Commentary on Tenders at Zion Road and Upper Thomson

By Tricia Song (宋明蔚), Head of Research, Southeast Asia, CBRE

Caution prevailed at the URA tender closings today (4 Apr 2024) for the residential site at Upper Thomson Road Parcel B (940 units) and the pilot long-stay serviced apartments (SA2) site at Zion Road Parcel A (735 conventional housing units and 435 – 500 SA2 units). Both parcels saw muted participation from developers, each receiving just 1 bid. 
 
As the pilot SA2 site launched for tender, the residential with commercial at 1st storey site at Zion Road Parcel A saw subdued interest, receiving 1 bid at a unit price of $1,202 psf ppr, below our expectations. 
 
Meanwhile, the site at Upper Thomson Road Parcel B also received a sole bid with a bid price of $905 psf ppr, at the lower end of our expectations. 
 
This shows continued risk aversion and selectiveness among developers especially for prime sites and bigger sites which require larger capital outlay, in light of economic headwinds, interest rate uncertainty and cooling measures. Developer sales also slumped to a 15-year low of 6,421 units in 2023 and have remained tepid to start the year amid negative newsflows from a slew of company layoffs, albeit globally which appear to have dented buying sentiment.
 
Zion Road Parcel A
The residential with commercial at 1st storey site at Zion Road Parcel A received 1 bid at $1.107 bn ($1,202 psf ppr) submitted by a CDL-led joint venture. Said plot is the pilot SA2 site, a hybrid developmental site comprising of 735 conventional housing units and 435 – 500 long-stay serviced apartments – which require a minimum stay of three months, up from the minimum stay of seven days for existing serviced apartments.
 
At a unit price of $1,202 psf ppr, the top bid is about 15% below our expectations and a significant 30% lower than the comparable land parcel across the road, which now houses the 455-unit Riviere along Jiak Kim Street. In Dec 2017, the site which drew 10 bids was awarded to Frasers Property for $955.4 million or $1,733 psf ppr. Riviere, which is now fully sold saw 47 transactions in 2023 at a median price of $3,083psf.
 
Despite its attractive location, Zion Road Parcel A’s large size, capital commitments, and investor-focus may have deterred developers. While service apartments can offer attractive returns under the right conditions, the financial commitment to these projects could be substantial, especially compared to the relatively more straightforward financing and revenue models of condominiums. 
 
Service apartments often require higher upfront capex whereas with condominium developments, developers are able to use the funds received from progressive payments to finance ongoing construction activities. There could also be more caution regarding the financing of projects that is associated with short-term rental income. Moreover, private housing rents have started to slow, coupled with more supply in the prime residential market in the near term.  
 
In addition, the recent launch of a more palatable nearby land parcel at River Valley Green Parcel A (380 units) early last month could have shifted developers’ attention away from the Zion site given lower development risks from the former’s smaller size and lack of SA2 requirements. 
 
Based on the lacklustre bid price and lack of developer participation to ascertain market consensus, the site is unlikely to be awarded. If, however the URA decides to award the site to encourage future take-up at upcoming SA2 land tenders, we expect the developer could launch at an average selling price of $2,700 – 3,000 psf.
 
Upper Thomson Road Parcel B 
The plot at Upper Thomson Road Parcel B drew just 1 bid at the lower end of our expectations with a bid price of $780 mil or $905 psf ppr from a JV between GuocoLand and Hong Leong Holdings. 
 
Interest in today’s tender was more subdued.  The Upper Thomson Road site, while next to a MRT station, is in a quieter enclave without the HDB upgraders catchment. In addition, with its large size of 940 units and the large competitive supply from the Lentor area with close to 3,000 units, it may pose to be challenge for some developers. The sole bidder, GuocoLand and Hong Leong Holdings however both have stakes in numerous projects in the Lentor and might be looking to further extend their foothold in the area.
 
The successful tenderer will need to incorporate design and construction requirements such as incorporating “biodiversity-sensitive urban design strategies” and integrate the conserved building of the former Seletar Institute with the proposed development. These inclusions may push up development costs, which could be a deterrence for developers.
 
Nearby 5 Lentor projects launched since Sep 2022 have collectively sold about 1,710 units (69% of total 2,477 units available) at median prices of S$2,100-2,300 psf as of end-March 2024. At the bid price of $905 psf ppr, we expect the developer could launch at an average selling price of $2,050 – 2,250 psf.