Asset repricing

December 2, 2014 9:07 AM SGT

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SINGAPORE:Top-end market sees ripple effect with some funds exiting and developers looking to offload their units in bulk at discounted prices.

Developer SC Global Developments is putting the finishing touches to its 36-storey masterpiece, Sculptura Ardmore, where the most captivating feature is the cantilevered 15m infinity swimming pool attached to four of the ultra-luxurious apartments.

The 34-unit condominium project is designed by New York-based Carlos Zapata Studio, famous for the dynamic design of The Cooper Square Hotel in the Big Apple.

Sculptura Ardmore is not on the market yet.

However, when the project was unveiled two years ago, property consultants had speculated that prices would start from $5,000 psf.

Meanwhile, French architect and Pritzker Architecture Prize winner Jean Nouvel has two signature projects in the same neighbourhood: the 43-unit Le Nouvel Ardmore on Ardmore Park and the adjacent 156- unit Nouvel 18 on Anderson Road.

To date, Le Nouvel Ardmore by listed developer Wing Tai Holdings has sold three units, with the latest price achieved at $4,372 psf, on January 2013.

Meanwhile, Nouvel 18, which is a joint venture between City Developments and Wing Tai, has not been launched yet.

Developers such as SC Global, Wing Tai Holdings and City Developments have deferred the releases of their luxury residential offerings, as prices at the top end of the condo segment have been tottering.

Causing a stir is a recent bulk sale that could trigger a repricing of assets in the high-end segment if the deal goes through.

Word on the street is that 21 Anderson – Royal Oak Residence, a freehold condo block with just 34 apartments, has found a buyer after three to four months of active marketing.

The price is said to be around $1,850 psf, and the buyer, a real-estate fund, is currently conducting a due diligence exercise.

Based on the gross floor area of 7,948 sq m (85,552 sq ft) at 21 Anderson, the price amounts to $158.3 million, which is about 37% below the $250 million to $260 million price tag indicated in January 2013, when the property was first put up for sale by expression of interest by JLL.

Incidentally, JLL is believed to have brokered the recent sale, although the property consultant has declined to comment on the deal.

The seller of the property is Arch Capital, a real-estate fund of which Ayala Group is a strategic partner and sponsor, while New York-based Rohatyn Group, a private-equity fund focused on emerging markets, owns a 50% stake.

According to caveats lodged, Arch Capital paid $200 million ($2,338 psf) for the units in a bulk purchase in July 2010.

‘A new base’ If the recent sale goes through at $1,850 psf, it would mark a 20.9% discount to Arch Capital’s purchase price of $2,338 psf four years ago.

“In bulk deals, most buyers expect a bulk discount,” explains a property consultant who declined to be named.

“The vendor wanted to sell, and this is the price that the market would bear.”

The price is believed to be pegged to that at an adjacent condo, Avalon.

The 15-year-old freehold project comprises 82 units and the latest transaction there was in May 2013, when a 1,803 sq ft unit was sold for $3.3 million ($1,803 psf).

Completed in 2000, 21 Anderson was completely refurbished in 2009.

Arch Capital is said to have undertaken further enhancement works following its purchase in 2010.

The property is fully leased, although a penthouse is now on the market for rent at $20,000 to $22,000 a month, according to a property observer.

Based on a press release issued by JLL last year, 21 Anderson has also obtained outline planning permission for conversion to serviced apartments.

“The new buyer can ride out the current market weakness while earning rental income on the property,” notes the property observer.

The price of $1,850 psf is likely to form “a new base” for the luxury residential market, where prices have been softening incrementally.

It is expected to have a stabilisation effect on prices, explains a property consultant who declined to be named.

However, other property consultants reckon the new price threshold should not affect prices of new projects in the vicinity of Ardmore Park and Anderson Road.

“Nouvel 18, which is also on Anderson Road, is brand-new and positioned as an ultra-luxury condo,” says a property consultant.

“The market will distinguish these projects from a bulk deal involving a condo that is more than 10 years old and where a bulk discount has been given.”

The sale of 21 Anderson, however, is likely to have a more immediate impact on another bulk sale just across Stevens Road, namely Treasure on Balmoral.

The 48-unit freehold luxury condo, developed jointly by listed niche developer Hiap Hoe Ltd and sister company Superbowl, was completed in November 2012.

A 12-storey block with a total strata area of 103,439 sq ft, Treasure on Balmoral contains a mix of three- and four-bedroom units as well as penthouses ranging from 1,701 to 3,767 sq ft.

The property was put up for bulk sale in July, with a guide price of $191.4 million, which translates into $1,850 psf.

Savills Singapore is the appointed marketing agent for the bulk sale.

The expression of interest closed on Aug 21.

At that time, the guide price of $1,850 psf for Treasure on Balmoral was already at a 20% discount to the transacted prices of new launches in the Balmoral Road neighbourhood.

For instance, at the freehold Goodwood Grand, which was launched earlier this year, prices of units sold ranged from $2,366 to $2,544 psf in the months of April and May, based on caveats lodged with URA Realis.

The developer of Goodwood Grand is a consortium comprising Tong Eng Brothers, Tiong Seng Holdings and Clarus Corp.

