Sunday, September 3, 2017

Guest Post - Cost of Flour vs Cost of Bread - Part 2

I enjoyed this post a lot from our guest contributor, CK who has kindly analyzed and shared his finding with us on a few development that are ongoing at the moment. I am a big fan of property myself and am following closely the development of a few residentials and how they are being priced with demand sentiment. Who knows, if time is right, we might just go in with a second property. Knowing the flour (land price) the developers paid, it certainly helped in making decision.

Singapore real estate market is very transparent in terms of the data availability on real estate deals that is publicly available. Extending to the earlier blog post (link here), I did a back testing on selected government land sales (on a psf ppr) compared against the median psf achieved for the project and did a ratio analysis on the cost of land vs. the cost of sales (i.e. flour vs. bread).

Do note that the median sales price psf on the project is based on data available over the past 2 years shown below:

The above throws up some interesting observation.

1) Considerable improvement since 2013. This reflects that developer are able to improve their margin largely due to lower land cost as property prices has been on a downtrend since 2013 based on the property price index.

Case in point for Highline Residence, Principal Garden and Artra which are all located within district 3 where the lower land cost paid for Principal Garden and Artra is one of the key reason for the better ratio compared to that of Highline Residence.

2) Resilience in suburban: The winners on the above ratio are that of High Park Residence and Clement Canopy. This validate the ‘upgrader’ market we are seeing in Singapore whereby the price of HDB within the vicinity provides a good support and market for such developments. Quoting Wing Tai Holdings chairman and managing director Cheng Wai Keung in the press release for Wing Tai 30 June 2017 full year results: “The result has been a “strange phenomenon” where prices in the general upgraders’ market have been driven up to the point where they are now close to values in the costly Orchard Road fringe area.”

3) Bullishness on recent land price reduce margin of safety for developer just as the over-bullish land bids in 2013 resulted in a poor bread to flour ratio, developer are currently out full force in their land bids and you can see from the papers that a development is up for en-bloc everyday. Case in point in district 3 (yes again), a land bid at Stirling Road was awarded for over S$1 billion at $1,050psf ppr which is not very far off the bid in 2013 for Highline Residence.

4) Developer who got their land bank in the last 2 years set to benefit In the same vein, developers who have residual land bank obtained over the past 2-3 years “low cycle” is set to benefit from the improved sentiments. This have to a certain extent been reflected in share price of developers such as City Development, UOL, Fraser Centrepoint Limited, Bukit Sembawang and Guocoland. The next development which is launching is incidentally at Fernvale which is the best performer based on the above analysis by Sing Development - Wee Hur. Using the median price achieved by High Park Residences (which is fully sold out), the ratio projected is fairly comparable to recent developments launched.

Note: The writer had over the past 3 years been vested on Bukit Sembawang, City Development and is currently vested on Guocoland, Wing Tai, Goodland, Wee Hur and Chip Eng Seng.

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