In August, six owners of units at Chuan Park, Singapore, got together to conduct a poll to gauge fellow owners’ interest in pursuing a collective sale. The 452-unit condominium sits on a 99-year leasehold site and with the lease starting from 1980, this means it is already 31 years old.
One of the reasons given in favour of a collective sale in a letter circulated to the owners is that “it will be increasingly difficult for new buyers to secure a full loan and [use] their CPF [Central Provident Fund] to fund a purchase in our estate as our property ages. We will face a possible property-decay situation where our homes, however priced, would have a diminishing pool of buyers”.
The letter also cited the case of The Arcadia, which was reported in May to have failed in its attempt to top up its lease to 99 years without going through a collective sale. This was despite having obtained 100% consent from the owners of the 164-unit condo, who were even willing to foot the bill for the top-up if permission was granted.
Chuan Park’s land area is 402,995 sq ft and it currently has a plot ratio of 2.1, which means a new development with a maximum gross floor area (GFA) of 846,289.5 sq ft can be built on the site. It was also estimated that based on the current average market transaction price of S$850 psf and assuming a 40% premium, the collective-sale price would be around S$1,200 psf.
The sale price of S$1,200 psf was probably benchmarked against the average launch price achieved at The Scala, a 468-unit condo across the road from Chuan Park, says a source. Launched by developer Hong Leong Holdings at the end of July last year, the 99-year leasehold condo had 75% of its units snapped up by balloting at an average price of S$1,150 psf on the first day of its public preview.
The site is located next door to the Lorong Chuan MRT station and has a plot ratio of 2.8, which is higher than the plot ratio of 2.1 of existing condos in the neighbourhood such as Chuan Park, Chiltern Park and Springbloom.
According to sources, about half of the more than 100 respondents registered interest in a collective sale at Chuan Park. “If 25% of the owners, based on the number of units, or 20% by share value, express interest in a collective sale, they can call for an EOGM [extraordinary general meeting] and form a sales committee, which will be the first step in the collective-sale process,” says Ian Loh, associate director of investment at Knight Frank.
Chan Chee Keong, 68, is a retired Singaporean businessman who has lived in Chuan Park for 11 years. He is also chairman of the Management Corporation Strata Title (MCST) at Chuan Park. “As chairman of the MCST, I want to remain neutral and keep an open mind,” says Chan. “When residents approach me to advise them, I tell them this is something they have to decide for themselves; it’s a very personal decision. To be honest, when people ask you if you want to sell [your property], it’s very difficult to answer. Where is the tipping point? What is the price threshold?”
Chan adds, “A lot of people think money is the only consideration [for the owners], but it’s not true. The location is very convenient — it’s near the Serangoon Garden Market, the [Lorong Chuan] MRT station and, for those who drive, the CTE is nearby.”
Quite a few owners at Chuan Park moved into the condo recently after selling their landed homes in the Serangoon Gardens housing estate nearby. Some of the residents also have grown-up children living nearby. “Many adult children moved to the area to be near their parents,” says Chan. “So, it doesn’t make sense for the parents to move.” Chan’s son, for instance, recently relocated his young family to within 1km of Chuan Park. Previously, he lived 10km away.
In any collective sale, residents tend to fall into two camps, observes Chan. He understands the position of those in favour of a collective sale. “Their view is that at the current all-time-high market price, it’s perhaps a good time to consider a collective sale, as years down the road, when the lease runs low, prices could drop,” he says. “So, both sides have a valid argument.”
Watching the en-bloc sale attempt at Chuan Park closely are the owners of units at the neighbouring Chiltern Park, a 500-unit condo that was completed in 1995. The 99-year lease on the site starts from 1991, which means it’s in its 20th year.
P S Lee, a 60-year-old businessman, owns two units at Chiltern Park. One is a 1,259 sq ft, three-bedroom apartment on the ninth floor that he purchased four years ago for S$760,000 (S$604 psf) and uses as his residence. The other is a 915 sq ft, two-bedroom apartment on the 10th floor that he bought for S$720,000 two years ago and rents out at S$3,500 a month. “The units have high ceilings and I have unobstructed views of Marina Bay Sands and the city skyline even from the ninth floor,” says Lee.
He reveals that he has received offers of up to S$1.2 million for his three-bedroom apartment and more than S$900,000 for the two-bedroom unit, but he is not selling. Besides being located across the street from the Lorong Chuan MRT station, Chiltern Park and Chuan Park are also near the Stamford American School, Australian School and the NewTech Park coming up near the MRT station, he notes. “As such, units here are a draw for buyers, both homeowners and investors.”
