Residential collective sales: A ripple or a wave?

/ EdgeProp Singapore |
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SINGAPORE (EDGEPROP) - Four collective sale sites sold for a total of $103.7 million last year seems meagre, when compared with the $489.9 million transacted in 2019 or the $10.84 billion achieved in 2018 (see table). However, signs are pointing to “a possible reactivation of residential collective sales” after a three-year hiatus, says Christine Li, head of research at Cushman & Wakefield (C&W).
The current unsold private housing inventory continues to fall and now stands at 26,600 units. The start of the previous en bloc cycle was in 2Q2016 when inventory fell to 23,300 units, points out Li. Developers are expected to sell about between 9,800 and 10,000 new private housing units for the whole of 2020, despite the challenging economic situation, she adds.
Fairhaven-Sophia-Ville - EDGEPROP SINGAPORE
Fairhaven and the neighbouring Sophiaville on Sophia Road, sold together for $62 million, was considered the biggest collective sale of 2020 (Photo: JLL)
The collective sale sites sold in 2020 have been relatively small, notes Tan Hong Boon, JLL executive director of capital markets. The biggest was the sale of two adjoining sites, namely Fairhaven and Sophiaville on Sophia Road, which fetched a total of $62 million in November. The deal was brokered by JLL.
The other two collective sale deals were in Geylang. The first was Yuen Sing Mansion, a freehold site at Lorong 13 that fetched $15.2 million in August. It was considered the first collective sale deal of 2020. The other was Advance Apartments, located at Lorong 25A, which was sold for $26.5 million in December. The deal was also brokered by JLL.
“I don’t think we will see the big collective sale sites taking off just yet,” says Tan. “While developers are looking to replenish their development sites, they are also very conscious about pricing.”
The cost is now even higher since July 2018, with 5% ABSD [additional buyer’s stamp duty] that has to be paid upfront, and is not remissible, and 25% ABSD if they cannot sell out all the units within five years. The government has given developers a six-month extension on their project sales period in relation to ABSD remission, due to disruption by Covid-19.
Advance-Apartment-Front - EDGEPROP SINGAPORE
Advance Apartment in Geylang Lorong 25A was sold to a consortium led by Neo Group and Boldtek Holdings in late December for $26.5 million (Photo: JLL)

Sweet spot — city-fringe sites, less than $100 million

Developers’ interest has mainly been in the city-fringe areas of Geylang, Telok Kurau and Haig Road in Districts 14 and 15, and the suburban areas, such as Serangoon Road, says Tan. He sees interest building up in areas such as Pasir Panjang, where there are also small to mid-sized redevelopment plots. “This time around, we see a lot more smaller property players including new players entering the collective sale market,” he adds. “So they tend to go for such small to mid-sized plots.”
Jeremy Lake, Savills Singapore managing director of investment sales and capital markets, agrees. “Sites with a smaller number of owners are usually less than $100 million, and these sites are more nimble and easier to activate,” he says.
As developers’ appetite for residential sites increases, Lake expects to see bigger-ticket deals taking place, in the $100 million to $400 million range. “But the gestation period is longer due to the STB [Strata Titles Board] procedural requirements and there being a larger number of owners,” he adds. “This trend may only kick in 2H2021.”
The challenge will still be to get 80% of the owners to sign up at a reserve price that developers are willing to pay. In 2020, there were a few unsuccessful collective sales because the reserve price was set too high, says Lake.
Resistance is likely to mount once deal sizes cross $500 million. “It’s not just the lump-sum amount but the gross floor area is large too,” points out Lake. “And the risks associated with selling out all the units within five years are higher.”
What is attracting developers are also “single-owner sites”, says Shaun Poh, C&W executive director of capital markets. The sale of the Guillemard-Jalan Molek site to Roxy-Pacific Holdings for $93 million has sparked “a wave of interest by residential developers, particularly mid-sized ones, to look at sites that will help them ride the current cycle,” adds Poh. “These include single-owner plots and older CBD offices that can take advantage of the CBD Incentive scheme.” C&W brokered the Guillemard-Jalan Molek sale.
Another site that was sold by a single owner was on Haig Road and Haig Lane, where the Lee Foundation and Lee family’s Casuarina Properties sold 11 houses on a 25,054 sq ft, freehold plot for $32.8 million in November. The sale was brokered by JLL.
In August last year, the owners of High Street Centre launched a collective sale at $800 million, and may revisit that route again (Photo: Samuel Isaac Chua/EdgeProp Singapore)

Revival of mixed-use developments?

Interest could return to mixed-use developments, although traditionally, collective sales of such sites tend to be challenging due to the apportionment of collective sales proceeds for the different components, notes JLL’s Tan.
On the market soon could be three sites on the corner of Bukit Timah and Duke’s Road. All three sites are zoned for “commercial and residential use” with a plot ratio of 3.0. The three sites are likely to be launched for sale by JLL sometime at the end of January or early February.
The owners at Peace Centre and Peace Mansion at 1 Sophia Road are also revisiting a collective sale. The property was launched for sale in 2019 at a reserve price of $688 million. It was their fifth collective sale attempt. The owners at Park Lane Shopping Centre next door are said to be exploring a collective sale too.
Likewise, 101 Beach Road and GSM Building at Middle Road were both put up for collective sale in June last year with price tags of $90 million and $98 million respectively. C&W is the marketing agent for both sites. The owners could reactivate the collective sale process this year. In August last year, the owners of High Street Centre launched a collective sale at $800 million. C&W is the marketing agent for High Street Centre too. The owners of High Street Centre could revisit the collective sale route this year as well.
Golden Mile Complex, a large-scale mixed-use development on Beach Road, was put up for collective sale in 2019 with an $800 million price tag. Last October, URA proposed that the main building, with its signature terraced profile, be conserved. Should the building be conserved, the authorities are prepared to offer the buyer-developer bonus floor area, the building of an additional 30-storey tower on the existing site and partial waiver of development charge, as well as a lease top-up to a fresh 99 years.
Should the building be conserved, the authorities are prepared to offer the buyer-developer bonus floor area, the building of an additional 30-storey tower on the existing site and partial waiver of development charge, as well as a lease top-up to a fresh 99 years (Photo: Samuel Isaac Chua/EdgeProp Singapore)

Residential sites in demand

Given the pace of private home sales, developers are on the lookout for residential sites, certainly for the next six to 12 months, says C&W’s Poh. Developers who have purchased collective sale sites in the past have seen how even one objector “can throw the timing off for a new project launch”, adds Poh. That explains the preference for single-owner sites or those that have 100% consensus from the owners, he adds.
“Government land sale (GLS) sites are the first port of call,” says Savills’ Lake. “Bidding for such sites will be very competitive indeed.” An alternative to GLS sites is private sites and most notably collective sale sites. However, the issue with collective sales is that owners typically set the reserve price at a future price that is above today’s market price, he adds.
While enquiries have started to ring in from collective sale hopefuls, “I don’t think there will be a mad rush, and certainly not an en bloc sale fever”, says Savills’ Lake. “I do not expect to see a wave like we did in 2016 to 1H2018, but I do expect to see more collective sales in 2021 and 2022.”

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