En bloc wealth multiplier

/ EdgeProp
November 24, 2017 3:00 PM SGT
Mayfair Gardens was sold to Oxley Holdings for $311 million, or $1,244 psf per plot ratio, on Nov 17
Mayfair Gardens was sold to Oxley Holdings for $311 million, or $1,244 psf per plot ratio, on Nov 17 (Credit: The Edge Singapore)
The latest collective sale of Mayfair Gardens brings the total tally for the year to $6.7 billion. Part of that money will return to the Singapore property market, while some of it could eventually make its way abroad.
Retiree Harry Lee has been a collective sale beneficiary not once but twice. The first was 20 years ago when the former Pidemco Land (now part of Capita Land) purchased the former Shelford Garden for $37 million in January 1997, at the peak of the first en bloc boom from 1994 to 1997. The freehold site was subsequently amalgamated with several other bungalow sites nearby, and redeveloped into the 215-unit The Shelford, which was launched in 2002 at an average price of $783 psf and completed in 2005.
Following the collective sale of Shelford Garden, Lee purchased a unit at Mayfair Gardens on Rifle Range Road, just off Dunearn Road. The main reason for this purchase 17 years ago was the convenience of the location: It was near the top schools in the Bukit Timah area. His two daughters were attending Nanyang Girls’ High School then, while his son was at Chinese High (now Hwa Chong Institution). All three subsequently went to Hwa Chong Junior College.
The purchase price for his Mayfair Gardens unit was about $800,000. While Lee thought it was high then relative to the $400,000 the original owner paid for the unit, he has little grounds for complaint today. Mayfair Gardens was sold en bloc to listed property group Oxley Holdings for $311 million, or $1,244 psf per plot ratio, on Nov 17.
Based on the sale price, Lee will walk away with around $2.5 million in cash upon the successful conclusion of the collective sale, which is more than triple his purchase price. Even compared with the resale price of a similar unit at close to $1.3 million last October, the collective sale premium is 94%.
More en bloc millionaires
The latest collective sale of Mayfair Gardens brings the total number of collective sale deals transacted by Knight Frank this year to five, with a sales value of $1.8 billion. JLL, meanwhile, has also transacted five collective sale deals this year, with a sales value of about $1.9 billion.
“The general pickup in market sentiment has also helped the agency business and boosted new project sales and resales,” says Ian Loh, Knight Frank’s head of investments and capital markets (see sidebar).
So far this year, 19 en bloc deals worth $6.7 billion have been transacted. The number of units that will be removed from the market is about 3,000, with each beneficiary receiving an average of $2 million in cash, estimates Wilson Ng, Morgan Stanley vice-president and Asean property analyst. “A huge amount of cash is expected to be returned to the property market when these en bloc beneficiaries look for replacement units,” he says. Moreover, the $2 million per owner is unleveraged, he points out. If leveraged, it could be four times more.
Another 60 to 70 projects are believed to be at various stages of attempting a collective sale. Assuming that 40 are successful, with each owner receiving an average payout of $2 million, that would translate into another $16 billion in en bloc deals, estimates Ng. This would bring total en bloc transactions to about $23 billion, which will surpass the $22 billion in the last en bloc boom of 2005 to 2007.
Harry Lee (in green) and his neighbours at their community garden at Mayfair Gardens
Harry Lee (in green) and his neighbours at their community garden at Mayfair Gardens (Credit: Harry Lee)
Potential capital flow re-entering the market is $30 bil
In a typical year, developers sell about $10 billion worth of new homes. Based on the potential capital flow from displaced owners in collective sale deals closed so far, Ng estimates the amount to be about $30 billion, or the equivalent of three years’ worth of new home sales.
He reckons “demand is still substantial, given the amount of money chasing these sites, based on the number of bids received per site”.
The effect of the new pre-application feasibility study on traffic impact mandated for new en bloc sites is likely to be limited in terms of time to market, as developers can do the study while applying for the approvals for the new project, says Ng. However, it could mean that not all developers will be able to launch as many units as they had initially planned. That in itself could curtail developers’ appetite for en bloc sales, he adds.
