Market News

29 Mar 2018

Mismatch in price expectations breaks sales

IN 2017, the market was astonished by the upswing in residential en bloc and private land sales when deals worth S$9.1 billion were sealed, second only to the record S$12.3 billion fetched in 2007. A lack of sites under the government land sales (GLS) programme, coupled with developers' acute need to replenish land inventory and a recovering residential property market, were the main driving forces behind the en bloc sales boom in 2017. The year 2018 has begun with 19 sales realising S$5.7 billion in value as at March 21, 2018, although several sites had tenders closed with the sales outcome still pending. This review seeks to understand the factors that will impact the en bloc sales market in 2018 and its outlook. Launch pipeline low; restocking still in progress       The launch pipeline comprising unsold completed and uncompleted units was at a high of 40,430 units in Q4 2011, but strong take-up in 2012 and 2013 and a cutback in GLS from 2014 resulted in the supply of units for sale shrinking significantly. Between 2010 and 2013, the GLS supply, based on the Confirmed List, averaged about 9,000 units per annum. However, oversupply concerns led to GLS supply being reduced to about 4,000 units per annum on average under the Confirmed List, between 2014 and 2017. Consequently, by mid-2017, the launch pipeline had plunged to 16,929 units, the lowest level since the data series commenced in Q3 2006. Compared to the new sales take-up of 10,566 units in 2017, it is a rather narrow buffer, providing only a year-plus of supply. As at Q4 2017, the launch pipeline increased to 20,794 units, due mainly to the pick-up in en bloc sales. With new sales take-up estimated at 11,000 to 12,000 units in 2018, and possibly continuing at healthy levels for the next year or two, the launch pipeline will have to be sustained to ensure adequate supply. This has contributed to developers continuing to restock their land banks. Demand spurred by positive medium-term outlook The residential market has been on a down-cycle for about four years, as reflected by the Urban Redevelopment Authority's (URA) residential property price index, declining from Q3 2013 to Q2 2017. But with its turnaround since mid-2017, the market is recovering and in the early stages of an up-cycle. Perhaps the duration of the past two recovery cycles may give some indication of how long an up-cycle can last. The most recent recovery cycle started in 2009 - after the global financial crisis - and peaked in 2013, interrupted by the effects of the cooling measures including the total debt servicing ratio (TDSR) framework. Another recovery cycle started in 2004 and ended in 2008 when an economic downturn struck with the onset of the global financial crisis. Each of these recovery cycles lasted about four years and ended due to market or regulatory events. The current market play can be influenced by an optimistic market outlook for the next two to three years. During this period, transaction volumes are expected to increase due to pent-up demand, presenting potentially attractive revenue opportunities for developers. Rising land prices raise sellers' expectations It may not have been apparent earlier but residential land prices had been slowly creeping up since 2015, reaching a crescendo in recent months. The increase was across all sub-markets, exacerbated by the reduction of residential land supply under the GLS programme, resulting in more intense competition and bidding for sites among developers. An example in the suburban sub-market is in the West Coast Vale area where the Parc Riviera site was clinched in August 2015 for S$551 per sq ft per plot ratio (psf ppr), only to be surpassed by the S$592 psf ppr paid for the adjacent Twin Vew parcel in February 2017. The Twin Vew land price was further overshadowed by the S$800 psf ppr winning bid in January 2018 for another site in the same location. In the prime sub-market, the Martin Modern parcel fetched S$1,239 psf ppr in June 2016 but keen demand saw the Jiak Kim Street site command S$1,733 psf ppr - a more optimistic bid, notwithstanding the commercial use allowed on the first storey. The successful en bloc sales in 2017 at mostly optimistic prices bolstered the confidence of sellers and raised their price expectations. This has led to reserve prices of en bloc sites not being met and the sales process becoming protracted, with sellers exploring follow-up options such as securing a buyer by private treaty. In 2018, we expect a trend of more protracted or failed collective sales due to a mismatch in pricing expectations by en bloc sellers and buyers. Strong en bloc pipeline While more en bloc sales could end up being protracted in 2018, a strong pipeline of these sites is likely to maintain or increase the momentum of launches. The launch and sales momentum in the en bloc sales market has been rising on a quarterly basis since 2017. There are currently about 140 developments in varying stages of sales preparation, although some of these might be non-starters while others may not secure the required minimum 80 or 90 per cent consensus. Currently, around 10 en bloc sites are waiting for their tenders to close, while another 14 sites are under private treaty negotiations following non-conclusive offers after their tender closing. Some of these - Cairnhill Mansions, Riviera Point, Pearl Bank Apartments and Brookvale Park - were sold recently. Since a sustained supply of sites is expected, bids are likely to stabilise and the volume of successful collective sales could possibly increase. The recent increase in the top marginal rate of the buyer's stamp duty (BSD), from 3 per cent to 4 per cent for amounts exceeding S$1 million of the property value, is unlikely to dampen demand for residential sites. Although developers might trim their bids for sites slightly, taking into account the BSD increase, there are other factors that might have a preponderant effect. In reality, any computational reduction in bid assessment will be subject to how attractive the site is, its reserve price, the competition involved, the current rising market outlook or other factors. In 2017, investments in GLS residential sites amounted to S$5.97 billion while collective/en bloc/private land sales fetched S$9.1 billion. Investments in GLS residential sites in H1 2018 is estimated at S$4-4.4 billion and is expected to be moderate for the full year as the H2 2018 GLS programme is unlikely to be aggressive. Therefore, en bloc sale sites will continue to be a major source of residential land supply for developers in 2018. As the medium-term outlook is positive, developers are likely to continue restocking their land inventory. Coupled with a firm pipeline of potential en bloc sites, the sales momentum witnessed in 2017 is expected to be sustained. Source from The Business Times 29 Mar 2018

