Roxy-Pacific’s overseas gambit
By cecilia.chow@bizedge.com
Singapore-based property developers accustomed to brisk sales at their project launches in recent years are now facing a new reality of sluggish demand. Last year, Teo Hong Lim, executive chairman of Roxy-Pacific Holdings, encountered what he considers “one of the slowest moving projects so far”.
It was the launch of the developer’s 222-unit Trilive condominium development, located on Tampines Road, just off Hougang Avenue 3. The suburban condo was launched last May and, as at end-January, 54 units (24.3%) had been sold. In January, the project recorded 22 sales at a median price of $1,562 psf. Yet, Trilive was ranked the third best-selling project that month, based on January’s new-home sales.
“Trilive is a project that will take longer to sell,” Teo concedes, speaking at the company’s FY2014 results briefing on Feb 17. As the freehold project is a redevelopment of the former Yi Mei Garden, which Roxy-Pacific purchased en bloc in 2013 for $136 million ($856 psf per plot ratio), the developer has to comply with the conditions of the Qualifying Certificate (QC). The project is targeted for completion by 2017, following which the developer will have another two years to sell all the units, failing which it would have to pay extension charges for the unsold units. “So, we still have a few years to sell the project,” reckons Teo.
As sales at Trilive picked up in January, Teo intends to extend the sales and marketing period by two months. “Pricing adjustments [alone] will not draw buyers out,” he says. “You need to offer buyers the perception of value — units at the right price points through ‘star buys’. That is our strategy for Trilive.”
Another project that Roxy-Pacific launched last year was the 30-unit, freehold boutique condo project Sunnyvale Residences on Lorong K Telok Kurau in the east. Previewed last May, nine units (or 30% of the total) had been sold as at end-January 2015, with the median price at $1,455 psf, according to URA data. Singapore private-home prices have seen four straight quarters of decline since 4Q2013, according to the URA private property residential price index. The full impact of successive rounds of property cooling measures, including hikes in stamp duty and capping of borrowing limits via the total debt servicing ratio (TDSR), as well as aggressive ramp- up of development land supply for both public and private housing, are now being felt in the broader residential market. Private-home prices fell 4% last year, and HDB resale prices were down 6%.
“Our residential market has achieved a better balance between buyers and sellers,” proclaimed Khaw Boon Wan, Minister for National Development, in his blog entry on Feb 19, the first day of the Chinese New Year. A total of 195,788 new HDB flats are projected to be completed from 2014 to 2017, a slight downward revision from 200,034 units anticipated previously. Current housing stock stood at 1.28 million, of which HDB flats make up 960,000 units and private housing, 320,000 units. By 2018, the number of housing units is expected to hit $1.43 million, an increase of 11%.
New-home sales in January were a dismal 372 units, slightly higher than December, which saw 230 units sold. These are some of the lowest monthly home sales seen since January 2009 when only 108 units were sold. And that was during the global financial crisis. The Singapore Budget 2015 announced on Feb 23 brought no relief to property developers, as there was no rollback of the property cooling measures.
![Teo: Pricing adjustments [alone] will not draw buyers out. You need to offer buyers the perception of value.](http://s3-ap-southeast-1.amazonaws.com/www.theedgeproperty.com/s3fs-public/editor/Teo%20Hong%20Lim%20executive%20chairman%20of%20Roxy-Pacific%20Holdings.jpg)
Malaysia and Australia key overseas markets
After a colicky Year of the Horse, lo- cal property developers are bracing themselves for a temperamental Year of the Goat. Given the slowdown in the core domestic residential market, even more developers are being pushed to seek greener pastures overseas.
Roxy-Pacific is no different, and it intends to focus on Malaysia and Australia, particularly in the key cities. “We may not seem to be moving very fast, but we’re actually seeking new opportunities,” says Teo.
Last year, Roxy-Pacific took a 47% stake in a development project in Kuala Lumpur with its long- term joint-venture partner, privately held Macly Group, headed by Herman Chang, who has made a name for himself developing shoebox units in Singapore.
Macly and Roxy-Pacific plan to launch the new project — called Wisma Infinitum, a development with more than 700 units — in KL within the next few months. The twin-tower development is located on a 70,000 sq ft land site on Jalan Dewan Sultan Sulaiman in the prime CBD, opposite Quill City, an upcoming mixed- use development that includes a giant shopping mall with more than 770,000 sq ft of retail space. It is near the Sheraton Imperial Hotel, a 10-minute drive to Kuala Lumpur City Centre and 15 minutes to the Bukit Bintang shopping district.
