SINGAPORE - A City Developments (CDL) joint venture has put in a bid of $1.1 billion for a plum plot in Zion Road – the first Government Land Sales (GLS) site to pilot a new class of long-stay serviced apartments.
But analysts say this lone bid for Zion Road parcel A, which reflects a land rate of $1,202 per sq ft per plot ratio (psf ppr), is below market expectations and shows CDL’s cautious stance, despite the opportunity to expand its portfolio of rental properties.
Another GLS site, in Upper Thomson Road in the Springleaf precinct, drew a bid from GuocoLand and Hong Leong Holdings unit Intrepid Investments of $779.6 million – again, the only one – which is a land rate of $905 psf ppr. Analysts say this may be a defensive strategy by GuocoLand, which is developing 2,211 units in the nearby Lentor district, to maintain its strong foothold in the area.
The consensus of analysts is that the participation rate and bids for both sites came in below expectations. They noted that developers’ risk aversion continues to grow for prime and bigger sites that require large capital outlay, given the economic headwinds, tepid new home sales, interest rate uncertainty and cooling measures.
The single bids that the sites drew on April 4 were at what analysts call “conservative” land rates, especially for the Zion Road plot, despite its more attractive attributes.
In fact, some analysts question whether the Government will award the Zion Road plot, as the $1,202 psf ppr land rate is substantially lower than those of two other GLS plots sold nearby.
In December 2017, the Jiak Kim Street site (now Riviere) was sold for $1,733 psf ppr ($955.4 million), while the Irwell Bank Road plot (now Irwell Hill Residences) fetched $1,515 psf ppr ($583.9 million) in January 2020.
Mr Nicholas Mak, chief research officer at property portal Mogul.sg, believes that the Government will deem the bids for the Zion Road and Upper Thomson Road sites too low, and will not award the tenders.
He pointed out that the most recent GLS site that was sold at a land rate close to $1,200 psf ppr was the residential plot at Pine Grove (Parcel B) in November 2023 at $1,223 psf ppr or $692.4 million.
“But the Zion Road location is more upmarket than Pine Grove, which is near Clementi... If the Government were to sell the Zion Road site at $1,202 psf ppr, the developer could reap substantial profit from this project,” Mr Mak said.
The Government will have to “weigh the cost and benefit of its plan to launch the long-stay serviced apartment concept against the relatively low land rate submitted”, he added.
While it remains to be seen if the Zion Road site will be awarded, ERA Singapore chief executive Marcus Chu believes that the future development could help “refresh serviced apartment supply in the area, as many serviced apartments there are much older”.
PropNex head of research and content Wong Siew Ying had expected a few more bids for the Zion Road plot – which can yield 1,170 units, including 435 long-stay serviced apartments, and commercial space – as it is near Orchard Road and the Central Business District.
“More importantly, this site is the first to offer long-stay serviced apartments, which could give the developer a source of recurring income, and perhaps an advantage in being an early mover,” she said.
But many developers may be wary of its sizeable plot – a total gross floor area of more than 920,000 sq ft – and land price, as well as the upcoming new private home supply from three other GLS sites in Zion Road and River Valley Green, she added.
Ms Alice Tan, head of consultancy at Knight Frank Singapore, said: “The writing was on the wall when the number of interested bidders shrank from more than seven in 2021 to fewer than five in 2023.” This is especially so for central locations, where the doubling of the additional buyer’s stamp duty to 60 per cent for foreigners weakened developers’ appetite for prime residential land.
Should CDL and its joint venture partner Mitsui Fudosan (Asia) be awarded the Zion Road site, the joint venture will explore a mixed-use project comprising a 69-storey block and a 64-storey block with 740 residential units for sale, a retail podium as well as a 35-storey block offering around 290 rental apartment units, said Mr Sherman Kwek, CDL’s group chief executive.
On the Upper Thomson site, which can yield 940 residential units, Ms Chia Siew Chuin, JLL’s head of residential research for Singapore, noted that the bid of $905 psf ppr is below the $982 psf ppr achieved by the Lentor Central GLS plot in September 2023.
The lone bid for the Upper Thomson Road site “reflects both the low level of interest and the cautious stance of developers given the large scale and hefty investment quantum for the future project... The absence of comprehensive amenities and schools in the neighbourhood also represents a risk”, she said.
“If awarded the site, (GuocoLand) will strengthen its position as the primary developer in the locale, extending its influence beyond Lentor,” Ms Chia added.
