Collective sale bet

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/ The Edge Property
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November 24, 2015 10:00 AM SGT
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With the property cooling measures in place, a faltering residential market and prices on a downward slide, chances of finding a buyer for a big collective sale site may be slim. However, collective-sale hopefuls remain undaunted and tenders of such sites are expected to continue.
Oct 27 marked the closing date for the tender of Shunfu Ville, a privatised HUDC estate on Marymount Road, in the Thomson area. The minimum asking price for the site was $688 million. Although no bids were received, there were two letters of interest. “We are following up with these parties,” says Tan Hong Boon, regional director of capital markets at JLL, the sole marketing agent for the project.
The 358-unit Shunfu Ville sits on a 99-year leasehold site of 408,927 sq ft with a plot ratio of 2.8, and can therefore be redeveloped into a new residential project with at least 1,100 units, based on an average unit size of 1,000 sq ft. Assuming an average size of 754 sq ft, the number of units in the new development will be 1,500.
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Shunfu Ville's tender closed with no bids, but received two expressions of interest from developers
The asking price translates into $791 psf per plot ratio (ppr) on the potential gross floor area (GFA), after taking into consideration the $218 million differential premium payable to the government for topping up the lease to a fresh 99 years and for intensification of use. That would mean a breakeven cost of $1,250 psf for the new project, and an estimated selling price of $1,400 to $1,450 psf. “The asking price for Shunfu Ville is therefore very reason able,” says Tan.
The selling price of the new project will be in line with the indicative average selling price of $1,400 psf at Thomson Impressions, a new 288- unit private condominium off Upper Thomson Road, where sales will start on Oct 31. Thomson Impressions sits on a 99-year leasehold 113,051 sq ft site on Lorong Puntong, off Upper Thomson Road and Sin Ming Avenue, which China-based property developer Nanshan Group had paid $173.6 million or $731 psf ppr for in a government land tender last year.
Also in the neighbourhood of Upper Thomson Road is Thomson Three, a 445-unit private condo by UOL Group and Singapore Land, which was launched in Septem ber 2013 at an average price of $1,350 psf. As at end-September this year, only eight units remain unsold. The site is likewise a 99-year leasehold government land parcel purchased in a tender.
In the vicinity of Upper Thomson Road is also the recently completed 361-unit Thomson Grand by Cheung Kong (Holdings), which was launched in 2011 at an average price of $1,400 psf, and is fully sold to date. Thomson Grand is also situated on a 99-year leasehold government land sale (GLS) site. Developers looking to replenish their land bank in Singapore will continue to focus on government land sites. “With government land sales, developers are just bidding against each other,” says a property consultant who declined to be named. “With collective sales, developers are actually bidding against the owners, especially if their price expectations are high.”
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ABSD penalty Another obstacle that developers buying collective sale sites face is the requirement to complete construction and sell all the units in the project within five years of the site acquisition, to qualify for a remission on the additional buyer’s stamp duty of 15%. “Whether the project has five, 500 or 1,500 units, the developer has to complete the development and sell out the units within five years to be entitled to a remission on the ABSD,” says a property consultant who declined to be named. “There’s no extension for the sale period for bigger sites with more units.”
Unlike the collective sale sites, which have had a chequered history with recent failed attempts such as Gilstead Court, Thomson View and Harbour View Gardens, “the GLS sites are beautifully wrapped with planning parameters set up in some detail”, says a property consultant. “For collective sale sites of ageing 99-year leasehold sites, developers have to embark on a lease top-up and there could be hiccups and delays along the way, yet developers have to complete the project and sell within the same time frame.”
Chances of success for 99-year leasehold mega collective sale sites are therefore very slim in the current market, especially with sluggish residential sales, falling prices and rising inventory, say property consultants. However, this has not deterred other ageing condos and privatised HUDC estates from attempting a collective sale. Word on the street is that privatised HDUC estate Tampines Court is exploring a collective sale. The last time it attempted that was during the property boom of 2007, but the sale lapsed the following year. The HUDC estate at Potong Pasir Avenue 1, which was privatised last year, is also said to be embarking on a collective sale exercise.
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‘Ambitious’ Normanton Park Perhaps the most ambitious collective sale site on the market right now is Normanton Park, launched on Oct 21. Mount Everest, a boutique firm handling the sale of land and buildings in Singapore and abroad, such as in Japan and Cambodia, is marketing the property.
Normanton Park sits on a sprawling 99-year leasehold site of 667,368 sq ft and a plot ratio of 2.1. The residential project was built by the Singapore Armed Forces (SAF) to house its personnel and their families. The proprietary owners subsequently purchased the common property and successfully applied for conversion to a full-fledged private strata-titled condo under the Land Titles (Strata) Act.
According to Dillon Loi, project consultant for Mount Everest who is handling the collective sale of Normanton Park, it took just three months to gather the minimum 80% consensus from the owners of the 488 units at Normanton Park to proceed with the collective sale. The site has a price tag of $840 million. The differential premium for topping up the lease to a fresh 99 years and intensification of land use works out to an estimated $400 million. That would mean the land cost is around $888 psf ppr.
Loi estimates that the breakeven price could work out to be around $1,200 to $1,300 psf, which would bring the selling price for the new project to the range of $1,400 to $1,500 psf. “We’re one step ahead of the rest,” he says. “We have institutional investors who are willing to come on board and take an equity stake — whether the price of the site is $500 million or $1 billion. What they want is to form a joint venture with a developer on the project.”
