Tenders closing for URA sale sites at Zion Road (Parcel A) and Upper Thomson Road (Parcel B)

SINGAPORE, April 4, 2024 – Tender closed today for two Government Land Sales (GLS) sites at Zion Road (Parcel A) and Upper Thomson Road (Parcel B).

^{*A minimum 20,000 m² of GFA is to be set aside for Long-Stay Serviced Apartment (SA2) use
Source: URA, JLL Research}

Ms. Chia Siew Chuin, Head of Residential Research, Research & Consultancy at JLL

谢岫君, 私宅市场研究部主管 (新加坡) commented:

The results of today’s tender closings suggest a reduced risk appetite among developers. Some have already secured sufficient land to fulfill both their current and future development needs, while others are being selective and reserving their resources for more attractive or smaller, easier-to-manage sites with less demanding requirements.

The need for a Serviced Apartment Category 2 (SA2) component for the Zion Road (Parcel A) plot has ringfenced the playing field, narrowing it down to a few selective players from the beginning.

The tender outcome for the plot at Upper Thomson Road (Parcel B) shows a defensive approach in response to the abundance of nearby condominium projects in the Lentor area. If awarded the site, the consortium will strengthen its position as the primary developer in the locale, extending its influence beyond Lentor.

The land tender for this site closed with just one bidder. Given the niche expertise required to develop and operate a serviced apartment under the SA2 category, as well as the heavy upfront capital expenditure for such a sizeable project undertaking, it is no surprise that the site has attracted only one bid from a consortium led by City Developments Limited who has extensive experience and business in the hospitality industry.

Being the only contender, it is likely to be drawn to opportunities to be tapped from the long-stay serviced apartment component. These apartments can be advantageous as they offer a new stream of recurring rental income, which can help mitigate the risks associated with developing residential units for sale, particularly during periods of low homebuying demand and sluggish sales in Singapore.

The top bid of $1,202 psf ppr is below market expectations and shows the cautious stance towards the first SA2 pilot site notwithstanding the opportunity to expand its portfolio of rental properties.

The last GLS site to be sold in the area which now hosts the Riviere, was awarded to Frasers Property for $955.4 million or $1,733 psf ppr in December 2017. Slightly further away, a site at Irwell Bank which is being developed into Irwell Hill Residence, was sold to City Developments Limited at $1,515 psf ppr in January 2020.

Although the subject site at Zion Road is located amid numerous new developments, such as Riviere, there is little competition from these projects as they have been fully sold. The adjacent GLS site at Zion Road (Parcel B) is also unlikely to pose much competition as it is still on the reserve list.

However, the tender of the nearby River Valley Green (Parcel A) GLS site which was launched in March and will close in June 2024, may have also diverted some developers from bidding for the subject site at Zion Road. The River Valley Green site, which is designated for a pure residential development for sale, is smaller and likely entails a lower capital outlay and development risks, potentially making it more appealing to developers.

The tender for the Upper Thomson Road (Parcel B) site also turned in a single bid from just one consortium involving GuocoLand Limited and Intrepid Investments Pte. Ltd.

This 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. Additionally, the requirements to conserve and integrate the building formerly used by Upper Thomson Secondary School and Seletar Institution, as well as incorporate biodiversity-sensitive designs and environmental safeguards given the site’s proximity to the catchment area, may potentially add to overall development costs.

Developers may also be tentative due to the relatively quieter location surrounded by landed housing. The absence of comprehensive amenities and schools in the neighborhood also represents a risk.

There is a limited supply of non-landed projects near the subject site, such as the fully sold The Essence, Forest Hills condominium, The Brooks I and II and Hong Heng Mansions. However, there are currently six new projects with a potential supply of 2,952 units upcoming near the Lentor MRT Station, which is just one stop away on the Thomson-East Coast (TEL) Line. Some 1,279 units remained unsold based on the latest information available as of the time of writing. Additionally, the tender for the adjacent Upper Thomson Road (Parcel A) site will close in June and is also expected to compete for buyers.

The subject site's proximity to the intersection of Mandai Avenue and Sembawang Road, which has been preliminarily identified by the National Environment Agency for a new funeral and columbarium complex, may have also deterred some players.

However, the site's unique location near to the Springleaf MRT station and the nature reserve, provides convenience and appeals to nature enthusiasts. The site also gives developers a head start in an emerging area that is predominantly a landed housing precinct.

The consortium’s tender participation is likely driven by its defensive strategy to maintain a strong foothold in the area extending beyond the Lentor neighbourhood. This provides them the chance to better manage sales and pricing of their projects. Excluding this subject site, GuocoLand Limited is developing 2,211 units in the Lentor district.

The top bid of $905 psf for the subject site is below the $982 psf ppr achieved by the latest Lentor Central plot in Sep 2023. The most recent GLS land sale in the immediate subject locality was for the plot developed into The Essence, which was awarded in February 2018 for $43.95 million or S$681 psf ppr.

The selling price for the residential units on the subject site could start from $2,100 psf and the breakeven cost is estimated at about $1,800 - $1,900 psf.