SINGAPORE (EDGEPROP) - Although Singaporean Jason Tan was not in the collective sale committee (CSC) of Orchard Bel Air, a prime District 10 condo along Orchard Boulevard, he took an active interest in the process as a homeowner — and a potential beneficiary if the collective sale proved to be a success. When the collective sale process began 15 months ago, Tan, who is also a realtor and executive director of JTResi marketing agency, was all for it. He even encouraged others to support the collective sale.

“The main thing was to secure the 80% consensus and get the collective sale launched,” he says. “After all, there is only 57 years left on the lease.”

The collective sale of Orchard Bel Air was launched by marketing agency Knight Frank on July 27 at $587.5 million. The tender closed on Sept 6 without a bid, and the 10-week private treaty phase has begun and is expected to close on Nov 14.

However, Tan has had a change of heart since the launch of the collective sale tender. Based on the $587.5 million reserve price, Tan and the other owners of the 3,229 to 3,261 sq ft, four-bedroom apartments would get a payout of about $8.1 million, while the owner of the sole 6,512 sq ft penthouse would walk away with at least $16.3 million.

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Tan had purchased his current home at Orchard Bel Air in September 2005. Back then, prices were depressed and Tan purchased his 3,229 sq ft unit for just  $1.435 million ($444 psf) and renovated it. A year later, when prices recovered somewhat, his two neighbouring units changed hands for $2.7 million ($836 psf) and $3.2 million ($984 psf) in October 2006 and December 2006, respectively, based on caveats lodged then.

Anticipating gross proceeds of $8.1 million from the collective sale, Tan began searching for older freehold condos in the Orchard area with sizeable four-bedroom units, such as Ardmore Park, Four Seasons Park and The Claymore, just to find out the latest market prices.

“Fifteen months ago, units at Ardmore Park were going for $9 million to $9.6 million,” says Tan. “But now, the asking prices for units at Ardmore Park are at least $12 million.” This year, prices of the typical 2,885 sq ft, four-bedroom units at Ardmore Park have crossed the $4,000 psf threshold, hitting $12.23 million ($4,240 psf) in May and $14.08 million ($4,881) psf) in July, based on caveats lodged.

Four-bedders at Four Seasons Park in the 2,260 to 2,874 sq ft range are trading at $6.9 million ($3,053 psf) to $9.5 million ($3,306 psf), based on transactions this year. Even at The Claymore, a 2,680 sq ft, three-bedroom unit recently changed hands for $8.3 million ($3,097 psf) and a 3,348 sq ft, four-bedroom unit was traded for $11.189 million ($3,342 psf), according to caveats lodged.

Replacement cost a primary concern

“Prices have moved up across the board since we began the collective sale process 15 months ago,” says Tan. “It’s the replacement cost that I’m most concerned about.”

The 71-unit Orchard Bel Air was developed by UOL Group and completed in 1984. The 25-storey development sits on a 93,126 sq ft site with a 99-year lease from 1980. The project is located next to the Orchard Boulevard MRT Station on the Thomson-East Coast Line, which is expected to open later this year.

Now that the Orchard Bel Air is in the private treaty period, if there are any bidders that offer a price below the current reserve price of $587.5 million, it is unlikely to get 80% consensus from the owners, notes Tan. “I think we can afford to wait for the next collective sale cycle,” he adds. “At the same time, we can enjoy the convenience of the Orchard Boulevard MRT Station next door.”

At the highest perch of Mount Elizabeth in prime District 9 is High Point, a 22-storey condo with just 57 units. The freehold development was launched for tender a second time by Savills in March at a guide price of $550 million. In late December 2021, Shun Tak Holdings aborted its $556.7 million en bloc purchase, after the government introduced property cooling measures that came into effect on Dec 16. (See potential condos with en bloc calculator)

High Point’s land rate was $2,508 psf per plot ratio (psf ppr) after factoring in the 7% bonus gross floor area (GFA) for balconies. The development charge for the bonus GFA is estimated at $18.8 million. The tender closed without any bids and the private treaty period has lapsed.

Read also: High Point collective sale tender to close on July 28

Reserve price

This year saw a number of successful collective sales, with owners prepared to accept an offer below the reserve price. This was seen at Golden Mile Complex on Beach Road, where in May, owners accepted a $700 million bid from a consortium made up of Perennial Holdings, Far East Organization and Sino Land. This was despite the fact that it was 12.5% below the $800 million reserve price.