21 Mar 2018

Olina Lodge, Verdun House up for collective sale for S$220m, S$60m respectively

OWNERS of Olina Lodge, a freehold project in prime district 10, hope that third time's the charm for their collective sale attempts and have launched their properties for en bloc sale - this time with a reserve price of S$220 million. This translates to a land rate of S$1,631 per square foot per plot ratio (psf ppr), said sole marketing agent Singapore Realtors Inc (SRI). If the developer chooses to build additional 10 per cent gross floor area (GFA) for balconies, the land rate could be potentially pared down further to slightly below S$1,500 psf ppr. There is potentially no development charge payable for redevelopment up to gross plot ratio of 1.6 due to a high development baseline for the 7,830.7 sq m freehold site.       SRI noted that the land rate is attractive when compared to recent collective sale transactions within District 10, which includes Hollandia at S$1,703 psf ppr, Toho Mansion at S$1,805 psf ppr, Crystal Tower at S$1,840 psf ppr, City Towers at S$1,847 psf ppr and Royalville at S$1,960 psf ppr, inclusive of the 10 per cent bonus GFA for balconies. The successful bidder could build an upscale 12-storey, 128-unit development with an average unit size of 1,000 sq ft, subject to approval from authorities. SRI managing director Tony Koe said that he is confident that the tender will attract keen interest from developers that have not had their fill of land, and potential new players in the Singapore residential market. Separately, SRI is also marketing the collective sale of Verdun House, a commercial zoned site that now houses a mixed development of four shops and 12 apartments. Owners at Verdun House are asking for S$60 million, which translates to S$2,100 psf ppr. They are seeking clarification from the authorities on the development baseline of their development. "The majority owners of Verdun House holding 80 per cent by share value and strata area had agreed to the collective sale in one sitting, immediately right after their extraordinary general meeting when they approved the collective sale agreement," said SRI head of investment sales Andy Gan. "It is highly uncommon and challenging for a mixed development to get the majority 80 per cent owners' consensus, due to the difference in use types," Mr Gan said. "While there are usually challenges in the method of apportionment in most instances for mixed development, the environment was very cordial during the signing stage for Verdun House. This shows how ready and cohesive the owners were to do a collective sale." The new development on the 7,316 sq ft site could accommodate a fully commercial project with a GFA of about 30,728 sq ft. It can be configured into 50 commercial units with an average size of 550 sq ft each, subject to approval from authorities. The project is opposite Mustafa Centre, about 100 m from City Square Mall, and within walking distance to Farrer Park MRT station on the Northeast Line. The tenders for Verdun House and Olina Lodge close on April 18 and April 19 respectively, SRI said. Source from The Business Times 21 Mar 2018

