Will FCL get burned by its bullishness on Siglap?

It forked out $624.2m for the rare site.

Listed developers awoke from their long buying slumber when the Urban Redevelopment Authority (URA) released a plum residential site in Siglap for sale by tender last week. A total of eight developers fought for the site, including four of the largest developers in Singapore—Frasers Centrepoint, UOL, City Developments, and Guocoland.

An FCL-led consortium emerged as the top bidder for the site, with a bid of $624.2m. According to a report by DBS, FCL’s bid is just 4% above the next highest bid from CDL and roughly 7% above the median price across all eight bids. The winning margin is noted to be the tightest in 2015, reflecting developer bullishness about the site.

The Siglap site has some very rare and attractive attributes which might explain the bullishness. In particular, it faces the sea and is near the future site of the Siglap MRT station, which is slated to be finished by 2023.

However, DBS noted that FCL’s high bid translates to a cost of $858 per square foot, or a breakeven price of about $1,300 psf. This, in turn, translates to a steep launch price of between $1,500 to $1,600 psf.

This estimated launch price is much lower than recent transaction prices for nearby projects.

“Based on consultants, amongst existing projects, Costa del Sol is the most comparable project but recent transactions there imply clearing prices of only S$1,210psf. Other existing developments nearby the site, which are over 10-years old (Mandarin Gardens, Neptune Court, Fernwood Towers, Laguna Park), saw transactions averaging around only S$980psf – S$1,000 psf,” DBS said. 

Although FCL’s upcoming Siglap project is expected to be more expensive than its peers, the project’s take-up rate will likely be boosted by its proximity to the future Siglap MRT and its unique attributes.

“FCL plans to launch between 800-900 units, a design which we understand will maximize seaview-facing units. Subject to the take-up of this Siglap project when [launched], we believe that developers might start to look at potential en-bloc of existing projects nearby which have tried but failed in their previously attempts to enbloc sales. Home owners in these developments might be smiling once again,” DBS said.