In July, owners of Chuan Park condo at Lorong Chuan agreed to a lower price of $890 million made by Kingsford Development and MCC Land during the private treaty period, after the tender closed in April. The reserve price was $938 million. Hence, the offer was 5.11% below the reserve price.

Both Chuan Park and Golden Mile Complex are ageing 99-year leasehold developments. “Owners of ageing, leasehold commercial and residential properties are more motivated to sell collectively, compared to those of prime, freehold residential properties,” says Sieow Teak Hwa of Teakhwa Real Estate, a property realtor who focuses on collective sale deals.

“Generally, owners of prime freehold sites are unlikely to reduce their reserve price,” says Galven Tan, deputy managing director of investment sales & capital markets at Savills Singapore.

Savills’ Tan cites a few reasons: high replacement cost; the hefty 30% additional buyer’s stamp duty for existing foreign owners who want to purchase a replacement condo; and new condo project prices. Those that are priced at an average of $4,500 to $5,000 psf work out to an underlying land value equivalent to asking prices of collective sale sites today, says Tan.

Given the high replacement cost, even owners of leasehold estates in the prime districts are generally reluctant to sell below the reserve price, he notes.

At Orchard Bel Air, the guide price of $587.5 million translates to a land rate of $2,600 psf ppr after factoring in an upgrading premium of $131 million for the lease top-up. No development charge is payable. Taking into consideration the 7% bonus GFA for balconies, the land rate is $2,526 psf ppr, according to Knight Frank.

Elevated land prices 

By comparison, Horizon Towers’ land rate appears to be “the most reasonably priced private residential site in and around the Orchard Road neighbourhood in this collective sale cycle”, says Tan Hong Boon, executive director of capital markets at JLL Singapore.

This is because even though the reserve price is $1.1 billion, Horizon Towers’ unit land rate is $2,049 psf ppr over its 204,724 sq ft site with a gross plot ratio of 3.28. This is inclusive of the $277 million lease top-up premium. As there is no land betterment charge (formerly known as “development charge”) payable for intensification of the site, the unit land rate translates to $1,862 psf ppr, including a 10% bonus GFA due to a high development baseline, says JLL’s Tan.

The collective sale of Horizon Towers was launched by JLL on Sept 8, with the tender closing on Oct 20. This marks the third collective sale tender by the 211-unit private condo located on Leonie Hill Road, just off Grange Road in prime District 9.

“Most owners of 99-year leasehold condos are motivated to do a collective sale by the shortening lease and ageing property,” says JLL’s Tan. “With rising residential property prices, if there are any fresh collective sale attempts, the issue of replacement cost will figure prominently once again.”

However, Tan continues to be confident of Horizon Towers’ collective sale prospects, given its locational attributes and land size.  “There are hardly any prime sites that are reasonably priced and large enough for developers to provide a full range of amenities for residents,” he adds.

JLL’s Tan points to the bids for the government land sale (GLS) sites that closed on Sept 13. At Lentor Hills Road (Parcel B), TID submitted a top bid of $276.36 million, which works out to a land rate of $1,130 psf ppr.

This is already 6.6% above the $1,060 psf ppr for the neighbouring Lentor Hills Road (Parcel A) awarded to a consortium made up of Hong Leong Holdings, GuocoLand and TID in January this year, says Leonard Tay, head of research at Knight Frank Singapore. Based on the land rate, Tay estimates a future selling price of between $2,000 and $2,100 psf.

The neighbouring Lentor Central site saw a consortium made up of China Communications Construction Co, Soilbuild Group Holdings and Yanlord Land submit the highest bid of $481 million, or $1,108 psf ppr, on Sept 13. Based on the land rate, the future selling price for the development could range between $2,000 and $2,100 psf, says Christine Sun, senior vice-president of research & analytics at OrangeTee & Tie.

Repricing across segments 

These future selling prices of $2,000 to $2,100 psf are in line with the recent average price achieved at the project launches of two other 99-year leasehold suburban condo projects in the Outside Central Region, namely the 372-unit Amo Residence at Ang Mo Kio Avenue 1 and the 158-unit Sky Eden@Bedok. Both achieved an average selling price of $2,100 psf.

