A stroke of Goodluck
By Cecilia Chow & Timothy Tay
/ EdgeProp |
To the relief of many Goodluck Garden residents, the High Court has given the go-ahead for the condo’s en-bloc sale. But the verdict could have implications for other collective sale disputes.
Owners of Goodluck Garden will gather for a meeting on Nov 29, when property consultant Knight Frank and legal advisers Rajah and Tann will update them on the steps to be taken towards the completion of the collective sale of their condominium. It follows the High Court verdict delivered on Nov 26, in which Justice Woo Bih Li granted the sale order, paving the way for the $610 million enbloc purchase of the freehold, 210-unit Goodluck Garden by a joint venture between Qingjian Realty and Perennial Real Estate Holdings.
Justice Woo had said: “After considering all the facts holistically, including those not specifically mentioned in this oral judgment, I conclude that although the conduct of the CSC [collective sale committee], Knight Frank and the lawyers for the CSC was wanting in various aspects, there was no bad faith after taking into account the sale price, which was $68 million, or 12.55% higher than Colliers’ valuation.”
Goodluck Garden’s CSC chairman, who wants to be identified only as Mr Lim, said he felt “relieved” over the verdict. “We are now focused on working with our lawyers and marketing consultant on the process of concluding the sale,” he told EdgeProp Singapore in a phone interview. “We hope the sale can now go through for the benefit of the majority — or 86% of the owners — as it is for the good of the community, especially in the light of the current market conditions.”
The defendants, the 13 owners who had objected to the collective sale of Goodluck Garden, have 30 days to file an appeal with the Court of Appeal. They will be advised by their lawyer, Adrian Tan, a partner at TSMP Law Corp and his team. Tan declined to comment.
‘A perfect storm’
In his verdict, Justice Woo said that although the CSC and their professional advisers may view the court’s decision as a victory, he hoped they would “reflect long and hard on their missteps”.
A lawyer who declined to be named commented: “The Goodluck Garden case was a perfect storm of strange missteps. It was a sobering wake-up call for all industry practitioners from the High Court judge”.
The Goodluck Garden case considered 'a perfect storm of strange missteps' (Photo: Samuel Isaac Chua/EdgeProp Singapore)
A main issue of contention was the CSC’s failure to inform or consult the subsidiary proprietors (SPs) or strata owners in the condominium when URA had informed them that the site was not subject to a development charge (DC). Justice Woo felt that the CSC “should have extended the closing date of the tender by at least a week” on learning that no DC was payable, as it had a material impact on the reserve price — compared with Knight Frank’s last estimated DC rate of $63.19 million.
While Knight Frank acted promptly to inform all the potential bidders that no DC was payable, the CSC and Knight Frank failed to consider whether to inform and consult the SPs. “They had been too focused on the potential bidders that they lost sight of the subsidiary proprietors,” observed Justice Woo.
Another issue raised was over the valuation of Goodluck Garden. The defendants had alleged that the valuation of $542 million by Colliers International on March 7, which was used by the CSC, “was fundamentally flawed”. The defendants instead relied on a belated valuation by Asian Assets Allianz (AAA) dated Aug 20, which valued the property at $637 million.
AAA believed the valuation should have taken into account the possibility that URA might allow a higher gross plot ratio (GPR) of 1.655. The judge said AAA’s valuation was flawed. “A valuation should be based on existing facts,” he said. As such, he believed that Colliers’ valuation was not flawed, as it was based on the existing GPR of 1.4 going by the Master Plan 2014.
Justice Woo said that, “fortunately for the CSC”, Colliers’ valuation was just below the reserve price, and Qingjian’s bid was above both the valuation and reserve price of $550 million. Qingjian’s bid was also the higher of the two bids received at the close of the tender.
As it turns out, the subsequent cooling measures introduced by the government on July 6 make the sale price “seem even more favourable for all subsidiary proprietors”, conceded Justice Woo, although he emphasised that “this has no direct bearing on the question of good faith, which is to be determined at the time the sale process was undertaken”.
