According to JLL Research, Singapore’s collective sales market is booming. In a collective sale (CS), the owners in a development pull together to sell their units collectively to a developer for redevelopment. This is possible because their developments are typically quite old and may not have maximised their sites’ plot ratios. Unit owners enjoy a windfall gain and this incentivises them to sell collectively. Here, JLL’s Teck Hui Ong explains the recent movements in Singapore’s CS market.

At a glance:

• In 2007, a record SGD 11.4 billion (USD 8.38 billion) worth of residential CS deals was done 
• 2008-2009 showed a downturn in the CS market, with a modest recovery in 2010 and 2011 before showing dormancy in 2014 and 2015
• In the first ten months of 2017, CS is showing strong growth
• Government Land Sales created investment opportunities to developers
• This contributed to the decrease in the post 2011 decline in the CS market
• GLS and CS have a symbiotic relationship which is both competitive and complementary

The last residential CS boom was in 2007 when a record SGD 11.4 billion (USD 8.38 billion) worth of deals was done (See Chart below). As the global financial crisis led to a downturn in the residential market, CS slumped in 2008 and 2009. It posted a modest recovery in 2010 and 2011 but eventually waned into dormancy in 2014 and 2015.

The step-up in residential land sales under the Government Land Sales (GLS) programme to help rein in prices gave abundant investment opportunities to developers. GLS sites with their clearer development guidelines and requirements provided them with a more “ready package” than CS sites.

The “competition” from GLS sites contributed to the post 2011 decline in CS. It should also be noted that CS typically thrives in a market upturn but with cooling measures moderating the residential market, including land prices, there was little incentive for unit owners to consider CS.

Residential Collective Sales vs Government Land Sales

Source: JLL Research

As demand weakened after the introduction of the Total Debt Servicing Ratio (TDSR) in mid-2013, the fear of an oversupply led to GLS residential land supply being trimmed significantly.  This caused developers to bid competitively at GLS tenders for a limited number of sites.

While sites are available on the GLS reserve list, few tend to be triggered for tender. Pressure from the inability to secure sites for business continuity coupled with signs of the market bottoming led developers to source for sites from CS, sparking its revival in 2016. From three CS sites worth SGD 1 billion (USD 0.74 billion) sold in 2016, CS surged to seventeen sites being sold for SGD 6.3 billion (USD 4.63 billion) in the first ten months of 2017 on the back of pent-up demand. The twenty CS sites sold in these two years could generate 11,000 to 12,500 units for sale which will help address the shortfall from the cut-back in the GLS.

GLS and CS are the twins of residential land supply, having a symbiotic relationship which is both competitive and complementary. They can be competitive as seen in 2010 to 2013 when the more “package-ready” GLS sites cannibalised CS. Or they can be complementary as in the recent market recovery, when CS picked up the slack in restricted GLS supply, also helping the government in conserving state land. CS also enables older developments and their neighbourhoods to be renewed while optimising land use at higher plot ratios.

However, when market conditions do not favour CS, GLS is needed to provide continuity in residential land supply. The provision of more affordable private homes is also dependent on GLS because the sites for these are typically on state land in and around suburban HDB new towns. Singapore’s residential property market is indeed fortunate to have two land supply mechanisms (government land supply and private land supply mainly from collective sales) working to its benefit.

For more detailed information or any queries, phone or email Tan Hong Boon, JLL Regional Director, Investments via the contact details below.

Source: JLL Research

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