21 Mar 2018

Far East-led consortium places 3 of total 15 bids for Holland site

PROPERTY giant Far East Organization - which has been lagging its rivals in a land shopping binge in the past year or so - is leading a consortium that has placed three bids for a prime commercial and residential site in Holland Road. The Urban Redevelopment Authority's first dual-envelope tender in eight years drew a strong turnout on Tuesday. In all, 15 bids were received from 10 consortiums for the 99-year leasehold site near Holland Village MRT Station. Four of the groups placed multiple bids to raise their chances of clinching the site. "The huge capital outlay with a land price possibly exceeding S$1 billion and the necessary experience in developing and managing the non-residential component would have led to the tie-ups," said JLL national director Ong Teck Hui.       URA released the names of the bidders on Tuesday evening but not the bid prices, in accordance with rules for the dual-envelope concept and price tender mode for the site's sale. Far East Organization was joined by an affiliated company and Sekisui House. Three other groups placed two bids each: Lendlease in a tie-up with Pontiac Land; Perennial Real Estate Holdings in partnership with Qingjian Realty; and GuocoLand in partnership with Hong Leong Holdings' fully-owned unit Intrepid Investments, TID and Hong Realty. The rest of the bidders placed one bid each. They include City Developments, in partnership with RB Capital; Allgreen Properties in partnership with Kerry Properties; and UOL Group, which teamed up with United Industrial Corporation. Also bidding were CapitaLand, in partnership with Hotel Properties; SingHaiyi Group in a tie-up with its controlling shareholder Haiyi Holdings; and Chip Eng Seng in partnership with Roxy-Pacific Holdings and JBE Properties. Cushman & Wakefield research director Christine Li pointed to the site's rarity appeal; it can be developed into a mixed-use project near a major transport node and cater to the luxury segment. "The recent spate of collective sales in the prime districts in the first three months of the year could have spurred more interest in the Holland Road site. "With land costs firmly on an upward trend, fuelled by both state tenders and en bloc sales, the eventual bid price for Holland Road could surprise on the upside." Bidders were required to submit their concept proposals and tender prices in two separate envelopes. Only the envelopes containing concept proposals were opened on Tuesday. The concept proposals should demonstrate how the proposed development on the land parcel will address the following evaluation criteria: quality of design concept, quality of public realm, and track record. A Concept Evaluation Committee (CEC) will first evaluate the concept proposals against the evaluation criteria. Only those that substantially satisfy the evaluation criteria will be shortlisted by the CEC for the second stage of the tender evaluation. At the second stage, the price envelopes of proposals with acceptable concepts will be opened and the site awarded to the tenderer with the highest bid. The Holland Road site can have a maximum gross floor area (GFA) of 59,715 square metres (642,766 sq ft), of which up to 13,500 sq m can be used for retail. The URA has also set a cap of 570 residential units for the project. At least 60 per cent of the total GFA should be for residential use and the remaining 40 per cent may be for commercial use. The land parcel is divided into two zones. Zone 1 is intended for residential development. The types of housing units that can be allowed in this zone are flats, serviced apartments and/or strata landed houses. Zone 2 is intended for commercial and/or serviced apartment uses. Dual "office/residential" use units - whereby each unit is allowed to be used for both office and/or residential uses interchangeably without planning permission - may be allowed as part of this zone. No strata subdivision is allowed in Zone 2. When the site was launched last December, consultants forecast winning bids ranging from S$1,300 per square foot per plot ratio (psf ppr) to as high as S$1,900 psf ppr - translating to S$836 million to S$1.2 billion. However a market insider told BT last night that bids above S$1,600 psf ppr may be bullish. "Those who have made predictions in this range may not have factored in a few key constraints on the proposed development. "One is the enormous complexity of the construction, for example the need for the developer to build underground carparking across the entire site in addition to constructing some bridges, roads and underpass. "Furthermore, it will be hard to divest the component on Zone 2, assuming the developer has multiple property types such as retail, serviced apartments, offices - as no sale will be allowed in the first five years after the project's completion. Taking into account the long-term nature of Zone 2, the winning bidder needs to factor in the rising interest rate environment." Ms Li of Cushman and Wakefield said that "while most developers would want to ride on the residential boom and use the sales proceeds at the pre-launch to fund the subsequent development, developers opting for serviced apartments have an edge over the rest in the price tender due to the higher capital values of serviced apartments". The 2.3-hectare plot is the first state land sale site launched as part of the Holland Village Extension plan unveiled in URA's 2014 Master Plan. Market watchers expect that it could take about two months before URA awards the site. The successful bidder will be given seven years to complete the project. JLL's Mr Ong said the response to the tender was not unexpected given the attractiveness of the site, the upturn in residential and commercial property and the stabilising retail property. CBRE Research head of Singapore and South East Asia Desmond Sim said: "As it is a mixed development, as well as a GLS site, the tender presents greater opportunities, and a quicker, clean-cut acquisition process for developers compared with participating in a collective sale." ZACD Group executive director Nicholas Mak noted that at least two China-originated developers participated in this tender, namely Qingjian and SingHaiyi. "These developers were primarily developing residential projects in Singapore. Now they appear to be ready to expand into commercial development and possibly hold such commercial developments for investment... They will be giving other Singaporean developers a run for their money." Source from The Business Times 21 Mar 2018