Loi says the uniqueness of the Normanton Park site is that it is on the border of Kent Ridge Park, and is surrounded by greenery. The estate is also a two-minute drive or just one bus-stop ride from the Kent Ridge MRT Station on the Circle Line. Given the size of Normanton Park’s site, it can be redeveloped into a brand new residential project with 1,388 units, assuming an average unit size of 1,000 sq ft. The tender for the collective sale at Normanton Park will close next Jan 19.
A short drive from Normanton Park is The Interlace, a redevelopment of the former Gillman Heights HUDC estate. The 1,040-unit, 99-year leasehold The Interlace was completed in 2013 and, over the last two months, units have changed hands at prices ranging from $845 to $1,237 psf, based on caveats lodged with URA Realis.
Normanton Park site is on the border of Kent Ridge Park, and is surrounded by greenery
Bigger sites, higher risks Most of the GLS sites can yield 400 to 700 units. However, there were several launches of adjoining sites last year where the same developer won both plots. Examples include Kingsford Waterbay at Upper Serangoon View, with 1,165 units launched in February this year; MCL Land’s 1,327-unit Sol Acres executive condo in Choa Chu Kang, which was launched in August; and High Park Residences on Fernvale Road with 1,390 units, launched in July.
Developed by a consortium comprising Chip Eng Seng Corp, Heeton Holdings and KSH Holdings, High Park Residences saw close to 1,100 units snapped up at its launch weekend. The project is now close to 90% sold, with the latest median price achieved at $941 psf as at end- September. “That defies what’s going on in the market,” says a property industry veteran. “If you can repeat the success of High Park Residences, you would be bold enough to try one of these big [collective sale] sites.”
Why are there more such mega collective sale sites being launched on the market? “The collective sale process takes six to 12 months [as it involves] trying to get 80% of the owners to agree to the sale,” says Suzie Mok, senior director of investment sales at Savills Singapore. “The sale period is also for 12 months.” Collective sale owners are therefore taking the view that the unsold inventory would be cleared over the next few years by the time the new project on the site is launched. And that means, developers will be looking to replenish their land bank now, she adds.
Michael French, managing director of boutique realtor Asia Premier Property Consultants, the marketing agency for Amber Park’s collective sale, says it took him almost a year to obtain the consensus of 80% of the owners. The owners’ signatures have to be witnessed by a lawyer; sometimes, that meant he had to be there at 10pm or 11pm. Many of the owners of units at Amber Park are also living abroad, he adds.
“That’s why the bigger real estate agencies are reluctant to take on big collective sale sites,” laments French. “Even the lawyers are reluctant to take them on, unless the marketing agent can assure them that they can secure 80% of the signatories. That’s because we have to bear all the out-of-pocket expenses, including resources and time.”
Going against the clock Amber Park is a 200-unit private condo sitting on a freehold site of 213,676 sq ft, with a plot ratio of 2.8. It was put up for collective sale in June this year with a price tag of $744 million, which translates into $1,225 psf ppr. It was the third collective sale attempt by the owners in the 30-year-old private condo. The two previous attempts were in 2009 and 2011.
When the tender for Amber Park closed in July, there was interest from a handful of developers, says French. However, their bids were in the range of $1,050 to $1,100 psf ppr, below the asking price. Therefore, the owners of Amber Park are planning a fourth collective sale attempt and will launch the site for sale next January. The price tag remains unchanged at $744 million, says French.
The breakeven price for the developer buying Amber Park would be around $1,600 psf. Assuming an average unit size of 700 sq ft, the new development will contain about 600 to 700 units, estimates French. “As long as the government continues to pump new sites through the GLS, developers won’t be looking at private land or collective sale sites,” he says.
City fringe in the limelight Many of the recent collective sale sites such as Amber Park, Normanton Park and Shunfu Ville are located in the Rest of Central Region or city-fringe area. So are many of the new launches being rolled out from now until the end of the year. Besides Thomson Impressions, there is also the 663-unit Principal Garden at Prince Charles Crescent, which will be launched this weekend. The project by UOL Group and Kheng Leong has an average selling price of $1,600 psf, which is said to be lower than the selling prices of other projects in the Alexandra/Prince Charles neighbourhood.
Another launch in the RCR scheduled before year-end is MCC Land’s mixed-use project with 731 residential units and commercial units for sale, which is integrated with the Potong Pasir MRT station.
Other upcoming launches in the RCR over the next 15 to 18 months include a 306-unit condo development on Sturdee Road by Sustained Land, a 535-unit project in Toa Payoh by a consortium made up of Evia Real Estate, Maxdin Pte Ltd and Gamuda Bhd, and a 645-unit condo project on Dundee Road by Hao Yuan Realty.
The 3,608 units to be launched in the RCR in the next 15 to 18 months exceed the 2,710 mass-market condos in the OCR and the 1,193 prime condos in the CCR over the same period.
However, in terms of completed units between now and 2018, the segment with the most number of units is the Outer Central Region, property consultants says. About 60% of the 63,469 residential units projected to be completed are in the OCR. Units in RCR and CCR projects make up 25% and 15% respectively of the total number.
Based on the URA private property price index, the market segment that has seen the biggest price correction has been the RCR, which is down 8.6% since the peak of 3Q2013, and 5.2% y-o-y. The CCR has seen a correction of 8.2% and 3.1% y-o-y since. As for the OCR, prices have fallen 6.7% since the peak of two years ago, and 4.6% y-o-y (see table).
URA Residential Price Index
ALL RESIDENTIAL
CORE CENTRAL REGION
REST OF CENTRAL REGION
OUTSIDE CENTRAL REGION
3Q2013*
154.6
140.5
154.2
170.9
3Q2014
148.6
133.1
148.6
167
4Q2014
147
131.9
146.6
165.6
1Q2015
145.5
131.4
144.1
163.8
2Q2015
144.2
130.6
143.2
162
3Q2015
142.3
129
140.9
159.4
Q-o-q change
-0.013
-0.012
-0.016
-0.016
Y-o-y change
-0.042
-0.031
-0.052
-0.046
Change since peak in 3Q2013
-0.08
-0.082
-0.086
-0.067
*Peak of the market

