On Monday (4th Dec), two state land sites were put up for sale to test the waters of a new rental housing proposition. Analysts expect a cautious reaction from developers.

A site on Zion Road, close to Orchard Road and the River Valley district, will yield a massive project of up to 1,170 units of residential housing, including 435 apartments with service.

The site at Upper Thomson Road would produce 640 residential units, including 100 serviced apartment, in a precinct being developed for a new housing area.

The two plots were released on Monday by the Urban Redevelopment Authority under the Government Land Sales 2023 programme.

The Upper Thomson Road parcels A and B and Zion Road parcel A are confirmed, while Zion Road parcel B is on the reserve list.

Two large projects, each with about 1,000 units, are planned to be built on the four sites. Last week, on November 29, the pilot program to include the new serviced apartment category in GLS sites has been announced.

The minimum stay is three months, compared to seven days in regular serviced apartment. This change was made in response to the increased demand for rental apartments that has driven up residential rents over recent years.

The Zion Road parcel A is a “plum site”, but the size may discourage bidders.

Wong expects the top bid to be between S$1.47 and S$1.66 Billion, based upon a land unit cost of S$1,600 – S$1,800 a square foot per plot ratio.

The 455-unit Riviere is now located along Jiak Kim Street, the last GLS property to be sold. Frasers Property won the site in December 2017 after receiving 10 bids. The price was S$955.4m or S$1,733 per sq ft ppr.

Lentor Mansion Guocoland

Riviere, which was launched in May 2019, is now fully sold. The average selling price per square foot, according to caveat data, is S$3,066. Jiak Kim Street also includes a block of serviced apartments.

The latest Zion Road tender is likely to be partnered up with large groups that have hospitality experience, such as CapitaLand Frasers City Developments Ltd, and Far East Organization.

Developers may not have the necessary expertise to run a serviced apartment. The capital outlay for these apartments is high and will require a large amount of liquidity.

The current manpower shortage in the hospitality industry would also call for “a rethinking of how to deliver better service with less staff.”

The separate strata titles of the residential apartments and the serviced apartment would be attractive to developers, who could look to sell the serviced apartments into their Real Estate Investment Trusts (Reits).

The overall risk can be reduced by building a serviced apartment portion as the developers will have less residential units to sell in the five-year period for the Additional Buyers Stamp Duty Remission.

The operating costs of a hotel or serviced apartment with a shorter turnover time may be lower with a minimum stay of 3 months.

Upper Thomson Road is a new area for serviced apartment development, and developers will have to factor in substantial risks.

Experts expect developers to be cautious when it comes to the Upper Thomson Road Sites due their less busy location among landed housing and the abundance of new private homes nearby in Lentor.

The top bid for Upper Thomson Road parcel A could be between S$636 and S$723 millions or SS$1,100-SS$1,250 psf ppr. Experts expected that the Upper Thomson Road site (parcel A) would see bids between S$862 and S$948 millions, which is equivalent to S$1,000 or S$1,100 per square foot.

In September, a tender for a plot in Lentor Central closed. The price was S$435,000,000 or S$982 per square foot per person. This was the sixth government-owned plot sold in the area where close to 3,500 new private homes are planned.

The two Upper Thomson sites, located near the Central Catchment Nature Reserve, will also require biodiversity-sensitive urban design strategies in their proposed developments.

The Upper Thomson Road (parcel A) development plot must also be integrated with the preserved building of the former Seletar Institute.

The market is expecting a relatively smaller number of bidders for this round of land auctions, as three large plots are released simultaneously, of which two each have nearly 1,000 units. Developers will continue to be weighed down by high interest rates, macroeconomic insecurity, geopolitical events and high construction costs.