SINGAPORE - The value of collective sales of residential sites has hit S$5.2 billion across 25 deals so far this year - four times the level seen in 2016 and possibly signalling the start of a three-year en-bloc cycle, said JP Morgan.

This already puts 2017 as the third biggest year of en-bloc deals, after 2007, which holds the record at S$12.2 billion followed by 2006, at S$8.2 billion.

JP Morgan analyst Brandon Lee noted in a report on Friday (Oct 6) that the 25 transactions this year - well up on the 10 in all of 2016 - "provides clear evidence of another en-bloc cycle in the making, which traditionally lasts at least three years".

Mr Lee believes the en-bloc frenzy is "sustainable" given that the number of unsold near-term residential units in the pipeline (excluding executive condominiums) has fallen for three straight quarters to an all-time low, reaching 10,303 units as at the second quarter of this year. The bank's own estimates puts this figure lower at 7,749 units as at August.

At the same time, developers are not replenishing landbanks enough to offset the number of units they are now selling, a situation worsened due to insufficient government land.

These factors indicate that the en-bloc cycle will continue, says Mr Lee: "We expect this to result in immediate displacement demand, improved vacancy and higher selling prices."

He noted that home owners who have been affected by en-bloc sales could use the proceeds to partially fund their children's first property, which should boost an already-buoyant market, while vacancy rates are expected to improve to about 7 per cent by 2019 to 2020, compared with around 8 per cent in 2017 to 2018.

This in turn "should lead to better leasing environment alongside genuine rental improvement in 2018".

Higher land prices should also lead to higher selling prices, said Mr Lee, with values rising at least 6 to 13 per cent over the next few years to achieve 5 to 10 per cent profits for developers before tax margins, based on the bank's analysis of major tenders this year.

But key risks remain, he added, pointing to the possibility of more hikes in development charges, along with a sizeable launch pipeline in 2019 to 2020.

Mr Lee said the listed developers' flattish month-on-month share price performance reflects major players' inability to secure land and the scepticism of implied selling prices translating to actual launch prices.

But he added: "Coupled with the nascent upcycle, mediocre overseas performance and shareholders' continued hunt for residential proxies, we expect listed developers to become more pro-active in en blocs over the next six to 18 months."