Will the lower bids recently submitted by developers in the Government Land Sales be successful?
Zion Road Parcel A is the only GLS site that offers serviced apartments, with a minimum stay requirement of three months. Located near Havelock MRT station on the Thomson East Coast Line, which links the North to the Central-East of Singapore, it is highly accessible for both residents and tenants.
The innovative GLS site-Zion Road (Parcel A)-features serviced apartments with a minimum stay requirement of three months. It is well-located, with proximity to the Havelock MRT station on the Thomson East Coast Line, which links the Northern and Central-East regions of Singapore, thus enjoying excellent access for both residents and tenants alike.
By contrast, the site at Upper Thomson Road, Parcel B, is a far more significant residential opportunity - 940 units are expected to be developed. Both sites received one bid each. The respective prominent bid for Zion Road, Parcel A, was $1,202 psf ppr, and for Upper Thomson Road, Parcel B, it was $905 psf ppr. Both are in-demand locations given the easy access to the MRT and the views.
In comparison, the earlier site awarded near Zion Road, Parcel A, Jiak Kim Street, fetched $1,733 psf ppr in December 2017. However, cooling measures from July 2018, along with increased construction and borrowing costs, have stretched market conditions. Meanwhile, changes to GFA requirements have trimmed the saleable area by some 5 to 6%.
We consider that the somewhat lower land value tendered for Parcel A, the Zion Road site, reflects the fact that a long-stay serviced apartment component is required under its tender conditions. Developers will have to price in the inherent risks associated with this emerging asset class in their bids. A separated approach could make both sites more appealing to interested investors.
Current hotels and serviced apartments in the area around Zion Road currently have commanding US$300 and above daily rates for a serviced studio apartment. Rates for 4-5-star hotels are similar or higher, more than 50% above the current rental prices of a one-bedroom condo in the vicinity. Long-stay serviced apartments can position themselves toward mid to premium segments in order to capture transient professionals and medical tourists due to proximity to SGH, one-north, and NUS.
In comparison, the recent sale of the nearest GLS site, Lentor Central, was transacted at $982 psf ppr in September 2023. However, with an estimated 940 units available, Upper Thomson Road (Parcel B) carries larger development risks, which could be the reason for the slightly lower bid.
Investor Questions:
Will the government grant the sole bidder for both sites despite their lower PSF in the recent Government Land Sales (GLS)?
Do lower land bids reflect economic difficulties?
