At an average of $500ppr, will the revamped DC rates dampen redevelopment?
The government yesterday announced what is possibly the sharpest hikes in development charge (DC) rates, which are payable for enhancing the use of some sites or building bigger projects on them. The Ministry of National Development (MND) cited the rise in market values as the reason for the increases.
On average, the DC rate for non-landed residential use was raised by 58 per cent and that for commercial use by 42 per cent. The average DC rate was also increased 23 per cent for hotel use, 11 per cent for landed residential use, and 2 per cent for industrial or warehouse use. But the escalations were much bigger in certain locations - as high as 112.1 per cent for non-landed residential use in the Everton/Spottiswoode Park vicinity and 104.5 per cent for commercial use in the Maxwell Road/Telok Ayer St and Anson Road areas, based on Jones Lang LaSalle's analysis.
The latest increases, which take effect today, are in addition to the 40 per cent across-the-board appreciation in DC rates announced on July 18 arising from a change in formula for computing DC. While yesterday's increases look steep, they did not surprise most market watchers given the substantial appreciation in land values over the past six months.
As to whether the latest hikes will further slow en bloc sales, which have decelerated lately as developers become more cautious about land-banking amid the stock market rout and credit tightening fears, property agents offered a range of views. Credo Real Estate's managing director Karamjit Singh estimates that probably only about 20 to 30 per cent of all collective sale sites have substantial DC components amounting to 10 per cent or more of total land value. 'For many of these sites with high DC component, the increase may have been anticipated and priced in, so things can move on. For those that haven't, their progress for an en bloc sale could be affected if owners are unwilling to lower their price expectations.'
Jones Lang LaSalle's regional director and head of investments Lui Seng Fatt too said: 'Despite the stellar increases in DC rates, the impact of the DC hike on en bloc residential developments remains marginal on most sites, especially freehold sites. Some leasehold sites with substantial DC components, however, may feel the heat.' CB Richard Ellis executive director Li Hiaw Ho said the hikes will to 'a small extent, slow down collective sales'. 'Coupled with homeowners' expectations of high prices for their properties, developers might not be as aggressive in acquiring sites,' he added.
Colliers International's director for research and consultancy Tay Huey Ying said two rounds of DC hikes in July and September, and global credit tightening, will likely lead to more cautious bidding by developers and more realistic price expectations by sellers. Ms Tay said that increases in land prices may not be as phenomenal in the coming six months compared with the past six months. 'But demand for development land should stay healthy as the end-market for residential property is expected to remain healthy on the back of strong economic prospects,' she added.
Analysts noted that in any case, the supply of collective sale sites will slow due to impending changes to en bloc sale rules requiring more safeguards and procedures. DC is specified according to use groups and is listed by 118 geographical sectors or locations across Singapore. The 112% hike in non-landed residential DC rates in the Everton/Spottiswoode Park area was attributed by most analysts to the Spottiswoode Apartment and Oakswood Heights collective sales in April and June at $732 psf per plot ratio and $740 psf ppr respectively - more than twice the land value of $307 psf ppr implied by the July '07 DC rate for the location.
And the DC rate hikes of 107.5 per cent each in the Newton/Surrey/Lincoln roads and River Valley/Jalan Mutiara areas were attributed to the collective sales of Lincoln Lodge for $1,449 psf ppr, and Bishopswalk for $1,544 psf ppr respectively, which are about three times the $492 psf ppr land value implied by the July '07 DC rate for the locations.
The Maxwell Road and Anson Road areas topped the increases for commercial use with gains of 104.5 per cent each, likely due to prices achieved at two recent state tenders for commercial sites at Anson Road. The same two locations also recorded the biggest increases in hotel use rates, at 66.7 per cent each, and again, this was probably due to two hotel sites at Gopeng Street and Tras Street sold by the state at significantly higher land values than implied by July DC rates.
As for industrial DC rates, the highest increase of 15.8 per cent was for the Pasir Panjang/Science Park area, followed by 11.1 per cent hikes in 15 other locations including Henderson Industrial Park, Bukit Merah View, Redhill and Hoy Fatt Rd/Alexandra Road, according to JLL's analysis.
