On April 16, the authorities accepted the only bids submitted for two Government Land Sales sites (GLS), located in Zion Road, and Upper Thomson Road, that had been expected to be rejected by some analysts because they were below the market expectations.

Several people believe that the authorities may have priced in that the two sites had unique features that added complexity and cost to the land development. This could explain the bids submitted on April 4 at the end of the tender.

The Upper Thomson Road parcel site B is for high-rise residential units in Springleaf. Springleaf is a low-rise and low-density area.

Analysts noted that both uses have not been tested in these areas.

It is possible that the Government considered the prices of the tenders submitted reasonable when considering the risks these developers were willing to accept.

Upper Thomson Road features different height zones within the same plot, as well as a conservation component that is included in the gross floor area.

Developers will need to use a different investment model and financial model for the Zion Road long-stay apartment component. It may not be as effective to compare the price of this site with recent land bids or those in nearby areas.

City Developments-Mitsui Fudosan, a joint venture, has bid $1.1 billion for the Zion Road parcel, reflecting a land rate (psf/ppr) of $1,202. The winning bid by Frasers Property of $955.4 Million, or $1.733 per sq ft per plot ratio (psf/ppr), for the Jiak Kim Street parcel, where Riviere is currently located, was only 30 percent higher.

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A joint venture between GuocoLand, a Hong Leong Holdings subsidiary called Intrepid Investments and a joint bid of $779.6 millions or $905 per square foot per person was the only bidder for the Upper Thomson Road site.

The bid was slightly lower than expected, but it is a reflection of the large plot and the competitive environment.

The authorities have recognized that the market has become more difficult due to higher costs of development and a slowdown in new home sales.

To stabilize private home prices, the government must balance the need to maximize land sale proceeds with the need to increase housing supply.

The Zion Road site is a new asset type (for which there has never been a clear market opinion on land values).

The award of this tender is significant because it will provide comparable evidence for land sales in this application and, on a longer-term basis, when the development is complete, evidence of the performance of long-stay apartments.

It is possible that the developers may have deliberated internally on whether or not the estimated market value accounted for the fact that they are more likely to price the long-stay apartment usage relative to the long-term rental income, as opposed to a direct comparison with residential GLS sites where the units were sold.

GLS sites will be awarded one to two business days after the tender closes if multiple bidders are involved and the bids are higher or equal to the reserve price set by the Chief Valuer.

Analysts believe that the price of newly launched units will depend on the market prices at the time of the launch. With a land cost of $1,202 per square foot per year, the breakeven price for the Zion Road development could be between $2,400 and $2,600, with prices starting at $2,700.

The land rate of $905 per square foot per year for the Upper Thomson Road will translate into a price just below $2,000 per square foot.