Single bids for Zion and Upper Thomson sites reflect new norm in the residential market

The sites received a bid of $1.11b and $779.56m, respectively.

The results of the tender for  Zion Road Parcel A and Upper Thomson Road Parcel B reflect a "stark turning point" in developer sentiment, a real estate expert said.

The two sites received one bid each at its tender closing, with land rates falling 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 to bring the cumulated risk to seemingly untenable levels that developers are balking at recent GLS tenders" said Alice Tan, Head of consultancy, Knight Frank Singapore.

"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," Tan added.

Tricia Song, CBRE Head of Research, Singapore and Southeast Asia, had a similar sentiment, saying the tender results for the two GLS sites show "continued risk aversion and selectiveness among developers especially for prime sites and bigger sites which require larger capital outlay, in light of economic headwinds, interest rate uncertainty and cooling measures."

Chia Siew Chuin, Head of Residential Research, Research & Consultancy at JLL, said developers may have chosen to sit out from the tenders either because they have "secured sufficient land to fulfil both their current and future development needs" or they have been "being selective and reserving their resources for more attractive or smaller, easier-to-manage sites with less demanding requirements."

Zion Road (Parcel A)

Despite its attractive location, Zion Road Parcel, the pilot long-stay serviced apartments (SA2) site, failed to attract many bidders, receiving only one bid at a unit price of $1,202 psf ppr.

Tan attributed the subdued interest in the site to the financial commitment the project requires.

"Service apartments often require higher upfront capex whereas, with condominium developments, developers can use the funds received from progressive payments to finance ongoing construction activities. There could also be more caution regarding the financing of projects that are associated with short-term rental income. Moreover, private housing rents have started to slow, coupled with more supply in the prime residential market in the near term," Tan said.

Apart from the heavy upfront capex needed for such a project, JLL's Chia said niche expertise is also required to develop and operate a serviced apartment under the SA2 category.

Wong Siew Ying, Head of Research and Content, PropNex, said he expected "perhaps a couple more bids" for the site, especially from developers with hospitality experience.

"This plot owing to its prime location near Orchard Road and the central business district, the link-up to the Havelock MRT station, as well as a good range of amenities in the area," Wong said.

"More importantly, this site is the first to offer long-stay serviced apartments (LSA), which could give the developer a source of recurring income, and perhaps an advantage in being an early mover in the LSA segment," he added.

Wong, however, underscored that developers might've worried about the site's large plot of 920,000 sqft gross floor area and sizable land price.

Lee Sze Teck, Senior Director, Data, Huttons, added that long-stay service apartment is a new asset class so the risks are higher. Lee also underscored that there are already hotels and serviced apartments in the vicinity.

Justin Quek, CEO of OrangeTee & Tie, shared a similar sentiment, saying: " While there is great potential for developers to gain a base of recurring income with the management of the serviced apartments, there is no precedent to this type of housing given the new housing requirements for SA2 homes from normal serviced apartments."

"With the rents moderating, there may be a preference to develop purely residential projects instead. However, the minimum GFA required for the SA2 units is 20,000 sqm out of 85,551 sqm, or around 24% of the total GFA of this project, despite the large estimated unit count proportion. The tender launch of the River Valley Green (Parcel A) land tender nearby may also give developers more alternatives in the area as it is purely a residential site which is easier to build and manage. Moreover, the Zion Road (Parcel A) site is bigger, which translates to a larger capital outlay," Quek said.

Tan, meanwhile, pointed out that developers may have been "reticent" about the SA2 development " as the minimum lease tenure might result in the operator competing with individual private landlords in the same development."

Upper Thomson Road (Parcel B)

Chia believes the muted participation from developers at the Upper Thomson Road Parcel B was more due to the "large scale and hefty investment quantum for the future project" in the site.

"Additionally, the requirements to conserve and integrate the building formerly used by Upper Thomson Secondary School and Seletar Institution, as well as incorporate biodiversity-sensitive designs and environmental safeguards given the site’s proximity to the catchment area, may potentially add to overall development costs," Chia said.

According to CBRE's Song, the successful tenderer for the site will need to "incorporate design and construction requirements such as incorporating 'biodiversity-sensitive urban design strategies 'and integrate the conserved building of the former Seletar Institute with the proposed development." 

"These inclusions may push up development costs, which could be a deterrence for developers," Song added.