20 Mar 2018

Peak Court owners launch en bloc tender with S$106m asking price

OWNERS of the Peak Court condominium at Thomson Road have launched a tender for collective sale with a reserve price of $106 million. The freehold 57,350 square foot site is zoned for residential use with a gross plot ratio of 1.4 under the Urban Redevelopment Authority's Master Plan 2014. Including a 10 per cent bonus balcony area, that places the reserve price at S$1,342 per square foot per plot ratio. The current development comprises 20 maisonette units, and was built in the 1980s. Marketing agent Edmund Tie & Co (ETC) said that the site can be redeveloped into a condominium project with about 106 units. If serviced apartment approval is granted, developers can also make use of the site's proximity to the future Health City Novena and Thomson Medical Centre, ETC said. The development sits within District 11, close to the Novena MRT station. The tender closes at 3pm on May 9, 2018. Source from The Business Times 20 Mar 2018

19 Mar 2018

GuocoLand, Hong Leong group bag Pacific Mansion for S$980m, in second-biggest ever en bloc deal

GUOCOLAND and the Hong Leong Investment Holdings group have won a bid to buy the Pacific Mansion condominium development in River Valley for S$980 million, setting a new high among recent en bloc deal amounts. The deal beats out the recent sales of Tampines Court, for S$970 million, and Amber Park, for S$907 million, for the largest en bloc transaction in the current cycle. It is surpassed only by the S$1.3 billion sale of Farrer Court more than a decade ago. The winning bid represents a 4.5 per cent premium to Pacific Mansion's reserve price of S$938 million. Each owner of the development's 290 apartments will stand to receive a gross payout of S$3.26 million to S$3.48 million, while the owners of the two shop units there will pocket between S$2.2 million to S$4.5 million each, said marketing agent CBRE. The freehold 128,352 square foot site has a plot ratio of 2.8 under the Urban Redevelopment Authority's 2014 Master Plan, but its maximum allowable gross floor area works out to 542,544 sq ft because its existing gross floor area is already 493,222 sq ft with a 10 per cent bonus balcony area. Based on the maximum allowable gross floor area, the purchase price works out to S$1,806 per sq ft per plot ratio. Mainboard-listed GuocoLand holds a 40 per cent stake in the bid. Hong Leong Investment Holdings' Hong Leong Holdings Ltd and Hong Realty hold the remaining 40 per cent and 20 per cent stakes respectively. Hong Leong Investment Holdings is also a substantial shareholder of Guocoland. GuocoLand says the property, which lies within prime District 9, can be developed into a luxury condominium. It is within walking distance to Great World MRT station that is under construction and near to GuocoLand's Martin Modern project. Source from The Business Times 19 Mar 2018

