ST : Smaller developers rise above giants

May 24, 2010

Smaller developers rise above giants

Some are outbidding big boys to top up their fast-depleting land banks

By Esther Teo

SMALL to mid-sized property developers are punching above their weight amid the aggressive jostling among industry players to replenish depleting land banks.

As the property market keeps sizzling, with a near-record 2,207 private homes sold last month, the rush to buy new residential sites has intensified with both higher-than-expected bid prices and a staggering number of developers' bids.

Yet, despite the fierce competition, the supposedly smaller fry have outdone the big boys. Chip Eng Seng's CEL Development, Fragrance Properties and Sim Lian Land are some which have outbid their larger competitors in recent government land tenders.

They have also shown their muscle in collective land sales, snagging most of the six en bloc sites that have been sold so far this year such as Culford Gardens in Siglap and Changi Complex.

Out of nine awarded tenders by the Government Land Sales (GLS) programme in the first half of this year for residential development, smaller developers have managed to clinch at least a respectable one-third of the pie, elbowing out bigger names such as Frasers Centrepoint and Far East Organization.

CEL, for example, emerged the top bidder out of a total of 18 with a much higher-than-expected bid of $152.69 million for a well-positioned 99-year leasehold site in Simei Street 3. This was 3 per cent higher than Frasers Centrepoint's bid of $148 million. Other bidders included Far East, MCL Land and Keppel Land.

Sim Lian Land also topped seven others - including a venture between heavyweights Frasers Centrepoint and Far East - to lodge the highest bid of $302 million for a residential site at the junction of Tampines Avenue 1 and Avenue 10.

Analysts say that while the boom in the property market caught both larger and smaller developers by surprise, the latter's typically smaller land banks meant they would soon be running low.

UOB Kay Hian senior investment analyst Vikrant Pandey said: 'Those hungry for land are bidding the most aggressively and it seems that, relative to larger developers, smaller developers have seen their land banks deplete much faster.'

Most of the en bloc sales sealed this year were also of smaller sites suitable for smaller scale residential projects that small to mid-sized developers - generally without the deep pockets of bigger developers - go for.

DMG & Partners Securities property analyst Brandon Lee said this 'aggressive bidding' by smaller developers indicated their confidence in at least a 10 per cent increase in home prices in the next seven to 12 months.

Larger developers such as Far East and Hong Leong were 'relatively more equipped', with larger land banks under their belts, while the smaller developers have been less successful in acquiring land over the past year, he said.

He said some smaller developers like Sim Lian and Chip Eng Seng had tried in vain for about eight months before succeeding in land tenders recently.

'(But) for the larger developers, the tender exercises helped to replenish the majority of what they cleared last year as some, notably Far East, Hong Leong and City Developments, have already managed to acquire about two to three sites since July last year,' Mr Lee added.

Some small to mid-cap players such as Allgreen Properties, Ho Bee Investment and GuocoLand have yet to secure new sites since the second half of last year.

Colliers International research and advisory director Tay Huey Ying said larger developers had already bid aggressively for land last year, while the smaller players might be less heavily committed and thus able to bid more.

'Private sector land might not be as forthcoming this time around... The process is also less straightforward than acquiring land from the GLS programme so smaller developers might be starting to divert their attention to bigger sites.'

Ngee Ann Polytechnic real estate lecturer Nicholas Mak added that recent bids might also suggest that as these firms gathered experience, they were also starting to graduate to larger sites.

He said that some of the smaller developers - construction firms that have made forays into property development - have an added incentive in tendering for development sites since both segments would benefit. The construction cost can also be managed more effectively.

'After the completion of the two integrated resorts, they might also be looking for new jobs to make sure that they continue to have a profit and revenue stream,' he said.

Despite these high bids, however, banks are usually willing to offer loans of up to 60 per cent to 70 per cent of the bid price, DMG's Mr Lee said. He does not expect financing to be an issue.

UOB's Mr Pandey added: 'Liquidity is still strong and banks are still more than willing to lend.'

esthert@sph.com.sg