Collective sale boom or blip?

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/ The Edge Property
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June 23, 2017 2:00 PM SGT

The recent spate of collective sales has sparked enthusiasm among owners of ageing condos. Most property consultants see a window of opportunity in this frenzy, but how long will it last?

The latest privatised HUDC estate to hit the collective sale market is the 244-unit Serangoon Ville on Serangoon North Avenue 1
Singaporean property investor Victor Ng is one of the owners at the 330-unit Eunosville who will stand to get a windfall of around $2.3 million each upon the completion of its en bloc purchase by MCL Land. The developer paid $765.78 million for the privatised HUDC estate early this month, a 17.3% to 19.1% premium to the original asking price of $643 million to $653 million ($780 to $790 psf per plot ratio, or ppr) when the site was put up for tender in April by marketing agent OrangeTee.
This was Eunosville’s second collective sale attempt and “the timing was perfect”, says Ng. The tender for the project closed just a week after that of Rio Casa’s on May 23 that saw strong bids. Rio Casa, another privatised HUDC estate with 286 units and located on Hougang Avenue 7, was sold for $575 million to a consortium comprising Oxley Holdings, KSH Holdings, Lian Beng Group and the private investment arm of Super Group’s Teo family. This was also higher than the initial asking price of $450.8 million for Rio Casa.
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The sale price for Rio Casa, inclusive of the differential premium of $208 million for the lease top-up and intensification of land use, translated into $706 psf ppr. The owners at Rio Casa are also expected to walk away with about $2 million each upon the successful conclusion of the sale. It was Rio Casa’s first attempt at a collective sale, after it was privatised in 2014. The marketing agent was Knight Frank.
In Ng’s view, a successful en bloc sale needs “a bit of luck”, as the collective sale process can take one to two years. “The demand-and-supply situation could change drastically during that period of time, and we could be in a totally different phase of the property cycle,” he says. Hence, he advises investors not to try to time en bloc sales. “You may find yourself stuck with an old and depreciating asset for a long time,” he warns.
This was what happened in Eunosville’s first collective sale attempt back in June 2013. “The timing wasn’t right then,” says Ng. Developers had turned cautious after the government hiked the additional buyer’s stamp duty to 15% and required developers to develop and sell all the units on a residential development site within five years of purchase in order to be eligible for the ABSD clawback on the land cost. The total debt servicing ratio (TDSR) loan framework came into effect on June 29, 2013 and further cooled property demand.
Ng had purchased his unit at Eunosville in 2012, a year after the HUDC estate was privatised. “I thought it had great potential for capital appreciation or collective sale, given its location and the Paya Lebar growth story,” he relates. “I also liked the estate as it was well maintained and newly privatised. The icing on the cake was that the seller rented the unit back from me to house his aged parents, so I enjoyed instant rental returns.”
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Property agents who know Ng owns a unit at Eunosville are already asking him to buy a new property now. “I will use the money to reinvest selectively in undervalued properties,” he says. “As with any sound property investment, I’m prepared to hold it for the medium to long term.”
(Picture by Albert Chua) Eunosville was sold to MCL Land for $765.78 million, at a premium of 17.3% to 19.1% above the original asking price of $643 million to $653 million
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‘Small window of opportunity’
Is this the start of another collective sale fever? “It’s more likely a small window of opportunity,” says Lee Liat Yeang, senior partner at law firm Dentons Rodyk and Davidson. Developers are still price-sensitive and will retreat if they feel that asking prices for collective sales are going up, he cautions. This is because they are still concerned about the requirement to sell all the units in a project within the five-year time frame to be eligible for the ABSD clawback. “This will continue to dampen their willingness to pay high prices for sites,” he points out.
The collective sales of Eunosville and Rio Casa bring the total number of successful sales of privatised HUDC estates to four in a time span of about 12 months. It started in May last year, when 82% of the owners at the 358-unit Shunfu Ville agreed to sell the privatised HUDC estate to Qingjian Realty after lowering the reserve price from $688 million to $638 million.
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However, Shunfu Ville’s sale completion was held up by a handful of owners who had objected to the collective sale. It was only at the end of April this year that the Court of Appeal dismissed the appeal filed by the objectors, which cleared the way for the completion of the sale in July, more than a year later. Qingjian’s purchase price of $638 million translates into $747 psf ppr, with the owners expecting to pocket an average of $1.8 million each. JLL was the marketing agent for Shunfu Ville.