The verdict had to be given on Nov 26, failing which the purchaser, who had signed the sale and purchase agreement, had the right to rescind the purchase.
Not over yet
Even though the sale order has been granted, it is believed that there are still some conditions precedent to the deal. A key factor is the revision of URA guidelines on Oct 17 — unit sizes in new developments outside the Central Area were revised to 85 sq m (915 sq ft), from the current minimum average of 70 sq m. This will take effect from Jan 17, 2019.
New development applications submitted after Jan 17 will be affected by the revised average unit sizes. With the bigger average unit size of 85 sq m, developers will be able to build fewer units based on the same gross floor area. This has major implications for collective sale sites outside the Central Area purchased over the past 18 months.
The revised URA guidelines are likely to affect big collective sale sites that need to undergo a pre-application feasibility study (PAFS) that has to be approved by the Land Transport Authority (LTA) before they can obtain Provisional Permission (PP) for the new development from URA. New developments submitted before Jan 17, however, will not be subject to the revised URA guidelines.
Goodluck Garden’s minority owners have 30 days to appeal the verdict if they wish (Picture: Samuel Isaac Chua/The Edge Singapore)
Goodluck Garden has a land area of 360,139 sq ft, and with a GPR of 1.4, the gross floor area works out to 504,182 sq ft, excluding the 10% bonus GFA. As it is considered a big site, it is subject to PAFS. The developer could develop a new project of 669 units based on the average size of 70 sq m. Under the new URA guidelines of 85 sq m, the number of new units that can be built on the site will be reduced to 551 units.
“For the CSC and their professional advisers, there’s always a dilemma, as they have to take into consideration the changing market forces, especially in view of the recent cooling measures and whether to extend the collective sale period,” says an industry observer.
Goodluck Garden CSC chairman Lim agrees: “Our sale occurred just before the cooling measures were announced, and even before they were announced, many people in the industry were already suggesting that some form of cooling measures by the government might kick in soon. If we had extended the closing date of the sale and waited longer, there was a risk that the sale might not have gone through.”
A question of valuation
Most collective sale disputes headed for the High Court are over valuation and method of apportionment, observes a property consultant.
On Nov 29, there will also be the appeal of the minority owner of a unit on the first level of Citimac Industrial Complex who is objecting to the valuation of his unit. Citimac was sold en bloc for $430.1 million to a Chinese buyer last year. The deal was brokered by Edmund Tie & Co. The freehold development near Tai Seng MRT station has 110 units, nine of which are showroom units on the first level; 19 are warehouse units on the first and second floors; and 82 are factory units on the third to eighth floors.
The owner is objecting to JLL’s valuation of his unit as a showroom instead of a canteen, which he believes should fetch a higher market value. The written judgment on Aug 23 by the High Court judge had said the valuation by JLL’s head of valuation services was based on the highest and best use of the unit. It was “an exercise of his professional judgment”, and could not be faulted.
The owner had engaged another valuer, George Low, who valued the unit at $3,000 psf based on its use as an eatery.
A second SP, the owner of the neighbouring showroom unit on the first level, had objected to the collective sale on the grounds that JLL’s valuation was arbitrary and “totally inaccurate”. He engaged another valuer, Robert Khan, who valued the unit at $1,300 psf. JLL had valued the unit at $1,240 psf.
In his verdict, the High Court judge said he found the arguments raised by the two SPs to be “thinly disguised complaints about the amounts they would receive as their share of the collective sale proceeds because of the circumstances that were unique to them”. He gave the green light for the collective sale to proceed.
The second SP at Citimac is not contesting the High Court judgment, but the first one is going ahead with his appeal, with Tan of TSMP Law as his lawyer.
Brookvale Park
The majority owners at Brookvale Park condo have been watching Goodluck Garden’s case closely. Seven owners at Brookvale Park had objected to the collective sale, and the High Court hearing has been scheduled for Dec 7.