Source: Business Times, 1 Sept 2007
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Buying office building: Chevron House leads the pack at $2,780psf. That’s $730m for 81 yrs lease!
CapitaLand and its partners have sold stakes in Chevron House (formerly known as Caltex House) at Raffles Place in a deal that valued the leasehold office block at $730 million or $2,780 per square foot of net lettable area. This sets a new record for an entire office building, surpassing the $2,650 psf set earlier this year for the freehold 1 Finlayson Green. Chevron House stands on a site with a remaining lease of about 81 years.
Market watchers are wondering if a new record price will soon be achieved, possibly for Hitachi Tower next to Chevron House and in which CapitaLand also has a 50 per cent stake. The 999-year leasehold Hitachi Tower, which faces Collyer Quay, was earlier reported to have attracted a top bid of $3,200 psf of net lettable area, following an expression of interest exercise.
However, industry talk now is that negotiations with the top bidder may have met with some hitches - although it is suggested that this does not necessarily mean the deal is off. 'It could just mean that negotiations may now be open with the other bidders,' one observer said. When contacted, a CapitaLand spokeswoman said: 'The owners of Hitachi Tower are negotiating with several parties to divest their interests, and we will make the appropriate announcement if any definitive agreement has been signed.' CapitaLand owns Hitachi Tower jointly with National University of Singapore.
The property giant declined to identify the party to whom it and its partners have sold their stakes in Chevron House. But it is believed to be a foreign fund. 'Globally, in the real estate investment market, it is the international funds that are buying, because that's where the capital is being raised. And you have a whole variety of investors - including private equity, savings (including pensions), professional investment groups,' an industry player said. Jones Lang LaSalle is understood to have brokered the sale of Chevron House.
CapitaLand owns a 50 per cent stake in Chevron House, with IP Property Fund Asia and NTUC Income Insurance Co-operative each holding 25 per cent. The three parties own their stakes in Chevron House through Savu Properties Ltd and under yesterday's deal, are selling their stakes in this company. The completion date of the sale is Sept 24. 'Upon completion, CapitaLand will recognise in its group consolidated accounts a gain of approximately $150.8 million,' the group said yesterday.
The average prime office capital value rose 117 per cent year-on-year in the second quarter of this year to $2,500 psf, while average monthly Grade A office rental value in Q2 this year was $13.10 psf, up 92.6 per cent from the same period last year, according to CB Richard Ellis data.
Source: Business Times, 31 Aug 2007
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Soilbuild pays $6.5m DC for Meyer Road site
SOILBUILD Group Holdings has bought the freehold Margate Mansion off Meyer Road for $58 million through a collective sale. The deal reflects a unit land price of $882 psf per plot ratio including an estimated $6.5 million development charge (DC) based on July 18, 2007 DC rates. Provisional permission for a new development has not been obtained, so the $6.5 million estimated DC quantum has not been locked in.
Soilbuild will have to pay DC based on Sept 1, 2007 rates, which most market watchers say will shoot up in tandem with sharp gains in residential land values over the past six months. Asked why Soilbuild announced a deal just a day before the latest DC rates are announced, the group's executive director Low Soon Sim said: 'We have factored in a 20 per cent rise in DC rates for the area come Sept 1, and we see the potential of the area. This is a District 15 site located in the much sought-after Meyer Road residential enclave.'
Margate Mansion's collective sale, which is subject to approval by the Strata Titles Board, was brokered by CB Richard Ellis. The 34,804 sq ft site has a 2.1 plot ratio - the ratio of maximum potential gross floor area to land area. Assuming an average size of 1,500 sq ft per unit, the site can be redeveloped into a new project up to 24 storeys high, with a total of 48 units, Soilbuild said in a statement yesterday. The project may be launched towards the end of next year.
Separately, the Urban Redevelopment Authority launched a tender yesterday for a 5.13-hectare industrial site in Sin Ming Lane. The land has a 2.5 plot ratio and is being sold on 60-year leasehold tenure. Colliers International director (industrial) Tan Boon Leong reckons the top bid is likely to be in the $60 psf per plot ratio range. This would translate to a breakeven cost of $230-250 psf for the completed development.
