The authorities have accepted, in a surprise, the two bids that were submitted by analysts for the Government Land Sales (GLS), sites located on Zion Road and Upper Thomson Road. They had predicted the bids would be rejected because they came in lower than market expectations.

Some claim that the authorities have likely factored in the unique characteristics of both sites that add complexity and cost for land development. The bids made at the April 4th tender closing may be justified by this.

The Upper Thomson Road parcel is a high-rise housing development in Springleaf. This is an area of low-rise, lower-density homes.

Analysts note that these two uses have never been tested.

In light of the risks that developers are willing to assume, the government may have deemed the bid prices to be reasonable.

Upper Thomson Road has a conservation area that forms a part of the gross saleable floor area. There are also different height zones on the same site.

The Zion Road serviced apartments require a completely different financial model, as well as a longer investment period. A comparison of the bid for Zion Road to other recent land auctions or nearby bids could be less accurate.

City Developments (CDL), a joint venture between Mitsui Fudosan and Mitsui Fudosan has submitted a bid for $1.1 Billion, which is equivalent to a land price of $1.202 per square foot per plot ratio (psfppr) on the Zion Road site. This bid is 30% lower than Frasers Property’s winning offer of $955.4m, or $1733 per sq ft ppr for the Jiak Kim Street site, where Riviere currently sits.

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Upper Thomson Road was won by a joint-venture between GuocoLand Holdings’ unit Intrepid Investments, which bid $779.6million or $905 per sq ft ppr.

Although the bid was a little below expectations, the size of the plot and current competition landscape are to blame.

The two awards are a reflection of the fact that authorities recognize that market conditions have deteriorated due to rising development costs and slower new home sales.

In order to stabilize the private housing market, it is important that the Government balances the maximisation of land sales and new housing supply.

We are dealing with an asset class that is new (and) for which the market has not provided a historical view of land value.

This site’s awarding of the tender is important because it provides comparable evidence of land sales for this use and, at a later date, after the development has been completed, some evidence on the long-term performance long-stay serviced apartment.

This indicates that there was internal discussion on whether the estimated value of the market took into account the fact developers will likely price long-stay services apartments relative to cash flow from long-term rentals, instead of a comparison with GLS residential sites where units are sold.

GLS sites can be awarded in one to two working days after the end of the tender, if there is more than one bidder, and if bids meet or exceed the Government reserve price. This is determined by the Chief Valuer.

Analysts claim that new units launched will be priced according to the current market price. Break-even costs for the Zion Road Project could range from $2400 psf to $2600 psf at a land rate of $1.202 psf per year. Launch prices are expected to start as low as $2700 psf.

The Upper Thomson Road land rate is $905 psf per annum. This will translate to a launch cost of less than $2,000 per sq ft.