17 Mar 2018

En-bloc fever may be cooling

ENGINEER Andy Goh has stopped saying hello to some neighbours in his condominium. The mood in the 596-apartment Cashew Heights complex is "tense and stressed" after an initiative late last year to offer it for collective sale to a property developer, said the 49-year-old. A firm opponent of the deal, worth at least S$1.88 billion, he feels outnumbered by owners who want to cash out. Recalling a meeting in his condominium last month, Mr Goh, who worries the sale price won't allow him to buy a new home of comparable size, said his dissenting voice was drowned out by the other owners. Singapore has seen a frenzy of en-bloc deals over the last two years in the redevelopment market, a phenomenon that has made some Singaporeans millionaires, inspired hit television shows and turned neighbours into enemies. David Wong, a member of Cashew Heights' pro-en bloc committee, said owners can sell their apartments for at least double the price in a collective sale compared with individually. "I think the financial reason surpasses the sentimental reasons," he said, adding that those who did not want to sell have a vote. Under Singapore law, 80 per cent of the owners in an older development need to approve the sale before tender. The drama of Singapore's property market has been captured in two television shows called En Bloc. In one episode, an anti-en-bloc owner's property is vandalised, while a letter spreads rumours of bad feng shui in another episode. More than a combined S$8 billion worth of such deals were signed in 2017 - the highest in a decade amid a nascent recovery in the housing market. Redevelopment is seen as key to optimising land use in the city-state, home to 5.6 million people in about 700 sq km. But the pace of redevelopment sales has started to show signs of slowing, with recent government measures helping dampen the euphoria, including an increase in stamp duty for home purchases of more than S$1 million. Traffic impact studies are now required to ensure redevelopment will not trigger congestion. The development levy for enhancing sites or building bigger projects on them was raised by an average of 22.8 per cent - the biggest increase in a decade. "I think if you look, definitely the window is closing a bit," said Desmond Sim, research head for Singapore and South-east Asia at real estate services firm CBRE. He said recent collective sales had gone through at the minimum asking prices, developers sated after last year's buying spree and sellers' expectations sky-high. "The exuberance of putting in high premiums has gone," he said. The average premium above asking price has fallen to 2.9 per cent this year from 10 per cent in 2017, according to an analysis using data through late February by real estate services firm Cushman and Wakefield. Aggressive land bids prompted the central bank in November to warn of "excessive exuberance" in the property market, urging developers to factor in new projects slated to open. Derek Tan and Rachel Tan, equity research analysts at Singapore's largest lender, DBS, said last month there appeared to be "a bit of fatigue" in the en bloc market, citing recent deals' relatively low pricing. "The fact that most of the sites have also been awarded at reserve price levels, rather than a premium, may indicate that developers are turning more choosy in adding to their land bank and becoming more cautious in their pricing strategy," they wrote. Those transactions included the S$728 million sale of the Pearl Bank Apartments, the tallest residential structure when it was completed in 1976, to CapitaLand through private negotiations after an unsuccessful public tender. "The asking price from the owners in all these recent en blocs is getting higher and higher. There must be a tipping point," said Ronald Tay, chief executive at CapitaLand Singapore. Developers may also be opting more for the government land sales (GLS) programme rather than en-bloc deals, which can take more than a year to close. "I would say that we definitely have a slight preference at this stage towards GLS because the turnaround is faster," said Sherman Kwek, chief executive officer at City Developments, although he did not rule out more en bloc deals. Cushman estimates that Singapore developers have about S$18.9 billion available for more near-term land acquisitions. Analysts say developers have been building smaller apartments to keep prices palatable to buyers, even as land costs rise. Consultancy JLL estimates the median size of apartments sold directly by developers fell to 69 sq m in 2016 from 111 sq m in 2009. Mr Goh, the engineer, will receive S$3.2 million for his three-bedroom apartment, where he lives with his wife and four children, if the sale of his development, built in the early 1990s, goes ahead. He has been trying band together with other owners who oppose the sale, and laments that no new condominium estates will match the space or open layout that he likes about his neighbourhood. REUTERS Source from The Business Times 17 Mar 2018

