In a surprising turn of events, on April 16, authorities accepted two Government Land Sales Sites (GLS) in Zion Road & Upper Thomson Road. Some analysts expected that the sites would be rejected as they had come in under market expectations.

Some believe the authorities priced in the fact both sites had unique features which added complexity and costs for land development. Therefore, the bids received at the close on tender date of April 4 may be justified.

The Upper Thomson Road plot B is intended for high rise residences within Springleaf. Springleaf has a majority of low-rise low density housing.

Upper Thomson Road attracted a single bid of $779.6 Million from a joint venture of GuocoLand with Hong Leong Holdings’ unit Intrepid Investments. This is equivalent to a land rate per plot ratio of $905.

While the bid came in slightly below the expectations, this reflects both the large size of the plot as well as the current competitive landscape.

The two awarding of tenders reflects the authorities’ recognition that market conditions are becoming more challenging due to increased development costs and a slower pace of new home sales.

To stabilise home prices for private buyers, the government has to strike a balance between maximising land sales profits and promoting new housing supplies.

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In the case of Zion Road, we’re dealing with a brand new asset class for which there are no historical data on land value.

It is therefore important that this site is awarded a tender because it gives comparable land sales data for this purpose and in the future, once the development of long-stay apartment is complete, will give evidence of its long-term performance.

The fact that 12 days passed between the conclusion of the tenders and the announcement of the winners is noteworthy,” he said.

This could indicate that there has been an internal debate on whether the estimated price of the serviced apartments was based on the cash flow generated by long-term rents, and not a direct comparision with the residential GLS site where the units are purchased.

GLS sites are awarded between one and two days following the close of the tender process if more than one bidder is involved, or if the bids surpass the reserve price of the government, set by its Chief Valuer.

Analysts predict that new launched units’ pricing will be based on market pricing. The break-even cost could be anywhere between $2.400 psf $2.600 psf for the Zion Road project, at a $1.202 land price psf/ppr.

The Upper Thomson Road’s $905 per sq. ft. per year land rate will translate into an average launch price of under $2,000 for each square foot.

Analysts have noted that neither use has been tested.

The government may have thought that the price of the tenders was reasonable considering the risk that these developers were prepared to take.

Upper Thomson Road is a site with a conservation feature that forms part the saleable gross area. The plot also has different height zones.

For developers, long-stay serviced apartments for the Zion Road location require a different financial and investment model. Comparing this bid to land bids in the past or adjacent sites may not provide a good price gauge.

City Developments’ (CDL) and Mitsui Fudosan’s joint venture bid $1.1billion for the Zion Road property, which represents a rate of land of $1.202 sq ft/per plot ratio.

This bid was 30 percent lower than Frasers Property’s winning bid, which was $955.4million, or $1.733psfppr, on the Jiak Kim Street land, where Riviere, a 455-unit apartment complex, now stands.