Collective sale fever bubbles over

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/ EdgeProp
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October 14, 2017 7:00 AM SGT
Collective sales are brewing in the Balestier area
Chef-restaurateur-turned-tai chi instructor P K Tan has always liked the Balestier area. Besides its proximity to the CBD, the main attraction is that properties there are predominantly freehold. “Apart from East Coast, Farrer Park and Geylang, Balestier is the only city fringe area that offers mainly freehold property,” says Tan, 67.
He likes projects with sizeable units and that sit on large and regular-shaped freehold plots. Besides his primary residence — a 2,508 sq ft, four-bedroom unit at Mandalay Towers — he also has an investment in Balestier: a three-bedroom unit in the 72-unit Balestier Regency on Jalan Ampas that he bought more than a decade ago. He likes the project, as all units are three-bedroom and measure 1,453 to 1,475 sq ft each. Tan was recently informed by a neighbour, however, that Balestier Regency was attempting a collective sale.
Balestier has become a hotspot for collective sales this year. Besides Balestier Regency, collective sales are brewing in several other ageing apartment blocks in the area. On Kim Keat Road, the 34-unit Victory Heights is said to be attempting an en bloc sale. The 78-unit Boon Teck Tower on Boon Teck Road is also attempting an en bloc sale and in the process of collecting signatures to obtain the 80% consensus to proceed. The collective sale process has also started at the 89-unit Kemaman Point on Jalan Kemaman.
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Tan was looking to buy a second investment property in Balestier, and he was eyeing AVA Towers, a 124-unit freehold condominium built in 1993, because all the units are three-bedroom apartments ranging from 1,173 to 1,281 sq ft. He was surprised when his recent online search for AVA Tower yielded only one unit for sale. “I was wondering what happened to all the listings of units for sale,” he says. “They seem to have disappeared.” That was when he realised that owners at AVA Towers were also exploring a collective sale.
Mandalay Towers, a low-rise 56-unit apartment block completed in 1974, comprises four-bedroom units of 2,500 sq ft
Resale units withdrawn
Tan’s experience is not an isolated one. Lee Liat Yeang, senior partner in Dentons Rodyk’s Real Estate Practice Group, says: “I spoke to several agents, and was told that quite a few units had been withdrawn from the resale market, especially those with actual or perceived en bloc potential.
“Some are eyeing an en bloc sale to achieve higher prices while others are hoping for a general uplift in prices. This creates a shortage in the resale market that’s more apparent than real.”
Nicholas Mak, executive director of ZACD Group, concurs. “If you’re the owner of a unit in a condo and you hear your neighbours talking about going en bloc, would you be happy if you sold your unit and, a few months later, the project is launched for collective sale? If the en bloc sale goes through, you will regret it.”
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The irony is that people such as Tan in Balestier who are looking to buy freehold property will now have fewer choices in the resale market, as owners in these older condos are holding out for a collective sale, observes Lee. On the other hand, most of the new project launches are 99-year leasehold.
Competition has also intensified in the East Coast, following the successful collective sale of Amber Park on Oct 4 for $906.7 million ($1,515 psf ppr), making it the largest collective sale of a freehold site. Prior to that, Nanak Mansions was sold for $201.1 million, and Albracca for $69.1 million in July.
Other developments in the East Coast with freehold sites that are also attempting a collective sale are the 32-unit Parkway Mansion, completed in 1982; the 72-unit Casa Meyfort on Meyer Road, completed in 1992; and the 135-unit Hawaii Towers, completed in 1984. A search for resale units in these condominiums in the prime District 15 have likewise yielded mainly units for rent, with very few listed for sale.
Owners of Hawaii Tower, a condo on Meyer Road, are hoping to be lucky in their next collective sale attempt
Parkway Mansion is one of the apartment blocks in Marina Parade exploring a collective sale
Number of collective sale hopefuls doubles
According to Tan Hong Boon, regional director of capital markets at JLL Singapore, the number of successful collective sales so far this year is 16, with transactions totalling $5.84 billion. This is the highest level since the last collective sale fever in 2006 ($7.82 billion worth of deals) and 2007 ($11.51 billion). “If the next three to four collective sale tenders that are closing are successful, you could see the number of deals hit 20 and total sales coming close to the 2006 figure,” he adds.
