Owners of Mandarin Gardens eye new collective sale at $2.88 bil
By Timothy Tay
/ EdgeProp Singapore |
The more positive reception to a collective sale at Mandarin Gardens could be due to the fact that the condo will be 37 years old this year. Completed in 1986, it has a 99-year lease with effect from 1982. This means it has a balance of 58 years left on its lease. (Picture: Samuel Isaac Chua/The Edge Singapore)
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SINGAPORE (EDGEPROP) - The latest collective sale committee (CSC) members of Mandarin Gardens believe that they stand a high chance of convincing 80% of the owners in the 1,006-unit condominium, located on Siglap Road in prime District 15 in the east, to agree to a collective sale. Likewise, they are hopeful that the 1.08 million sq ft, 99-year leasehold site will draw developer interest despite its size.
The CSC is gathering responses among the unit owners to launch a collective sale. If successful in securing the 80% consensus, the development could be put up for sale at the reserve price of $2.88 billion later this year. The price excludes the land betterment charge.
This is not the first time the owners of Mandarin Gardens have attempted a collective sale. The first collective sale attempt in 2008 fell through due to the Global Financial Crisis. The second attempt took place a decade later in 2018. The initial reserve price was set at $2.478 billion and raised to $2.788 billion in November 2018, after it was found that the land was undervalued by over $300 million. In February 2019, it was raised a second time to $2.93 billion, but when the collective sale agreement expired in March 2019, only 68% of the owners had agreed to it.
After the failed attempt, the owners waited two years before retrying. This is in accordance with the amended Land Titles Strata Act of 2010. The first retry requires approval from just 50% of the combined share value or number of owners; while for the second and subsequent retries, approval of 80% is needed.
At the end of the two-year waiting period, some owners of Mandarin Gardens who had championed the last collective sale attempt were itching to make another go at it. “We have received a more positive response from the owners this time around,” says R Janardhanan, a CSC member in this latest collective sale attempt. He was involved in the previous collective sale attempt too.
Ageing condo, shortening lease
The more positive reception to a collective sale at Mandarin Gardens could be due to the fact that the condo will be 37 years old this year. Completed in 1986, it has a 99-year lease with effect from 1982. This means it has a balance of 58 years left on its lease.
While there is still a staunch group of residents with strong attachment to the condo, the CSC has seen a greater shift in favour of the collective sale. “This time around, there is a sense of urgency among some residents to capitalise on this opportunity,” says Thomas Ong, another CSC member.
A major concern among most Mandarin Gardens residents is its shortening lease and the impact on future prices. This has spurred some to support the ongoing collective sale attempt. (Picture: Samuel Isaac Chua/The Edge Singapore)
A major concern among most residents is the shortening lease and its impact on future prices, he adds. “That is another factor for more people to re-evaluate their stance on a collective sale.”
Nicholas Mak, head of research and consultancy, at ERA Realty, observes: “Age-related issues plague all condos, regardless of their tenure and size.”
For now, the management corporation strata title (MCST) of Mandarin Gardens has “a handsome amount of funds” to maintain the condo for the next few years, says CSC member Ong. But the expectation is that maintenance costs will go up in the coming years. “Moving forward, if the lifts break down frequently or if there are leaks in the water pipes, it would require walls to be hacked in order to replace them,” he adds. “It would be costly and a major inconvenience for residents.”
Replacement cost
Since the expiry of the last collective sale agreement in March 2019, about 100 units at Mandarin Gardens have changed hands, based on caveats lodged to date. In 2022, about 26 units were sold at prices ranging from $903,000 ($1,089 psf) for an 829 sq ft, two-bedroom unit to $3.82 million ($1,005 psf) for a 3,800 sq ft, five-bedroom unit.
The latest transactions occurred last month when a 1,528 sq ft three-bedder was sold for $1.96 million ($1,282 psf) on Dec 15, and a 1,572 sq ft three-bedder fetched $1.96 million ($1,247 psf) on Dec 6.
Some residents of Mandarin Gardens have lived there for many years and are now in their 70s or 80s. Their concern is replacement cost, as they recognise the difficulties in finding another similar-sized unit in the District 15 neighbourhood at a comparable price, says Janardhanan. Hence, these owners are more reluctant to support the collective sale. Other residents are prepared to “right-size” to a smaller apartment or HDB flat, and are therefore happy to endorse the collective sale, he adds. (Find HDB flats for rent or sale with our Singapore HDB directory)
“These are common and valid concerns that are often cited by en bloc holdouts,” says ERA’s Mak. “As a general rule of thumb, support for an en bloc is usually high if owners can secure a 30–40% premium to the resale prices on the open market”. Support is further bolstered if owners feel that they are able to preserve their standard of living, vis-a-vis the size of their unit, when they purchase their replacement home, he adds. (See potential condos with en bloc calculator)
Mandarin Gardens will be 37 years old this year, and maintenance costs to upkeep the ageing estate are expected to increase in the coming years. (Picture: Samuel Isaac Chua/The Edge Singapore)
Shaun Poh, executive director, head of capital markets, Cushman & Wakefield Singapore, agrees, adding that as property prices in Singapore have increased in recent years, some en bloc holdouts would be concerned that the premium they will gain from a collective sale deal might not cover their replacement costs.