'If a developer wants to maximise profit, he will build a ramp-up development,' Mr Tan said. The site is zoned for Business 1 use and can be used for clean and light industrial use. It is within the established Sin Ming Industrial Estate. The tender for the site, which is on the confirmed list of the Government Industrial Land Sale Programme, closes on Oct 24.
Source: Business Times, 31 Aug 2007
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The eagerly awaited Alexandra condo site is now up for tender
The Urban Redevelopment Authority yesterday asked for tenders for a 99-year leasehold residential plot at Alexandra Road, close to the Redhill MRT station and opposite the Metropolitan, after receiving a minimum bid price that triggered the launch from the Reserve List. The site occupies some 8,559 square metres with a gross plot ratio of 4.9, which can generate a maximum permissible gross floor area of 41,939 square metres. It is zoned for development of condominium or serviced apartments. Property consultancies said the site could be developed into a 40-storey condominium.
Knight Frank managing director Tan Tiong Cheng said that he expects the project to have some 380 units averaging 1,200 square feet in size, given that its height and plot ratio are similar to those of the Metropolitan - a joint project between CapitaLand and Lippo Group. Mr Tan reckons that bids for the site could have been in the region of $400 per square feet per plot ratio (psf ppr) or a lump sum of $180 million and expects the units to fetch average prices of $950-1,000 psf when they are put on the market, given that units in the nearby Metropolitan are fetching some $924 psf in resale prices in the third quarter. CB Richard Ellis executive director Li Hiaw Ho estimates that the site could have drawn bids in a higher range of $650-750 psf ppr. 'This will translate to an average selling price of between $1,200 psf and $1,300 psf, which could be attainable in the second half of 2008,' he said, expecting strong demand to come from upgraders and investors who are looking to rent out the units given its proximity to the city and amenities.
In comparison, the Metropolitan site was purchased by the developers at $350 psf ppr in November 2005. Based on the strong demand seen in Metropolitan where all 382 units were sold within six months, market watchers said that they expect the Alexandra site to draw strong interest from developers given that it is located at the fringe of the established Tanglin housing district which is within a five to 10 minute drive to Orchard Road, the Central Business District, Marina Bay, and the southern waterfront area.
Yesterday, the Housing & Development Board invited tenders for the sale of a commercial site at Toa Payoh Lorong 6, under the Confirmed List of the Government Land Sales Programme. The 99-year leasehold site has a land area of 1,396.8 square metres with maximum allowable gross floor area of 4,190.4 square metres, and is located near the HDB Hub. Its tender will close on Oct 16 and the project is expected to be completed by 66 months from the date of tender acceptance.
Mr Li from CBRE estimates that the site could yield about 34,000 square feet of net lettable area of commercial space and can be developed for a variety of uses including retail, F&B, office and entertainment facilities such as cinemas, bowling alleys and fitness centres. 'It is likely that the successful bidder would devote 100 per cent of the maximum gross floor area for retail use, so as to tap on the large population catchment within the Toa Payoh housing estate as well as workers and visitors at HDB Hub,' he added. 'We expect bids to range between $600 and $700 psf ppr. Assuming that the mall is able to fetch a monthly rent of about $7-9 psf per month, this would provide the developer with a stabilised yield of about 5.5-6 per cent.'
Source: Business Times, 30 August 2007
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LaSalle offers $237.2m for office plot next to International Plaza
LASALLE Investment Management (LIM) was the top bidder yesterday for a 99-year leasehold commercial plot next to International Plaza, with a bid of $237.2 million or $941 psf of potential gross floor area. LIM, which bid on behalf of its LaSalle Asia Opportunity III Fund, is planning a 20-storey office development with about 200,000 sq ft net lettable area. 'It'll be a Grade A, 'Gold Standard' building,' said LIM regional director Andrew Heithersay.
LIM managing director (Asia Pacific) Ian Mackie said: 'We may or may not take a joint venture partner for the development.' The office development, near Tanjong Pagar MRT station, will target occupiers looking for cheaper accommodation close to downtown, he added. The project may be completed around late 2009.