Emboldened by the recent string of successful deals, the number of collective sale hopefuls has more than doubled to “60 to 70 projects” today from 30 four months earlier, says JLL’s Tan.
ZACD’s Mak notes: “This means that owners in these 60 to 70 older estates will now be reluctant to sell their units on the resale market. It’s a natural reaction because a lot of owners want that windfall. So, they will put their individual unit sale on hold.” The recent collective sale fever and withdrawal of units from the resale market will inevitably push up prices, concedes Mak. This will be exacerbated by the fact that the beneficiaries of collective sales will need to find a replacement property.
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“Even with a slight reduction in supply in the resale market, we have already seen an upward tick in the URA price index,” he notes. “The en bloc fever will put upward pressure on private residential prices, and could also lead to upward pressure on HDB resale prices.”
Prices at inflection point
The flash estimate for the URA private residential price index for 3Q2017 already showed a 0.5% q-o-q increase, marking a critical inflection point in prices, notes Credit Suisse in its report on Oct 2. This was after 15 consecutive quarters of decline from 3Q2013 to 2Q2017, during which the property price index fell 11.6%.
Within the non-landed residential market, price increases were led by mass market condos in the Outside Central Region (OCR), which rose 0.7% q-o-q, and prime condos in the Core Central Region (CCR), which rose 0.2% q-o-q, while the mid-tier segment in the Rest of Central Region (RCR) was flat. HDB resale prices were still down 0.6% q-o-q, according to the flash estimate for 3Q2017, according to Credit Suisse.
The collective sale fever is likely to have less of an impact on the rental market, as beneficiaries of collective sales prefer to buy a replacement property instead of renting. “These are people who are used to owning their homes, especially those from the privatised HUDC estates,” observes ZACD’s Mak. “Their fear is that if they were to rent for the time being, prices could be even higher when they want to buy a unit later on. This in turn becomes a self-fulfilling prophecy.”
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‘Bubble tea fever’
This blend of fear and euphoria — which Desmond Sim, CBRE head of research for Singapore and Southeast Asia, has labelled “the bubble tea fever” — was also evident a decade ago, when there was a partial dip in the supply of resale units in the wake of the collective sale fever. “But this is true only for the older apartments and condos, where prices have failed to catch up with market prices,” he says. “These are the projects that have a greater chance of going en bloc.”
CBRE’s Sim does not see it having a major impact on the URA private property price index. His projection is for the index to rise 3% to 8% next year. “The index measures price per sq ft,” he says. “At the end of the day, sales are determined by absolute prices.”
For absolute prices to be palatable to homebuyers, and for developers to achieve their desired price psf in their new developments, unit sizes have to be sacrificed, adds Sim. There is a limit as to how small the units can be, however, as URA has stipulated a minimum average size of 70 sq m for new condos outside the Central area.
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Buyers still price-sensitive
In 1H2017, about 90% of residential units that were sold were below the $2 million threshold. “It takes more than gut feel and sentiment to drive up prices,” says Sim. “The economic indicators may have improved, but the real indicator is the ATM, when you see how much money you have in your bank account. At the end of the day, the underlying demand is for properties priced at $2 million and below. Anything priced above $3 million is beyond the reach of the average Singaporean.”
Dentons Rodyk’s Lee agrees. “Pricier properties still face challenges, as the additional buyer’s stamp duty is still a major deterrent.”
Even for the beneficiaries of the collective sales of the large privatised HUDC estates, from Shunfu Ville to Normanton Park, most owners are looking at a payout in the range of $1.7 million to $1.9 million. “The amount is just enough to buy a replacement unit, but perhaps not of a similar size,” says ZACD’s Mak. “It seems that the only way for the owners to monetise their HUDC units is through a collective sale.”
HUDC estate monetisation
This year, five privatised HUDC estates were successfully sold en bloc. They were Rio Casa in Hougang, which was sold to a consortium led by Oxley Holdings ($575 million); Eunosville, across from the Eunos MRT station, went to MCL Land ($765.78 million); Serangoon Ville in Serangoon North was sold to an Oxley-led consortium ($499 million); and Tampines Court on Tampines Street 11 found a buyer in Sim Lian Group ($970 million). The latest was Normanton Park, which was sold to Kingsford Development for $830.1 million.
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Last year, only two privatised HUDC estates found buyers. They were Shunfu Ville in Bishan, sold to Qingjian Realty for $638 million; and Raintree Gardens in Potong Pasir, which was sold for $334.2 million to a joint venture between UOL Group and United Industrial Corp.
