The vibrancy in the market was partly fueled by healthier home sales, improved sentiment and the more positive economic outlook. Developers, encouraged by the returning market confidence, had placed strong bids for attractive sites, both in public tenders as well as via en bloc sales.
One year on, the picture has turned a shade darker as greater uncertainty looms for real estate developers.
In November 2017, the Government introduced the Pre-Application Feasibility Study (PAFS) on traffic impact for en-bloc residential redevelopments. The study – to be conducted by interested parties, including potential buyers – seek to assess the traffic impact on the area and propose initiatives to manage traffic demand or improve transport plan to support the redevelopment proposal.
To be clear, the PAFS is a step in the right direction in our collective efforts to create a more sustainable built environment and a car-lite society. However, it does generate a fair bit of uncertainty for developers as they are unable to anticipate the nature and extent of public works that they are required to put in place at or near the redevelopment site.
Such public works could include new sheltered walkways, covered overhead bridges, new roads or cycling tracks. Depending on the constraints and complexity of the site, the cost to build these infrastructure or amenities would vary, typically in the millions of dollars.
Based on our broad observation, developers would already have committed to buying a collective sale site before they are informed by the authorities on the types of public works required to support their redevelopment plans on the plot. This makes it more challenging for developers – who are already facing uncertainty in the number of units that can be redeveloped on the site – in assessing the cost and financial viability of a project.
The process differs for those acquiring sites from public tenders. In a Government Land Sales tender, requirements on the development of public works would be laid out in the tender document, allowing prospective buyers to evaluate the feasibility of their construction vis-a-vis the cost of do so prior to tender submission. The costing could then be factored into the tender bid price. This is a clear and transparent approach which the market is familiar with.
More certainty; fewer surprises
At the crux of it all, we think it is not about whether en bloc developers should or should not shoulder the cost of building public works near their development sites, but whether there can be some broad guidelines from the authorities to help them ascertain the cost of doing so. To this end, more certainty and fewer surprises can only be beneficial for the market.
To be sure, we believe the private sector ought to play its role in supporting public infrastructure development, where possible. Not only will this serve the wider community, it is also a way of championing corporate social responsibility and staking a firm commitment to improving the urban landscape.
Taking it one step further - such works may even make the project more attractive to home buyers in the future. After all, improving connectivity and traffic management as well as the general aesthetics of the immediate surroundings – such as providing covered walkways from the development to the MRT station – could only be a plus for project marketing when it is eventually launched for sale.
It has been nine months since the PAFS was rolled out. Perhaps in the weeks and months to come, the authorities could share its key learnings and best practices from the implementation of PAFS thus far. A better understanding of the criteria around the scope of public works needed and how they are being assessed will go a long way in helping to forge a win-win partnership between the private and public sectors.