LIM's top bid for the 27,281 sq ft plot was 7.8 per cent lower than the $1,021 psf per plot ratio that Mapletree Investments paid for a bigger site across the road last month. The price was lower as the latest site is 'inferior in shape and size, resulting in an office development with a much smaller floor plate of around 12,000 sq ft - compared with 22,000 sq ft for the earlier site - as well as lower efficiency', said an analyst.
A Mapletree unit was the second highest bidder at yesterday's tender, at $800 psf ppr - 15 per cent below LIM's price. The only other bidder, Wing Tai, offered $634 psf ppr. CB Richard Ellis estimates that LIM's bid reflects a break-even cost of $1,700-1,800 psf. 'This would provide the successful bidder with a stabilised yield of around 4.5 to 5.0 per cent, based on a gross monthly rent of $9 to $10 psf,' it said.
However, industry sources suggest LIM is looking at a $13 psf average monthly rent. The Anson Road site will be the maiden Singapore investment for the LaSalle Asia Opportunity III Fund, which is planning to make about US$12 billion worth of acquisitions over the next three to four years. 'Singapore remains one of our primary target markets. We're interested in all sectors - office, retail, industrial, residential and hotel,' Mr Heithersay said.
Earlier acquisitions here by LIM for its other funds include the collective sale of Rainbow Gardens at Toh Tuck Road, and Swissotel Merchant Court hotel, as well as stakes in two hotels opening next year - Crowne Plaza Changi Airport and Ibis Bencoolen Street. LIM, part of the Jones Lang LaSalle group and a leading real estate money management firm, yesterday also announced an A$738 million (S$926 million) acquisition, on behalf of Asia Property Fund, of a 50 per cent stake in the Westfield Doncaster mall development in Melbourne.
Source: Business Times, 29 Aug 2007
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5 Days cooling off period in case you change your mind – that’s what the Law says for en bloc sellers
Proposed changes to the law will make the en bloc sale process more transparent and include safeguards to ensure that the various stakeholders get a fair deal. Sales committees will have to be properly formed and elected. Collective sales agreements (CSAs) will be witnessed by lawyers who can clarify doubts and explain terms and liabilities. Even after they sign, potential sellers will have a five-day 'cooling-off period' during which they can change their minds. Even the definition of majority consent has been tweaked.
In the immediate future the changes, which are expected to become law in early October, could serve as a catalyst to speed up the signing of CSAs, says CB Richard Ellis executive director Jeremy Lake. 'Otherwise it appears that everything may have to be unwound and the process restarted under the new law,' he added. But in the longer term, the pace at which en bloc sites have been galloping into the market may slow. This is largely because new rules and procedures - including how sales committees conduct their business - mean it could take a longer time to launch a site for sale. However, the pace of collective sale deals sealed will still depend largely on market conditions, reckons Credo Real Estate managing director Karamjit Singh, who welcomed the spirit of the changes that promote greater transparency.
Law firm Rodyk & Davidson's partner Norman Ho said lawyers' fees for collective sales, usually $3,000 to $4,000 per unit, could double or triple because of the extra work involved - primarily because lawyers will now be required to witness signatures and certify the monthly updates on the consent level. 'This will also aggravate the current shortage of en bloc sale lawyers,' Mr Ho reckons.
Agreeing, Credo's Mr Singh said requiring lawyers to witness signatures will 'create a bottleneck in the process'. Like many in the industry, Mr Ho questioned the need to get lawyers to witness signatures, especially since a cooling-off period is also being introduced. A key amendment is an additional requirement for the definition of majority consent for en bloc sale, to be based on the area of the units in the development.
The existing condition, that requires consent from owners controlling at least 80 or 90 per cent of a development's share value - depending on whether it is more than 10 years old or less, respectively - will still apply. But a second condition will now require consent from owners of units that form 80 or 90 per cent of area in the development - again depending on its age.
This is different from the Ministry of Law's earlier proposal in March, which had sought to peg the second condition of consent on 80 or 90 per cent of the number of units owned in the development. Feedback showed that basing the second requirement on area will mitigate bias against residential owners in a mixed development - who typically have lower share values. At the same time, the requirement would not work against commercial unit owners, especially those whose units have much larger floor areas.
