.

[Jj5599]

Developers may not pass on savings on land cost they paid for to home buyers.

[Acemundo]

bluff one lah...all kehkeh say put in cautious bids but all still put in their (lower) bids.

 

Then when launch, still same psf. (This is then what you call raiding the reserves.)

 

precisely. i observed it for so long. even if the land they purchased is cheaper, they are not gonna sell their condo cheaper.

 

a less aggressive bidding only means developer are not concerned about competing for land with competitor. selling price to end buyers is highly independent on their bidding price.

[Sabian]

precisely. i observed it for so long. even if the land they purchased is cheaper, they are not gonna sell their condo cheaper.

 

a less aggressive bidding only means developer are not concerned about competing for land with competitor. selling price to end buyers is highly independent on their bidding price.

That's why I always tell my wife: What's the point of changing the chef if the soup still cost the same?

So much wayang and still feels like status quo.

[Acemundo]

That's why I always tell my wife: What's the point of changing the chef if the soup still cost the same?

So much wayang and still feels like status quo.

yeah which goes back to my earlier grouse.

 

the property cooling measures whacks all the property on sale equally without differentiation considering the difference of how subsale vs first hand units sell.

 

it is evident the first hand units are still selling like hot cakes but not the subsale units. yet the policies that came out only dented the subsale units sale but fail to cool sales of the bigger culprit - developer sales.

 

it is also ludicrous bankers can keep matching the valuation price of first hand units the developer is seling but for the subsale market, the bankers are going conservative and lowering valuation below the last done prices.

Edited March 13, 2012 by Acemundo

[Sabian]

yeah which goes back to my earlier grouse.

 

the property cooling measures whacks all the property on sale equally without differentiation considering the difference of how subsale vs first hand units sell.

 

it is evident the first hand units are still selling like hot cakes but not the subsale units. yet the policies that came out only dented the subsale units sale but fail to cool sales of the bigger culprit - developer sales.

 

it is also ludicrous bankers can keep matching the valuation price of first hand units the developer is seling but for the subsale market, the bankers are going conservative and lowering valuation below the last done prices.

If banks don't match, they sabo themselves bec developers also borrow from banks to build. All die together or huat together.

[Acemundo]

If banks don't match, they sabo themselves bec developers also borrow from banks to build. All die together or huat together.

yeah, therein lies the lack of independence in this industry. so rather than blame the banks, valuers and developers from looking after their own interests only, i rather the MND sets policies that are better geared to rein in the speculative element in developer unit sales and different from those that governs subsale.

[Sabian]

yeah, therein lies the lack of independence in this industry. so rather than blame the banks, valuers and developers from looking after their own interests only, i rather the MND sets policies that are better geared to rein in the speculative element in developer unit sales and different from those that governs subsale.

Actually, I detest HDB for being spineless and not living up to their mission statement. This market minus subsidy nonsense has to end because when the mkt (resale) price goes out of whack, HDB is just going along for the ride and conveniently saying it's market forces.

 

As a public housing provider, it's ok if you want to retain some profit element but laissez faire all the way with only paltry 40k subsidy to provide the social element is frankly betraying the their roots.

 

They need to slide the policy back from the laissez faire end.

 

Another BS they like to spout is if they price lower, it will affect the resale mkt. In the short run, maybe but against our total public housing stock, newbuild flats for first timers are not significant.

 

They should just keep to their mission statement and set the price leadership instead of hiding behind the "market" and getting a free ride.

[Acemundo]

Actually, I detest HDB for being spineless and not living up to their mission statement. This market minus subsidy nonsense has to end because when the mkt (resale) price goes out of whack, HDB is just going along for the ride and conveniently saying it's market forces.

 

As a public housing provider, it's ok if you want to retain some profit element but laissez faire all the way with only paltry 40k subsidy to provide the social element is frankly betraying the their roots.

 

They need to slide the policy back from the laissez faire end.

 

Another BS they like to spout is if they price lower, it will affect the resale mkt. In the short run, maybe but against our total public housing stock, newbuild flats for first timers are not significant.

 

They should just keep to their mission statement and set the price leadership instead of hiding behind the "market" and getting a free ride.

 

"like"

 

i have been feeling the same. they are hiding behind grand mission statement but what they are doing are not really so caring for the people.

[Karu]

That explains why so many Developments are being launched these days. They wanna grab money before the slide. Good luck to those who rush in to buy!! I'm waiting...

[Roh96]

"like"

 

i have been feeling the same. they are hiding behind grand mission statement but what they are doing are not really so caring for the people.

 

Yup, agree on that. They only care about money money money.

[Jp66]

That explains why so many Developments are being launched these days. They wanna grab money before the slide. Good luck to those who rush in to buy!! I'm waiting...

we're waiting.......