Ninety per cent of Wisma Infinitum will comprise SOHO units, with retail units making up the balance of 10%. There are also plans to introduce “dual-key SOHO units”, a relatively new concept in the KL market, he adds. The developer therefore in- tends to price the project at a level that will appeal to Malaysian buyers and not just Singaporean investors. “Given that it’s our maiden project in KL, this launch is important to us,” says Teo. “We intend to do more projects in KL.”
In Australia, Roxy-Pacific made its first acquisition last April with the purchase of a 28-storey commercial building on Goulburn Street, right on the edge of the Sydney CBD. The building sits on a freehold site of close to 21,000 sq ft and has a total net lettable area of 210,465 sq ft. The purchase price of the property amounted to A$90.2 million ($96.3 million). According to Teo, the building is fully tenanted and expected to generate a net yield of 7% a year over the next four years.
This will give Roxy-Pacific enough time to understand the Sydney housing market regulations, the planning requirements and the domestic homebuyer’s psyche. “We’re still learning,” admits Teo. “Australia is a market in which we feel we want to establish a long-term presence. That’s why we have set up an office there.” The office was set up in May with the incorporation of Roxy Australia.
Fearing that foreign investors are pricing Australian homebuyers out of the housing market, the government proposed new fees on foreign investment on Feb 25. Foreign investors buying property worth less than A$1 million will have to pay a fee of A$5,000 to the Foreign In- vestment Review Board (FIRB). Investments above A$1 million will incur an additional A$10,000 for each additional A$1 million in purchase price. Foreigners found to flout the rules set by FIRB will have to pay a penalty of up to 25% of the value of the investment.
However, Roxy-Pacific’s Teo says his intention is not to rely on foreign investors and Singaporeans as the majority of buyers when he launches a residential project in Australia. “The success of any residential project will depend on the strength of demand from local homebuyers,” says Teo. “Just as we have done in Singapore, we will focus on catering to local homebuyers in Australia.”
Besides Sydney, Roxy-Pacific is looking at opportunities in major cities such as Melbourne, Brisbane and Perth. In January, the group announced its latest acquisition, a hotel development land parcel in Perth, for $17.9 million. The freehold hotel site is located on Wellington Street in Perth’s CBD, which is close to several tourist attractions, commercial centres and sporting facilities.
The Australian market has seen a significant increase in the number of developers from Singapore, as well as Malaysia and China, looking for development opportunities. According to IP Global, Singapore was the fourth-biggest source of foreign investment in 2013, accounting for A$2.1 billion worth of property assets. Singapore-listed groups that have ventured Down Under include Aspial Corp’s property arm, World Class Land, which launched Melbourne’s tallest tower, Australia 108, recently; Chip Eng Seng, which has three development plots in Melbourne; Ho Bee Land, which has launched two projects: Pearl Melbourne and Rhapsody Gold Coast; and Hiap Hoe, with two sites in Melbourne and a commercial building in Perth.
Sim Lian Group announced in February the acquisition of a commercial property in Perth, following its acquisition of five shopping malls in Queensland last year and a commercial building in Sydney two years ago. Meanwhile, Heeton Holdings has joined forces with KSH Holdings and Lian Beng Group to develop a A$150 million mixed-use hotel and residential scheme in Brisbane.
Expanding its hospitality segment
Teo is keen on growing Roxy-Pacific’s presence in the hospitality sector and to increase contribution from investment properties that provide steady recurring income. Until last year, its only hotel property was its flagship hotel in the city-state, the 569-room Grand Mercure Roxy Singapore. Revenue from the hotel increased 3% to $47.9 million, with average occupancy rates improving from 86.1% in FY2013 to 91.2% in FY2014. That was partially offset, however, by a reduced average room rate, which dipped 4% y-o-y to $184.50, says Eli Lee, an analyst at OCBC Investment Research, in his report on Feb 17.
Last November, the developer and its subsidiaries subscribed to a 49% interest in stapled securities with its joint-venture partner Aviva Investors Real Estate Capital Partners, which holds 41%. The purpose of the joint venture is to acquire and own as well as develop a portfolio of hotel properties in Australia using modular construction technology.
Besides Australia, Roxy-Pacific is expanding its reach selectively elsewhere in Asia. Last July, it acquired a hotel building in Nakagyo Ward in Kyoto, the second-largest city in Japan, for ¥2.26 billion ($25.8 million). The property sits on a freehold land area of 10,116 sq ft and has a total floor area of 51,448 sq ft. Formerly known as Hotel Harvest, the hotel was sold with vacant possession and is being refurbished. Roxy-Pacific is exploring the possibility of either signing on a new hotel operator or even managing the property itself under its own brand, Roxy Kyoto Hotel.