Some of the residents at Chiltern Park are also considering doing a similar poll to the one conducted at Chuan Park to find out residents’ interest in a collective sale, says Lee. “In District 19, Chiltern Park and Chuan Park are the two condo developments with the greatest en-bloc-sale potential.”
Collective sale hopefuls
The future isn’t all that bleak for ageing 99-year leasehold condos, even for places with just 30 or 40 years left on their lease. “If they are well maintained, they can still fetch good rental rates,” says Chuan Park’s Chan.
Mortgage financing for condos such as Chuan Park and The Arcadia is also not an issue for now. “DBS does finance properties with less than 60 years’ lease, as long as the remaining lease is at least 20 years at loan maturity,” says Lui Su Kian, managing director and head of deposits and secured lending at DBS Bank. “The key considerations for approving such loans, as with all mortgage loans, are the customer’s commitment and ability to make repayments.”
Chia Siew Cheng, head of the loans division at United Overseas Bank, says: “We look into several factors when reviewing a loan application. The loan quantum that a borrower would qualify for does not only depend on the age of the property, but on other factors as well. These would include regulatory requirements and the profile and creditworthiness of the borrower.”
There is, however, a restriction on CPF usage for properties with less than 30 years remaining on the lease, which in turn may affect the resale value, notes DBS’s Lui.
It’s not just Chuan Park and Chiltern Park that are exploring the possibility of a collective sale. There are more than twenty 99-year leasehold condos that have crossed the 25-year mark, and these may be put up for collective sale, says Susie Mok, director of investment sales at Savills Singapore. In the east, Tampines Court is in the midst of a second collective-sale attempt, while Bayshore Park, Mandarin Garden and Loyang Valley are also some of the large 99-year leasehold condos that are potential collective-sale candidates, according to Mok.
There’s also Thomson View at Sin Ming; Sherwood Tower above Bukit Timah Plaza in Upper Bukit Timah; and Lakepoint Condo, a five-minute walk from the Lakeside MRT station. In the prime districts, Mok says Orchard Bel-Air on Orchard Boulevard and Chancery Court on Dunearn Road are likely candidates.
Is this the right time?
“Most of the owners at the older, 99-year leasehold developments must be wondering what their options are,” says Karamjit Singh, managing director of Credo Real Estate. “Is it a good idea to spend more money in retrofitting or should they think of a collective sale? But even then, not all projects crossing 30 years may be ideal for a collective sale. You need certain market conditions to fall in place for a collective sale to be viable.”
In fact, owners of some of the older, 99-year leasehold condos have already approached property consultants with the intention of pursuing a collective sale. “But they have to form a collective-sales committee first,” says Knight Frank’s Loh.
Often, after setting up the committee, the sale could still be aborted because of various factors such as pricing and timing. “The timing must be ideal. Sentiment also plays a part and so does the health of the global economy, as well as developers’ appetite,” says Loh. Getting the 80% consensus to facilitate a collective sale is also a challenge for large sites, he adds.
“Currently, developers’ appetite for large leasehold en-bloc sites is weak,” says Jeremy Lake, executive director of investment properties at CB Richard Ellis (CBRE). “Large developers that still have an appetite for big sites will target 99-year leasehold sites in the GLS [Government Land Sales] programme as there is greater certainty of completion and they can launch the site far more quickly than buying a collective-sale site.”
And the government has been injecting a lot of new supply of 99-year leasehold development sites through the Confirmed List of the GLS programme. In 1H2011, it released 17 sites on the Confirmed List that could yield 8,100 residential units. Including 13 sites on the Reserve List, a total of 30 sites that could generate 14,300 residential units were offered in 1H. In 2H2011, another 17 sites were offered on the Confirmed List, which could also yield 8,100 residential units. Together with those on the Reserve List for 2H, the total supply was 14,200 residential units.
That has not stopped large, 99-year leasehold collective-sale sites from being rolled out this year. The largest was Pine Grove, a privatised HUDC estate in Ulu Pandan that was put up for tender with a price tag of S$1.7 billion in March. Laguna Park at Marine Parade Road was put on the market for S$1.33 billion by Knight Frank in May. This was after a failed attempt in 2009, when its asking price was S$1.2 billion.
In early September, Park West Condo was put up for collective sale, with an asking price of S$803 million. The differential premium and topping-up of the lease is estimated to be S$230 million. This will bring the total price tag to about S$1.033 billion. The existing project comprises a 432-unit condo and four commercial units and sits on a 99-year leasehold site measuring 633,644.39 sq ft. With a plot ratio of 2.1, 1,000 to 1,200 units can be built on the site, assuming an average size of 1,200 sq ft for the new units, says ERA Realty Network, the marketing agent for the development. The tender closes on Oct 20.