15 Mar 2018

Fragrance buys Jervois block for S$46.3m; Eu Realty sells two shophouses

A UNIT of Fragrance Group has bought Lotus at Jervois, a four-storey freehold apartment block, for S$46.3 million. The price works out to around S$1,683 per square foot per plot ratio (psf ppr) inclusive of an estimated development charge of S$200,000. Fragrance Group, controlled by tycoon Koh Wee Meng, is expected to redevelop the District 10 property. The existing development - comprising 20 rental apartments ranging from one bedroom with study units to four-bedders - was built some 20-plus years ago. Under the Urban Redevelopment Authority's Master Plan 2014, the 19,741 sq ft site is zoned for residential use with 1.4 plot ratio (ratio of maxium gross floor area to land area). The property is being sold by Pulau Properties, which is owned by the Lee Foundation and members of the Lee family behind OCBC Bank. Sammi Lim, director of capital markets at CBRE, confirmed that she brokered the deal through private treaty but declined to comment on the buyer and seller's identities. She noted that residential sites in Singapore's prime districts, particularly freehold ones, are increasingly on the radar of developers who are ready to ride on the recovery in the luxury residential segment. "This market is set for a steady recovery supported by a strengthening economy and improving sentiments." Separately, Eu Realty (Singapore), a fully-owned subsidiary of Eu Yan Sang International, has finally sold a pair of adjoining shophouses at 273 and 275 South Bridge Road. Buyer SilkRoad Property Partners is paying S$26.5 million, which works out to S$2,643 psf on the gross floor area of 10,027 sq ft. This is the same price at which Eu Realty had granted mainboard-listed Top Global an option to buy the 999-year leasehold property last November. That deal was subject to the authorities granting approval for a change of use for the upper levels of the property to "hotel or hostel". In January, Top Global said it had aborted the proposed purchase as the condition precedent for the change of use could not be fulfilled. The two shophouses, which span three levels and an attic, sit on a single land lot of 3,089 sq ft. Eu Yan Sang International's fully-owned unit Eu Yan Sang Integrative Health - which operates a TCM (traditional Chinese medicine) clinic on the ground floor of both shophouses - is expected to lease back this space. The second level is vacant while the third and attic levels are leased to an office tenant. The deal was brokered by Cushman & Wakefield, and Savills. Eu Realty also owns four adjacent shophouses at Nos 265, 267, 269 and 271 South Bridge Road. The ground level of Nos 267, 269 and 271 is where the iconic flagship store of Eu Yan Sang (Singapore), another fully-owned unit of Eu Yan Sang International, is located. The upper levels of these three units, as well as the whole of No 265, are leased to third parties. Eu Realty does not plan to sell these four shophouses. SilkRoad Property Partners, a major shophouse investor, was set up here in 2012 by the former AEW Asia senior management team led by Peter Wittendorp. Source from The Business Times 15 Mar 2018

09 Mar 2018

Goodluck Garden sold to Qingjian for S$610m

GOODLUCK Garden, a 210-unit residential development along Toh Tuck Road, has been sold collectively to the Qingjian Group of Companies for S$610 million. This is the third largest en bloc deal to be awarded this year, after Park West's S$841 million transaction in January, and Pearl Bank Apartments' S$728 million transaction in February. Based on a potential gross floor area of 46,840.08 sq m, the sale price translates to a land price of about S$1,210 per square foot per plot ratio (psf ppr). Due to a high development baseline, a development charge will not be payable for the 10-per-cent bonus balcony and this will lower the land price to S$1,100 psf ppr. As at the close of tender on March 7, owners of 169 out of 210 units making up 81.93 per cent of the total strata area and 81.35 per cent of the total share value in Goodluck Garden have consented to the collective sale. Each owner will stand to receive a gross sale price of about S$924,000 to S$3.51 million upon the successful sale, subject to the receipt of an order of sale by the Strata Titles Board or High Court. Goodluck Garden is a condominium comprising eight blocks with a total of 208 residential units and two commercial shops. The apartment sizes range from 95 sq m to 182 sq m, and the two shops are 30 sq m and 91 sq m, respectively. The development has a site area of 33,457.2 sq m. It is within minutes' walk from Beauty World MRT Station. Ian Loh, executive director and head of investment and capital markets at Knight Frank Singapore, which marketed the project, said the tender drew "strong competitive bids" partly due to the fact that the site was not subjected to the rising development charge rates. He declined to divulge how many bids were submitted. This was the development's first en-bloc attempt, and the process took only six months from the first signing to the conclusion of the sale, testament to the en-bloc momentum now in full swing in the property market. Source from The Business Times 9 Mar 2018