Last October, Raintree Gardens was sold collectively for $334.1 million, or $797 psf ppr. The buyer was a joint-venture company formed by UOL Group and United Industrial Corp. The 175-unit privatised HUDC estate at Potong Pasir was successful in its first collective sale attempt when it was launched for tender last September at a guide price of $315 million.
(Picture by Samuel Isaac Chua) Florence Regency, a privatised HUDC estate with 336 units located on Hougang Avenue 2, has already formed its collective sale committee and appointed JLL as the marketing agent
Jumping on the bandwagon
The latest to hit the collective sale market is Serangoon Ville, a former HUDC estate on Serangoon North Avenue 1 that was privatised in 2014. The 244-unit project sits on a land area of 296,913 sq ft with a plot ratio of 2.8. More than 80% of the owners in the development have signed the collective sale agreement, says Stanley Koo, ERA Realty Network’s division director, who is marketing the project.
The owners of Serangoon Ville are expecting $400 million to $430 million for the site, with another $200 million to $220 million to be spent for land intensification and top-up to a fresh 99-year lease. Serangoon Ville has 69 years left on its lease. The total land cost, inclusive of the differential premium, works out to $720 to $750 psf ppr. The collective sale tender closes on July 25. Each unit owner is expected to receive $1.6 million to $1.7 million from the sale.
At Tampines Court, 458 out of the 560 owners in the development had signed the collective sale agreement as at June 15, according to a blog set up by one of the owners. This will mark Tampines Court’s third collective sale attempt. The first two attempts were made in 2007 and 2011 respectively.
Meanwhile, Florence Regency, a privatised HUDC estate with 336 units located on Hougang Avenue 2, has already formed its collective sale committee and appointed JLL as the marketing agent. The process of collecting signatures for the collective
sale agreement is currently underway. “We’re seeing more privatised HUDC estates entering the market, as the psf price of such sites are still lower than that of freehold sites, and this proves to be attractive to developers,” says Lee of Dentons Rodyk and Davidson. “I think owners of such developments are also more realistic, owing to the shorter leases.”
Lee was involved in three of the four collective sales over the past 12 months, representing the buyers of Shunfu Ville and Raintree Gardens as well as the owners of Rio Casa. He also acted for the buyer of Goh & Goh Building, namely BBR Holdings, which acquired the mixed-use property en bloc for $101.5 million in May.
The owners of the freehold Changi Garden condominium on Jalan Mariam; the freehold Cairnhill Mansions in prime District 9, which will be making its fourth collective sale attempt; and Cavenagh Gardens, a freehold condo on Cavenagh Road, also in District 9; have appointed Lee to represent them.
Biggest competition — GLS sites
The current wave of collective sales may be short-lived, says Alex Oh, OrangeTee’s director of investments and advisory department. Collective sales have a longer gestation period compared with sites purchased through the Government Land Sales (GLS) programme. Those who want sites with a fast turnaround time will therefore opt for GLS sites. “The biggest competition for leasehold collective sale sites is, therefore, the GLS sites,” he adds. “Once the GLS programme for 2H2017 is released, we will have a better gauge of what the competition will be.”
The current appetite for collective sale sites among developers shows that they have become more optimistic in the face of depleting unsold inventory and strong new home sales, says Suzie Mok, Savills Singapore’s senior director of investment sales. This could also explain the aggressive bids for GLS sites in 1H2017.
In the first six GLS land tenders in 1H2017, there were nine to 13 bids received at the close of each tender, with the highest being that for the land parcel on Toh Tuck Road, which drew 24 bids in February. The winner was Malaysian developer S P Setia, which paid $265 million ($939 psf ppr) for the site, which has a gross floor area of 1.87ha and plot ratio of 1.4.
S P Setia plans to develop a 327- unit, five-storey condo with 327 apartments on the site, and is expected to launch the project next year. The 99-year leasehold site on Toh Tuck Road had attracted strong interest, owing to its proximity to the Beauty World MRT station, Bukit Timah Nature Reserve and Bukit Batok Nature Park.
