Property stocks stayed firm and defied market expectations, after the government announced that it will release a record supply of land parcels for private homes during the second half of the year.
The FTSE ST real estate holding and development index gained one percent to close at 639.59 points shaking off the Ministry of National Development’s recent announcement that it will put up 27 sites for sale in its H2 2010 land sales programme.
Several analysts are expecting developer stocks to draw back on news that the 27 sites can accommodate a total of 13,905 units – which will effectively increase the supply of land for private homes and lower home prices.
In line with the rest of the market, the share prices of major real estate groups stayed flat or increased slightly for the most part yesterday. CapitaLand gained 0.9 percent to close at $3.54; Keppel Land increased two percent to end at $3.53 and City Developments increased 0.8 percent to close at $10.20.
According to an analyst with a foreign bank, the news is “not necessarily negative” for developers who are running low on their landbanks.
The shortage of land sites is pushing some property developers to over-pay and over-bid for more attractive sites. If the trend continues, developers could have been driven to pay ever-increasing prices for the land sites and then end up having to make provisions for these land sites when the current property bull-run ends.
However, analysts had agreed that there will be a reduction of land prices for suburban plots as a result of the large supply of land in the second half of the year. Most of the 27 residential sites offered by the government are located in the “outside central region”, a substitute for suburban mass market locations.
”Developers are likely to be more selective and cautious in their bids for the available sites. We believe the most immediate impact would be lower land prices,” said Wendy Koh, a Citigroup analyst.
Brandon Lee, an analyst from Echoed DMG & Partners Research said: “In view of the increased supply, we expect land prices for upcoming tenders to immediately taper off from the recent $450-$500 per square foot (psf) range to $350-$400 psf, a range which implies a more affordable selling price of $800-$850 psf (as compared to the present $900-$950 psf – assuming a modest profit before tax margin of 10 per cent.”
Mr. Lee said the number of bids for each government land tender should also be normalized to 6-8 from the current 10-5.
Ms. Koh stressed that before the sites reach the public as new residential projects for sale, the mass market could still remain strong given the record-low mortgage rates and tight supply of HDB flats.
Analysts continue to be optimistic on the high-end and luxury sectors of the private property market, where the supply of land still remains limited.