Another big section in the Land Titles (Strata) (Amendment) Bill tabled for first reading in Parliament yesterday by Deputy Prime Minister and Law Minister Prof S Jayakumar governs the formation, composition, constitution and proceedings of en bloc sales committees. A sales committee will have to be elected by more than 50 per cent of owners present at a general meeting of the management corporation before signing of the CSA may begin. Eligibility criteria of committee members are listed and the sales committee will have to convene general meetings to consider key issues such as the appointment of the property consultant and lawyer, apportionment of sales proceeds and the terms and conditions of the CSA.
The sales committee will also have to provide monthly updates - instead of every eight-weekly currently - of the consent level, to keep owners better informed. Every launch for sale must be through a public exercise like a tender or auction. However, the sales committee can engage in follow-up negotiations with any bidder, especially if the tender/auction fails to achieve the desired price. But a sale by private treaty must be concluded within 10 weeks of the close of the tender/auction. Otherwise, the tender will have to be relaunched for sales efforts to resume. Credo's Mr Singh welcomed the 10-week deadline, saying it 'instils discipline as the market has shown itself to be very dynamic'. 'In fast-moving markets, private treaty negotiations do not give you comfort that you are dealing with the best buyer. But a tender does, because you are inviting more participants to the negotiating process rather than limiting yourself to one or two,' he added.
A MinLaw spokesperson said: 'The proposed amendments to the Land Titles (Strata) Act are to provide additional safeguards and to ensure more transparency for all owners, that is, the minority and majority owners, but in a way that does not make it unduly onerous to bring about an en bloc sale.'
Source: Business Times, 28 Aug 2007
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Amendment to Land Titles (Strata) Act extended for en bloc sale by majority consent to five more developments
A proposed amendment to the Land Titles (Strata) Act will extend en bloc sale by majority consent to five developments not covered by current legislation - Goldhill Plaza, Goldhill Shopping Centre, Katong Plaza, Roxy Square Shopping Centre and Bukit Timah Shopping Centre.
Strata title certificates were issued for the projects but the original landowner/developer retained the title certificates and instead gave long leases - at least 850 years - to buyers of units. Owners of such units can only do an en bloc sale with unanimous consent - and the approval of the original developer, who owns the reversionary interest in the property.
But the ministry of law proposes to allow them to proceed with an en bloc sale by majority consent. And the original developer's consent will not be required, because if the Strata Titles Board approves an en bloc sale, he will lose all rights to the land.
Source: Business Times, 28 Aug 2007
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S'pore still cheaper than HK & Tokyo but can we compare?
Despite rising property costs and wages, Singapore remains cheaper than regional global cities such as Hong Kong and Tokyo, Trade and Industry Minister Lim Hng Kiang has said. He quoted studies which showed that Singapore remains cheaper than other global cities in the region. A survey on global office market rentals by consultants CB Richard Ellis showed that Singapore was 30 per cent cheaper than Hong Kong, and 50 to 60 per cent cheaper than Tokyo.
Mr Lim cautioned however: "'We have to maintain vigilance over our costs, as excessive cost increases will dampen our growth prospects." He was speaking in Parliament yesterday and addressing MPs' concerns about the impact of rising business costs on the Republic's economic competitiveness. Citing as examples London and New York, which are thriving hubs despite their high costs, Mr Lim said "competitiveness is more than offering low costs alone", but also about value creation. This empowers Singapore with attributes that economies in the region cannot easily replicate, such as its livability. Mr Lim also pointed out that in the past three years, the consumer price index has increased at an annual rate of 1 per cent, while overall unit labour cost actually declined at an annual average rate of 2.2 per cent. "However, in recent quarters, we have seen increases in property prices and rentals, as well as wages," he added. He cited recent moves to release land for temporary office space as well as provide more public flats for rental.
The Ministry of National Development (MND) also released additional information on property prices and rents 'to allow the public and businesses to make more informed decisions on property purchases and rentals'. The Government is also looking at ways to help more Singaporeans capitalize on the strong employment market and rejoin the workforce. Addressing media reports of "sky-high" office rentals, Mr Lim said although the median prime office rent in the second quarter was $9.50 per sq ft per month, the median rent in other locations, accounting for about 80 per cent of office space here, was less than half of that.
Source: Asia One, 27 August 2007
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