In April, Pearl Bank Apartments, a high-rise residential block on Pearl’s Hill, near the Outram MRT station, was put up for en-bloc sale with a price tag of S$750 million. The tender closed at end-May. Knight Frank will be re-launching the site for sale a second time next month at a slightly reduced price of “over S$700 million”, says Loh.
In May, Vista Park, a large, 99-year leasehold condo located off Pasir Panjang Road was also put up for collective sale, with an indicative price of S$338 million. The sale was also handled by Knight Frank.
Another collective-sale attempt was that at Peace Centre and Peace Mansion at 1 Sophia Road. Savills Singapore marketed the property a third time, at a reduced asking price of S$675 million. The tender closed on Aug 3.
Bite-sized deals dominate
So far this year, developers seem to favour the lower- to upper-middle tier of the residential segment, with a ballpark figure of S$200 million. “All the deals that have taken place this year have been below S$200 million,” says Credo’s Singh.
The most recent transaction was announced on Sept 21, namely the en-bloc sale of Hong Leong Garden Shopping Centre to listed Oxley Holdings and a consortium of niche developers. The mixed-use development located in West Coast was sold for S$171.1 million. The 956-year leasehold site sits on a land area of 150,816 sq ft.
“This is the largest collective sale this year in terms of quantum price and the largest in four years in terms of land size,” says Singh. “During the last en-bloc fever in 2006 to 2007, S$171 million would have been considered a small deal. How things have changed.”
According to Credo, so far this year, a total of 37 sites worth close to S$2.24 billion have been sold in en-bloc deals, compared with 36 totalling S$1.77 billion for 2010. “None of the deals for the big, freehold sites went through, and the 99-year leasehold sites offered for sale this year were all large,” says Credo’s Singh. “For the en-bloc sale of a large project, the market outlook must be very positive. When sentiment is mixed, developers tend to prefer small, bite-sized projects.”
Location, site attributes and differential premium
The “most ideal location” for a property going for en-bloc sale is next to an MRT station, says Stella Hoh, head of investments at Jones Lang LaSalle (JLL). “To developers, the differential premium — which includes topping up the lease — is very important. If they are confident about the site, they would not focus on the differential premium. But if they are not so [confident], then it becomes important. It’s also a matter of timing.”
The measures introduced by the government earlier this year have also affected market sentiment and cooled the demand for residential property. With effect from Jan 14, the seller’s stamp duty (SSD) increased from a tiered rate of 3%, 2% and 1% for those who sell within the first, second and third year of purchase, respectively, to a hefty 16%, 12%, 8% and 4% for those who sell within the first, second, third and fourth year of purchase. The result has been slower sales at new project launches and a longer holding period for developers, says Knight Frank’s Loh.
The success rate of collective sales has been low this year, says CBRE’s Lake. “It’s a function of both quantum price and price psf per plot ratio,” he says. “The success rate in 2006/07 was about 90%; now, it’s probably 20%.”
The main difference is that in 2006/07, land prices escalated quickly and developers were able to meet the rise in reserve prices, explains Lake. “The reserve price is always based on forward price. And if developers don’t see any substantial price increase in the future, they will just sit tight.”
Even the large freehold en-bloc sites have failed to find buyers, for instance, Tulip Garden at Farrer Road, which was launched for sale at S$650 million and later reduced to S$600 million; Hawaii Tower on Meyer Road, which had a price tag of S$700 million; and Brookvale Park at Sunset Way, which was offered for collective sale at an indicative price of S$550 million.
But there’s no stopping the queue of collective-sale hopefuls from entering the market. On Sept 22, PropNex put up for tender at S$500 million Cavenagh Gardens, a freehold site in prime District 9.
And JLL is marketing Parkway View, a 26-unit condo along Marine Parade Road for S$81 million. JLL’s Hoh is also planning to launch for collective sale Faber Garden, a 233-unit condo developed by UOL Group in 1984. The project sits on a large, elevated freehold site and has already achieved 80% consensus from its owners to proceed with a collective sale. In the pipeline are also two adjoining plots at Kim Keat Lane in Balestier, as well as another site in the northeast region. “All these sites are freehold,” notes JLL’s Hoh.
The rate of success for collective sales may be low, especially for large sites. And given developers’ lack of interest in large collective-sale sites, “owners’ expectations have to be tempered in order to bridge the price gap,” says CBRE’s Lake. “However, if the price premium is not large enough, there’s little incentive for owners to go through a collective-sale process. Replacement cost for owners has also gone up. Therefore, at different points of the property cycle, it may not be viable to do a collective sale.”
Cecilia Chow is the editor of City & Country at The Edge Singapore
This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 878, Oct 3-9, 2011
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