"Overly optimistic" bids are appreciating prices by 10-40%.
Analysts warn that despite the optimism, Singapore's en bloc fever and rising land prices could lead to the property market's instability.
Firstly, the intense competition for en bloc deals has driven land prices higher.
According to RHB Research, bids are factoring in a 10-40% appreciation in property prices assuming developers achieve their typical profit margin of 10-15%.
Developers then have to build, sell, and complete a project within five years or else they would face stiffer additional buyer's stamp duty (ABSD) penalties, which is 15% of land cost plus interest expense.
RHB analyst Vijay Natarajan said, "Whilst we do expect prices to rise, we believe the bids are overly optimistic and could limit profit margins of developers despite the expected price increase."
Credit Suisse thinks the market is headed for recovery, but the government should still keep cooling measures on hand in case the market overheats.
Prices are expected to recover by 5-10% in 2018 and transaction volumes to grow by 38% to 32,870 units.
The Monetary Authority of Singapore (MAS) warned that the development of the en-bloc and Government Land Sales (GLS) sites will increase the private housing stock of the next three to five years, and could add to existing vacancies in the medium term if not matched by occupation demand.
RHB and Credit Suisse agree that the government will continue to monitor developments and may place additional measures on the market.
Credit Suisse analyst Gerald Wong said, "Should there be a significant increase in prices, especially if the current elevated vacancy rate of 8.4% persists, we believe there could be risks of a further tightening in property cooling measures."
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