For the recent tender of a 99-year leasehold site for a mixed-use development (residential and commercial) at Bidadari Estate, a consortium comprising Singapore Press Holdings and Kajima Development placed the highest bid of $1.13 billion ($1,181 psf ppr). The site will be developed into a project with more than 600 residential units and 310,000 sq ft commercial space, as well as a community club and neighbourhood police station. The site on Upper Serangoon Road saw 11 other bidders, which included Singapore developers such as Far East Organization, CapitaLand, City Developments, Chip Eng Seng Corp, GuocoLand and Sim Lian Group, as well as Chinese players Kingsford Development and Nanshan Group Singapore.
Most property consultants such as Ian Loh, Knight Frank’s executive director and head of investment and capital markets, are expecting the government to increase the supply of residential development sites in the 2H2017 GLS programme. “Ultimately, the government will be concerned if the property market starts to heat up again,” he says. “Competition for GLS sites has been keen in recent quarters, with winning bids usually exceeding analysts’ expectations. Collective sale sites, on the other hand, are not as hotly contested compared with GLS sites.”
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Pent-up demand
The last collective sale boom was a decade ago, from 2005 to 2007, and was fuelled by a huge undersupply in both the public and private housing sectors, says Tan Hong Boon, JLL regional director of investments.
“This time around, the collective sale wave is partly due to demand being suppressed by the property cooling measures and the TDSR, which had also crimped affordability.”
With prices having fallen in 14 consecutive quarters, many potential homebuyers were sitting on the sidelines. New home sales had hovered around 7,500 annually in 2014 to 2015, before crossing 8,000 last year. In the first five months of 2017, developers sold 5,544 new homes. Hence, JLL is projecting 2017 to end with a high of 11,000 to 12,500 units, even with fewer launches in 2H2017 compared with 1H2017. “If you look at the last peak in 2012, more than 22,000 new homes were sold,” notes JLL’s Tan. “The 7,500 to 8,000 units sold over the last three years is a sign of pent-up demand.”
During the last collective sale boom, it was the sites in the prime districts that took off first, before the trend filtered down to the mid-tier and mass markets, recounts Tan. This time around, it is the mass market that is moving first, starting with the collective sales of the privatised HUDC estates, he adds.
For instance, Eunosville’s en bloc price translates into $909 psf ppr, making it the highest psf ppr price paid for the collective sale of a privatised HUDC estate so far. It includes the differential premium of $194 million payable to the state for intensifying the land use to the maximum gross plot ratio of 2.8 and for topping up the lease to 99 years. The site has 71 years left on its lease.
The eventual selling price of the new 1,399-unit development on the site of Eunosville is estimated to be $1,500 to $1,600 psf, based on the land cost. OrangeTee’s Oh points to Lendlease’s Park Place Residences, located one MRT stop from Eunosville. The 99-year leasehold 429- unit condo is part of the Paya Lebar Quarter mixed-use development and achieved an average selling price of $1,800 psf when the first phase was launched in March. “The $909 psf ppr for Eunosville is just a reflection of the current market conditions at the Paya Lebar regional centre,” says Oh.
(Picture by Savills Singapore) Early this month, 1 Draycott Park was sold for $72 million to SDB Asia, the property arm of Malaysia-listed Selangor Dredging Bhd. Savills was the marketing agent.
Prime-district prices yet to revisit previous peak
Early this month, 1 Draycott Park was sold for $72 million through a private-treaty deal. The buyer of the site was SDB Asia, the property arm of Malaysia-listed Selangor Dredging Bhd. The freehold site containing a seven-storey block with eight apartments has a land area of 17,442 sq ft. The site is zoned for residential use and has a plot ratio of 2.8. It can be redeveloped into a new 36-storey condo block.
Savills’ Mok, who brokered the sale, reckons the new development will feature relatively compact one- and two-bedroom units that will be affordable to buyers in the current market. The $72 million price tag translates into $1,787 psf ppr, including a development charge of $15.3 million.
Across the road, Hong Kong’s Swire Properties acquired all 12 units at the former Hampton Court (2 Draycott Park) in an en bloc purchase for $155 million ($2,526 psf ppr) in December 2012.
While transaction volume in the high-end segment of the residential market has picked up, prices are not yet at their previous peak, notes OrangeTee’s Oh. This is evident from the sale price of 1 Draycott Park. “Developers are looking for sites, but they are still very price-sensitive,” says Oh. “This is unlike during the past collective sale boom a decade ago, when each new collective sale was done at a higher per sq ft price.”
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This article appeared in The Edge Property Pullout, Issue 785 (June 26, 2017) of The Edge Singapore