The integrated development, Lentor Modern, with 605 units, a 96,000 sq ft mall and underground link to the Lentor MRT Station, is scheduled for launch on Sept 17. Agents are indicating an average selling price in the range of $2,200 to $2,300 psf.

“If you look at the suburban and mid-tier projects, prices have risen significantly faster and have hit new thresholds compared to prices of prime condos in the Core Central Region which have remained relatively flat,” observes JLL’s Tan.

“This lagging price momentum is expected to be pushed up by the other two segments. If condos in the suburbs are now above $2,000 psf, and those in Katong are heading towards $3,000 psf, then prices of condos in the Orchard area are likely to be in the $4,000 psf region,” estimates Tan.

No doubt, developers are increasingly price-sensitive due to market uncertainties. “But if a site is priced right, developers will be interested,” JLL’s Tan comments.

On Sept 1, URA released a circular on harmonisation of GFA by government agencies to be implemented next June. From thereon, all strata areas will be included as GFA. Overall saleable floor area is expected to drop by about 4% to 5% as air-conditioner ledges will not be considered as part of GFA, says Tang Kok Thye, associate partner of ADDP Architects. However, bonus GFA is still applicable, he adds.

This new synchronisation in GFA calculations will be priced in by developers when they bid for sites, both GLS and collective sales, says JLL’s Tan. While this is unlikely to affect developers’ appetite for land, it is likely to reduce the efficiency of residential saleable area, notes Tan. “This will further widen the gap between owners’ asking price and the price developers are willing to pay.”

First-mover, followers

Sometimes, the successful collective sale of one building will trigger others in the neighbourhood to follow suit. A prime example is Golden Mile Complex on Beach Road, which was successfully sold in its third collective sale attempt. “It will play a big part in the transformation of the Beach Road and Jalan Sultan neighbourhood,” says Sieow of Teakhwa Real Estate.

Sieow is marketing Sultan Plaza, which will be relaunched for collective sale at $325 million, 9.72% lower than the reserve price of $360 million. To date, owners representing 80% of the strata area and 72% of share value have already signed the supplemental agreement to lower the reserve price. At the proposed reserve price, owners of the 211 shops will get between $147,000 and $41.8 million, while the 33 office owners will get $560,000 to $1.85 million.

Sultan Plaza sits on a squarish site of 52,471.3 sq ft, with a 99-year lease from 1978. In terms of location, it is a quick walk to Nicoll Highway and Lavender MRT stations, says Sieow. Under the URA Master Plan 2019, it has a plot ratio of 5, and can be redeveloped into a new development of 153m in height.

Based on the outline planning permission advisory from URA in 2019, the current use of the site is commercial, and a developer could redevelop the site into a 700-key hotel with ancillary commercial uses, notes Sieow. Alternatively, it could be a new mixed-use development with commercial and residential components. The commercial component cannot exceed 40% of total GFA. Serviced apartments can be considered part of the new development, he adds.

A new 38-storey, mixed-use development with 20:80 for commercial and residential use translates to 63,439.8 sq ft of commercial space and 253,759.1 sq ft of residential space. This means a new residential development with 277 apartments averaging 915 sq ft in size, can be built. “Units will have unblocked views of the city and Kallang Bay,” says Sieow. (Find Singapore commercial properties with our commercial directory)

The proposed reserve price of $325 million translates to a land rate of $1,546 psf ppr, after including the land cost of the neighbouring state land, differential premium and lease top-up premium, says Sieow. If 8% bonus GFA is included, the land rate will be further reduced to $1,504 psf ppr.

This marks Sultan Plaza’s third collective sale attempt. Other neighbouring ageing leasehold commercial buildings are also exploring a collective sale, for instance Textile Centre and Golden Mile Tower. “This will further rejuvenate the whole area,” says Sieow.

While there are many collective sale hopefuls, success rate tends to be low, concedes JLL’s Tan. “In past cycles, based on collective sale sites that were launched for sale, the success rate could be 20% to 25%,” he estimates. “Now, the success rate feels like 15% or lower. This does not even include the many who have failed to get 80% consensus and have dropped out.”

Check out the latest listings near Orchard Bel Air, High Point, Horizon Towers, Chuan Park, Ardmore Park, Four Seasons Park, The Claymore, Amo Residence, Sky Eden@Bedok, Golden Mile Complex, Orchard Boulevard MRT Station, Lentor MRT Station, Lavender MRT station

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