The minority owners of Brookvale Park are also represented by TSMP Law’s Tan. The basis of their objections is the valuation based on comparables used by the valuer. Their argument is that 99-year leasehold condominiums were used as comparables whereas Brookvale Park is a 999-year leasehold property, and thus should fetch a higher market value.
Brookvale Park’s collective sale is awaiting a High Court hearing scheduled for Dec 7 (Picture: JLL)
The comparables used by the valuer, Savills Singapore, were based on 99-year leasehold properties in the neighbourhood, but adjustments were made, taking into consideration Brookvale Park’s 999-year lease. One of the valuers used by the minority owners is said to be AAA, the same valuer used by the minority owners at Goodluck Garden.
Brookvale Park, a 160-unit development in Sunset Way, was sold to a joint venture between Hoi Hup Realty and Sunway Developments for $530 million in February this year. The sale was done during the 10-week private treaty period after the close of the public tender. The sale was brokered by JLL.
Launches and relaunches
Despite the property cooling measures, there are still owners at ageing mixed-use developments and smaller residential land parcels who want to attempt a collective sale. Knight Frank is marketing two sites that were launched for sale on Nov 28. One of them is Beauty World Plaza, a 999-year leasehold, mixed commercial and residential development with a single block of 61 retail units and 30 residential units. The reserve price has been set at $165 million, with the tender closing on Jan 30.
The other site is occupied by six strata terraced houses on Upper East Coast Road; it has a freehold land area of 13,446 sq ft. All six owners have agreed to the collective sale. They have a reserve price of $18 million, or $1,337 psf based on land area. The tender will close on Jan 31.
“Despite recent cooling measures on the residential segment, interest in landed homes has remained strong, owing to their scarcity,” says Ian Loh, Knigh Frank head of investment and capital markets.
Beauty World Plaza, a 999-year leasehold, mixed commercial and residential development, is attempting a collective sale (Picture: Knight Frank)
Some sites that have been launched for collective sale are also in the process of collecting signatures at a lower reserve price. One such site is Minbu Villa, located off Balestier Road, which intends to lower its reserve price to $129.1 million ($1,200 psf ppr). The 34-unit apartment block was launched for sale in March at $145.8 million ($1,355 psf ppr). It was launched for tender a second time on Nov 20 by marketing agent Savills Singapore at the same reserve price.
So far, more than 60% of the owners by share value and strata area have signed the supplemental agreement for the lower reserve price of $129.1 million, says Suzie Mok, senior director of investment sales at Savills Singapore. The tender for Minbu Villa closes on Dec 18.
Meanwhile, the 40-unit La Ville at Tanjong Rhu was re-launched for collective sale at a lower price of $140.6 million on Oct 9. The tender closed on Nov 8, and it is now in private treaty phase, says Tan Hong Boon, JLL regional director for capital markets.
La Ville was first put up for collective sale at $152 million, but no bids were received when the tender closed on June 19. The 10- week private treaty period coincided with the property cooling measures that kicked in on July 6. The reserve price was reset after an extraordinary general meeting was held by the CSC, and approved.
The 40-unit La Ville at Tanjong Rhu was relaunched for collective sale at a lower price of $140.6 million in October (Picture: JLL)
Flynn Park condo in Pasir Panjang was launched for tender on May 16 for $363.8 million, and the tender closed on June 29 without a bid. Gilstead Court on Gilstead Road off Newton Road was also launched for sale on June 6 at a reserve price of $168 million; the tender closed on July 19.
JLL, the marketing agent for both collective sale sites, says the process of getting approval from SPs at a lower reserve price is currently underway. So far, more than 70% of the owners by strata area and share value at Flynn Park have agreed to a lower reserve price for the collective sale. JLL’s Tan is looking at relaunching both projects for tender in 1Q2019.
Many other collective sale sites have also extended their tender closing period, while others have lowered their reserve price (see table). JLL’s Tan is expecting a flurry of launches and relaunches in the first two quarters of 2019. “The reality is that those who refuse to lower their reserve price are most likely to fail,” he says.
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