Ivory Heights next
The latest to hitch a ride on the collective sale bandwagon is Ivory Heights, the largest privatised HUDC estate on the market this year. Built in 1986, the 654-unit Ivory Heights has three high-rise blocks of 10- to 25-storeys and five four-storey blocks sitting on a sprawling land area of 825,502 sq ft with a 99-year lease dating from 1986. Under the URA Master Plan, the site has a plot ratio of 1.6 and can be redeveloped into a condo project with 1,400 to 1,500 units, assuming a minimum average size of 70 sq m each.
Ivory Heights has a reserve price of $1.34 billion, which includes the differential premium of $160 million for topping up the lease. The price translates to $979 psf ppr. SLP International, which is part of ZACD Group, is the appointed marketing agent for Ivory Heights. This is the first time the owners of Ivory Heights are attempting a collective sale.
“The site has seen a lot of interest,” notes ZACD’s Mak. “It’s the only private residential site of this scale located in Jurong East. And the government hasn’t offered any new land parcels for sale in Jurong East for the last five years.”
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The only government land tender for a condo site in Jurong East was the one that has since been developed into the 738-unit J Gateway by MCL Land, which was completed last year. The average selling price of J Gateway when it was launched at end-June 2013 was $1,480 psf. Many of the units were sold at prices above $1,700 psf, hitting a high of $1,774 psf for a 484 sq ft, one-bedroom unit on the 34th floor of one of the three high-rise towers. There were three sub-sales in August this year; they ranged from $1,539 psf for a unit on the 14th floor to $1,742 psf for a unit on the 13th floor, according to caveats lodged.
Jurong Gateway, which is part of Jurong Lake District, is poised to be Singapore’s second CBD, with a total land area of 360ha, equivalent to Marina Bay. The future Singapore- Kuala Lumpur high-speed rail terminus will also be located in Jurong East, on the site of the former Jurong Country Club.
The 654-unit Ivory Heights in Jurong East, which sits on a 99-year leasehold site of 825,502 sq ft, is the latest privatised HUDC estate to be put up for collective sale
‘Unusual upturn’
“This is an unusual start of a market upturn,” notes ZACD’s Mak. “It’s driven by land prices. Developers appear to be making a bet that the market will recover, and they are buying land in preparation to ride the next property bull run.”
In the past three to four property booms, transaction volume picked up first before prices recovered two to three quarters later, he notes. “It was either the HDB resale prices that moved up first, and then pulled up the prices of private housing, or, as in the case of the last property boom in 2006/07, it started at the top end of the market before filtering down to the other market segments. But it had always been transaction-led.”
The more aggressive bids at government land sales and collective sale sites could also be because mainstream developers are facing greater competition from non-traditional property players such as jeweller-turned-property developer Aspial Corp, whose property arm is World Class Land; construction group Evan Lim & Co’s EL Development; Chip Eng Seng’s CEL Development; and mainland Chinese construction companies-turned-property developers such as MCC Land, Qingjian Realty and China State Construction Engineering Corp’s newly formed CSC Land.
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“We’ve come to a stage where the number of property developers have trebled over the past decade,” says CBRE’s Sim. “You have finite land parcels, but it’s being shared by a lot more people. That’s why bid prices have become more aggressive.”
Tan Tiong Cheng, president of Knight Frank Asia, believes the collective sale fever could “run out of steam” by the middle of next year, if not by end-2018. “Given the collective sale momentum, most developers would have purchased one or two big sites either in government land sales or collective sales by next year,” he says.
Developers are taking into consideration the steep development charges and differential premiums, especially for topping up the leases of the older leasehold projects. “If it’s going to eat too much into their profit margins, they may not be willing to pay the premium that collective sale owners are seeking,” says Tan. “For the collective sale owners, the premium may not be as attractive, especially if they are looking to buy a replacement property, and prices are on an uptrend.”
Dentons Rodyk’s Lee reckons the supply from the collective sale sites purchased in the last two years will come onstream towards end-2018 and 2019. “It takes a good 12 to 15 months for these projects to come up for sale,” he says. “The increase in supply will be evident in 2019.”
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This article, written by Cecilia Chow, appeared in EdgeProp Pullout, Issue 801 (Oct 16, 2017).