More rumblings Hiap Hoe is believed to be selling all the units at one go as a consequence of the Qualifying Certificate (QC) rules, which require a foreign or listed developer to complete a project within five years and to sell all the units within two years of completion.

Last month, Hiap Hoe undertook a bulk purchase of the unsold units in some of its other condo developments.

On Sept 19, the group announced that its wholly-owned subsidiary, Bukit Panjang Plaza Pte Ltd, the developer of the freehold Skyline 360 at St Thomas Walk, had sold the remaining five unsold units in the 61-unit condo, to another wholly- owned subsidiary of the company, HH Residences, for a total of $35 million ($1,574 psf).

Skyline 360 was completed in 2012, according to URA Realis.

Another of Hiap Hoe’s wholly- owned subsidiary, Guan Hoe Development Pte Ltd, the developer of the 23-unit freehold Signature At Lewis on Lewis Road, off Bukit Timah Road, has also sold to HH Residences two remaining units in the project for a total of $7 million.

The units are reportedly penthouses and the price works out to $1,071 psf.

Developers that wish to offload unsold units to avoid the QC extension charges and real-estate funds that face maturity and have to sell their assets by a certain time, are having a major impact on prices.

In September, ARA Asia Dragon Fund sold 12 units at Grange Infinite to Indonesian tycoon and philanthropist Tahir.

The total sale price of the bulk deal amounted to about $70 million, and comprised 11 four-bedroom apartments of 2,560 to 2,700 sq ft each as well as a junior penthouse of 6,039 sq ft.

The acquisition price translates into $2,050 psf for the four-bedroom units and $1,950 psf for the penthouse.

The units were sold with vacant possession.

Tahir’s recent bulk purchase of $2,050 psf was at a 21.2% discount to ARA Asia Dragon Fund’s purchase price of $2,600 psf six years ago when the latter swept up 53 units for a total of $388 million.

The bulk purchase discount at that time was about 18%, as the joint developers of Grange Infinite, Chip Eng Seng and Citadel, had sold most of the units at $3,200 psf when the project was first launched in 4Q2007.

Market sources claim another bulk sale is in the pipeline in the neighbourhood of Paterson Road, just off Grange Road.

A buyer is believed to be conducting due diligence on the purchase of 18 units at the freehold Paterson Suites that are owned by investment fund Real Estate Capital Asia Partners (RECAP).

RECAP had purchased 20 units from developer Bukit Sembawang Estates in December 2010, when the 102-unit high-end condo was newly completed.

The units purchased by RECAP were four-bedroom apartments from the second to 21st floors, with a total strata area of 44,000 sq ft.

The total purchase price was $118.6 million, or $2,700 psf.

RECAP sold two mid-floor units of 2,196 sq ft each at $6.1 million ($2,775 psf) and $5.7 million ($2,596 psf) in March and April 2013 respectively.

The bulk buyer of RECAP’s units at Paterson Suites is said to have made an unsolicited offer for the units.

Some industry sources reckon the purchase price could be comparable to Tahir’s recent bulk purchase at Grange Infinite.

However, others believe the final transacted price could be higher even after a bulk discount.

Right next door to Paterson Suites is Bukit Sembawang’s soon-to-becompleted 85-unit Paterson Collection, which has yet to be launched.

Some property observers reckon the developer is exploring the possibility of leasing out the units as corporate residences.

But the developer would have to apply for a one-time extension during the completion period, say property consultants.

Despite the double-digit price declines in some of the recent bulk deals in the high-end condo segment, the islandwide private residential property price index showed only a 3% decline for the first nine months of 2014.

Colliers International Research’s forecast is for a fullyear drop of 5%.

However, Colliers expects a more drastic correction in the luxury condo segment, of up to 10% by year-end.

The top end of the condo market has already seen prices slump by 6.9% in the first nine months of 2014, points out Colliers.

As for the HDB price index, the decline for the first nine months of 2014 was 4.6%.

Perhaps that is why Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam has declared that property prices in Singapore have yet to see “a meaningful correction”.

Private residential property prices had run up 62.2% from 2Q2009, when the economy began to recover from the global financial crisis, to their recent peak in 3Q2013.

“A price fall of some 10% to 15% would not seem unreasonable to correct the overexuberance, or some might say excesses, witnessed in the last five years,” says Chia Siew Chuin, Colliers International’s director of research & consultancy.

The pace of the decline has so far been mild, she notes.

What’s more, prices had only started to decline in 4Q2013, she adds.

Given the current gentle rate of price decline in the overall market, she reckons it could take more than a year or an adverse event for prices to see a more precipitous drop.

The exception has been in the luxury and super-luxury condo segment, where price have fallen more significantly compared with the other private residential segments.

Unlike the other segments, where prices recovered following the global financial crisis, prices of luxury/super- luxury apartments are still below their pre-crisis levels, concedes Chia.

The top-end segment, which has traditionally been investor-driven, has also been more badly affected by the slew of property cooling measures introduced by the government.

“All in, prices of luxury/super- luxury apartments have fallen 18.6% from the peak in 1Q2008,” she comments.

This article appeared in the City & Country of Issue 650 (Nov 3) of The Edge Singapore.

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