Last August, the company acquired a resort hotel in Chalong Bay in Phuket, Thailand. It also purchased the adjacent land parcels around the hotel, as it intends to develop more villas to expand the number of guest villas on the property. The total purchase price amounted to THB397 mil- lion ($16.5 million).
Elsewhere, in a joint venture with CLSA Capital Partners, Roxy-Pacific made an opportunistic purchase of 21 strata floors in a 29-storey, 999- year leasehold commercial building at 8 Russell Street in Hong Kong early last year. The project is situated in the busy commercial and shopping district of Causeway Bay.
So far, the joint venture between CLSA and Roxy-Pacific has already sold a substantial number of strata floors at Russell Street. Teo sees Hong Kong as a “very competitive market”, and will continue to pursue “opportunistic buys”.
Singapore ‘core business’
Roxy-Pacific may have made no land acquisitions in Singapore last year. “The property market is very cyclical,” says Teo. “As a prudent developer, we need to know when to be aggressive and when to make conservative offers. We should not be pressured to landbank if we cannot find suitably priced sites.”
Teo emphasises, however, that Singapore remains its core business. “We don’t expect to have 50% of our business coming from overseas with- in a short period,” he says.
Teo says the group will continue to look out for development opportunities in Singapore in both private and government land sales. In fact, Roxy-Pacific has been negotiating for a piece of land with a vendor. The site has a freehold tenure, but the seller, an association, wants to sell it to the developer on a 99-year leasehold basis. Teo is unwilling to purchase on that basis, and the seller has yet to make a decision.
The group continues to sit on a hefty $656.6 million worth of progress billings from sold units in its projects, which will be recognised over FY2015 to FY2017, notes OCBC’s Lee.
A recent proposal by the government to rezone the red-light district in Geylang (from Lorong 4 to 22, as well as the stretch along Guillemard Road) from residential/institutional to commercial use has led to increased investor and developer interest in the area. In that zone alone, there are more than 1,000 residential units including landed houses. The expectation is that more redevelopment into commercial use — for instance, office, retail, hotel or other entertainment services — could rejuvenate the area.
Teo recalls growing up in Geylang. His father, Teo Kok Leong, who founded Roxy-Pacific in 1967, initially had his office in a three-storey building in Geylang Lorong 12, right in the centre of the red-light district. While the office was on the first level, the family lived in the residential units on the upper levels. Teo was in primary school then. “As a child, Geylang wasn’t much different from other areas,” he notes. “Even though we used to live there, I’ve never done a project in Geylang yet.”
Teo says, however, that he “doesn’t rule out the possibility” of developing a project in Geylang, should a suitable site be found.
The developer has made a name for itself in developing many projects in the east, specifically in the Telok Kurau area, where it built its success on constructing compact apartment blocks that attract both investors as well as young families who want their children to attend the popular schools in the area. Since its listing in March 2008, it has also widened its scope in developing properties elsewhere in Singapore, including the 251-unit Spottiswoode 18 on Spottiswoode Park Road, off Tanjong Pagar, which was fully sold and completed last year; and Centropod@ Changi, its freehold commercial development on Changi Road, which contains a mix of strata-titled office units on the upper levels, as well as shops and restaurants on the first level. Centropod is fully sold and was completed in January.
Giving back to society
In FY2014 ended Dec 31, the group recorded total revenue of $317.8 million, which was 14% lower than the previous year’s $369 million. Despite the drop in revenue, owing mainly to lower contribution from property development, the group managed to achieve earnings of $96.8 million.
As it marks its 10th consecutive year of record earnings, the group is setting up Roxy Foundation with the Singapore Community Chest to further its philanthropic efforts in helping children from low-income families and the elderly. Roxy Foundation will be launched on Feb 27, with Emeritus Senior Minister Goh Chok Tong as guest of honour. “The idea is that, while we’re doing well in business, we should also give back to society,” says Teo.
Roxy-Pacific currently has an annual budget ranging from $100,000 to $200,000 for corporate social responsibility (CSR) activities. Since 2007, it has put a CSR programme in place and set up a “Children are Our Hope for the Future” programme to grant needy children financial assistance in their daily needs. It works closely with the Southeast Community Development Council in this area. Teo says, “Whether the company makes $50 million or $100 million in profit, a budget of $100,000 to $200,000 will be put aside each year for CSR programmes. We prefer to operate on a fixed amount that we can sustain over the long term.”
This article appeared in the City & Country of Issue 666 (Mar 02) of The Edge Singapore.
Follow Us
Follow our channels to receive property news updates 24/7 round the clock.
EdgeProp Telegram
EdgeProp FacebookSubscribe to our newsletter
Top Articles
Search Articles