The government has been vocal about the effects that the potential new supply from the recent spate of collective sales will have on top of the sites sold under government land sales. However, it is “unlikely” that additional property cooling measures will be introduced at this point, says Ng.
Over the past five years (2011 to 2016), the median household income grew a cumulative 16.9%, while the private property price index fell 6.9%, according to the Department of Statistics Singapore. “What we’re seeing now is property prices trying to play catch-up with wage growth,” says Ng. “It would be premature to introduce new property cooling measures, considering the ABSD [additional buyer’s stamp duty], QC [qualifying certificate] and SSD [seller’s stamp duty] are still in place.”
Morgan Stanley’s projection is that Singapore private home prices will increase about 10% from now to end-2018. Based on the forecast that Singapore’s nominal GDP growth rate will be hovering around 5% over the long term and assuming that house prices rise in tandem with nominal GDP growth, property prices should be double today’s levels by 2030, says Ng.
The current residential property vacancy rate of 8.4% is not alarming, as it has been hovering around the 8% level for almost two years, Ng points out. “It’s unlikely to worsen further, and rents have also bottomed. If anything, rents should improve from the current levels.”
Ng says the potential capital flow re-entering the property market as a result of collective sales could amount to $30 billion
Ng says the potential capital flow re-entering the property market as a result of collective sales could amount to $30 billion (Credit: Samuel Isaac Chua/The Edge Singapore)
‘In the premier league of global cities’
Beyond tempering the collective sale fever, the government is seeking new ideas to keep Singapore as a top global city. At the Real Estate Developers’ Association of Singapore’s 58th anniversary dinner on Nov 14, Minister for National Development Lawrence Wong said: “How do we create a new and exciting second Central Business District in Jurong, as well as regional centres in Woodlands and Tampines? How can we create new concepts for infrastructure which are smarter and more sustainable, that will keep Singapore in the premier league of global cities? How do we prepare for an ageing population and develop new models of integrated housing and elderly care?”
The government has started a nationwide pilot scheme for Business Improvement Districts. The idea behind this is to enable property owners and developers to engage in placemaking, and create more attractive and vibrant precincts. “We want to encourage more groundup ideas and innovation,” says Wong.
In his own way, 68-year-old Lee has been doing just that at Mayfair Gardens. Since he retired 10 years ago, he and some of the other residents have been active in enhancing the landscaping at Mayfair Gardens and creating a community garden, where they grow different types of plants and vegetables such as Chinese red long beans and sugar cane.
Pursuit of ‘a quieter life’
A Singapore permanent resident and former managing director of an electrical and steel company, Lee is now looking forward to moving back to Australia to pursue “a quieter life”. He has even put down a deposit on a 50-acre hobby farm in North Sydney, where he and his wife envision themselves keeping 20 to 30 chickens and growing vegetables and fruit trees. “For the same amount of money, you can buy a reasonably small farm in Australia and still have some money left,” he says.
However, if he were to stay on in Singapore, Lee says, he would definitely buy a point-block flat in Bukit Panjang, like the one owned by his son. A point-block flat of about 1,300 sq ft in Bukit Panjang costs less than $600,000. “The price is still quite reasonable,” he says. “You can walk to the LRT station, take a bus, and there’s a wet market nearby. When you’re retired, you don’t mind walking a little farther as you have the luxury of time.” Another attraction for Lee is the many community gardens in Bukit Panjang.
He says it is not feasible to maintain a farm in Sydney and an HDB flat in Singapore. “You have to choose one or the other. If we run the farm, we can’t keep coming back to Singapore once a month. And if we’re in Singapore, we can’t do a lot of things at our farm, and it will eventually become a white elephant.”
While the collective sale of Mayfair Gardens may be successful, it could be another year before the deal is completed. “It will depend on whether there will be arbitration or a High Court hearing,” says Lee.
This article, written by Cecilia Chow, appeared in EdgeProp Pullout, Issue 806 (Nov 27, 2017).