Source: URA, CBRE Research

Expected residential completions as at 3Q2015
YEAR
TOTAL
CCR
RCR
OCR
1Q-3Q2015
13,589
2,104
2,532
8,953
4Q2015E
5,388
407
993
3,988
2016E
22,351
3,624
6,493
12,234
2017E
14,312
2,817
3,496
7,999
2018E
7,829
603
2,451
4,775
Total
63,469
9,555
15,965
37,949

Source: URA, CBRE Research

Prices have fallen the most in the RCR because the projects are rather “a mixed bag”, ranging from freehold residential blocks and 99-year leasehold developments, says Nicholas Mak, executive director of research and consultancy at SLP International.
Many of the projects launched in the RCR at the peak of the market were also shoebox units for which the price psf was relatively high although the absolute prices were bite-size. “As there are fewer of such projects, with predominantly shoebox units being launched and therefore fewer units sold, it appears that prices in the RCR have fallen further compared with the other two regions,” says Mak.
‘Stuck in limbo’ According to French, “High-end condos will continue to be stuck in limbo if the government doesn’t remove any of the property cooling measures. Buyers in the CCR and OCR are hit by the ABSD and the total debt servicing ratio (TDSR), regardless of the absolute price of a unit. It’s like the CCR is having to pay the price for the ramp-up in supply of mass-market housing.”
Appetite for residential property has also been reduced, especially with investors sitting on the sidelines, and only genuine home buyers on the market. New private home sales for the first nine months of 2015 amounted to 5,936 units. This is almost on a par with the 5,940 units sold in the first three quarters of last year, says Ong Teck Hui, JLL’s national director of research. He expects 2015 could end with developer sales of around 7,000 units, just slightly below the 7,316 units sold last year. In 2013, new home sales was about double the volume at about 15,000 units. At the peak in 2012, a total of 22,197 units were sold.
The five-year limit to complete a development and sell it or pay a hefty ABSD may have curbed developers’ appetite for big collective sale sites given the sluggish new home sales. There is likely to be more interest in smaller collective sale sites, Savills’ Mok notes. “We’re sourcing for sites in the ballpark of $30 million to $80 million, where a developer can build a new project of 20 to 30 units. Developers are more confident about selling out a 20- to 30-unit project than a 500-unit one over five years.”
Extension for voluntary conservation Taking an alternative route to collective sale is the majority of the owners at Pearl Bank Apartments. After three failed collective sale attempts, they have opted for voluntary conservation. Last week, the liaison committee announced that they had received a six-month extension from URA to achieve a 100% consensus from all 288 owners to embark on a voluntary conservation of the residential block.
The committee now has until April 30, 2016, instead of Oct 31, 2015 to convince the remaining 28 owners to agree to the proposal. So far, about 90% of the owners have agreed. Besides conservation status for the building, homeowners hope to get approval for additional GFA to develop another residential tower at its current car park complex. With the sale of this additional GFA to a developer, the proceeds can be used to fund the estimated $28 million required to retro fit the existing building.
Liaison committee chairman Dr Lee Seng Teik says they are appealing to the Ministry of National Development for approval to reduce the consensus from 100% to 80%, which is on a par with the requirement for a collective sale. A URA spokesperson says the appeal is being reviewed.
If Pearl Bank’s voluntary conservation is successful, it could herald a new chapter in property renewal, and an alternative route to collective sales for other ageing condos in Singapore.
This article appeared in the City & Country of Issue 701 (Nov 2, 2015) of The Edge Singapore.

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