One of the largest condos in the east, Mandarin Gardens’ facilities include barbecue areas, a gym, 10 commercial units, several children’s playgrounds, squash courts, tennis courts, swimming pools, and children’s wading pools. There are also many green spots scattered around the development.
New launches, new benchmark prices
Next to Mandarin Gardens is the 841-unit Seaside Residences by Frasers Property. The 99-year leasehold condo is fully sold and completed in 2021. The latest transaction at Seaside Residences is for a 786 sq ft, two-bedroom unit that changed hands for $1.78 million ($2,265 psf) last November.
Three large-scale projects are in the pipeline for launch this year. One of them is The Continuum, an 807-unit freehold condo, at Thiam Siew Avenue, by frequent joint-venture partners Hoi Hup Realty and Sunway Developments. Another is the 638-unit Tembusu Grand at the Jalan Tembusu Government Land Sale (GLS) site, located next to the Canadian International School (Tanjong Katong Campus), by a joint venture between City Developments and MCL Land. The biggest is SingHaiyi Group’s 1,008-unit project on a GLS site at Dunman Road, which is adjacent to a park connector and the Geylang River and within walking distance of Dakota MRT Station.
Based on selling price estimates using EdgeProp’s Landlens property tool, it is possible that The Continuum could see an initial selling price of $2,755 psf, and Tembusu could have an initial selling price of $2,470 psf. Meanwhile the Dunman Road project might see units selling from $2,544 psf.
According to estimates by EdgeProp's Landlens tool, the upcoming Tembusu Grand by Wing Tai Holdings could have an initial selling price of $2,470 psf. (Map: EdgeProp)
“Older condos benefit from the cyclical waves of new launches in the area, and that in turn helps push up property prices over time,” says ERA’s Mak. “The renewal and redevelopment of surrounding older properties will see the stock of large units in the area dwindle as newer projects feature relatively smaller unit sizes.”
Casting possibilities
In the East Coast area of prime District 15, the latest successful collective sale deal is La Ville, a 40-unit, freehold development. It was sold to Hong Kong-listed property firm ZACD Group in December 2021 for $152 million ($1,540 psf per plot ratio). The new, 107-unit freehold development on the site is expected to be launched sometime in 2Q2023.
The biggest obstacle for developers acquiring large redevelopment sites is the additional buyer’s stamp duty of 40% for developers, with 5% non-remittable, and a sales period of five years of acquiring the site may be a challenge for large redevelopment sites like Mandarin Gardens, notes Mak. “It should not be a one-size-fits-all framework.”
He suggests the possibility of extending the development window to seven or eight years for developments that exceed a certain gross floor area (GFA) threshold. This could be balanced against a requirement to launch the project within two years of acquiring the site, he adds.
In the East Coast area of prime District 15, the latest successful collective sale deal is La Ville. The new, 107-unit freehold development on the site is expected to be launched sometime in 2Q2023. (Map: EdgeProp)
However, this type of policy adjustment will come up against the difficulties in reshaping the criteria that is widely acceptable, says Tan Hong Boon, executive director of capital markets at JLL.
On the whole, developers must also contend with increased financing costs this year due to recent interest rate hikes, as well as higher construction costs due to supply chain issues, says Tan. “In particular, the pace of the interest rate hikes blindsided some developers. As a result, they are taking a more moderate approach in their land acquisitions this year,” he adds.
Preference for mixed-use
Developers have also shown a greater preference for mixed-use development sites with residential, commercial or even hospitality components, says Cushman & Wakefield’s Poh. (Find Singapore commercial properties with our commercial directory)
He points to recent collective sale examples such as the sale of Peace Centre and Maxwell House, where the attractiveness of a commercial component managed to entice developers. Peace Centre was sold for $650 million in December 2021 to a joint venture comprising Chip Eng Seng, SingHaiyi, and KSH Holdings; meanwhile, Maxwell House was sold for $276.8 million in May 2021 to a joint venture comprising SingHaiyi Group, Chip Eng Seng, and Chuan Investments.
“Lately, developers are more cautious when considering a purely residential site up for re-development. Relatively large-sized sites tend to attract large price tags which doesn’t put them at an advantage when attracting developers, especially in the current market conditions,” says Poh.
Raising the reserve price
The Mandarin Gardens CSC is hopeful that foreign developers will throw their hats into the ring. “We see overseas developers as big potential (buyers) because the price of this development is close to $3 billion,” says Ong.
Alternatively, it is possible that a consortium of developers and investors could acquire and redevelop the site, says Atul Vatsa, the secretary of the Mandarin Gardens CSC.
Mandarin Gardens’ CSC is not the only one which has raised the reserve price to entice more owners to come on board. The 660-unit Pine Grove, a privatised HUDC estate, has also embarked on its collective sale process. In a letter to owners on Jan 6, the CSC of Pine Grove accepted a recommendation from its marketing agent ERA Realty to raise the reserve price from $1.738 billion to $1.868 billion.
The 99-year leasehold Pine Grove last attempted a collective sale in 2019, launching a bid in February with a reserve price of $1.86 billion. The price was revised down to $1.7 billion in July 2019 when it relaunched its tender.
On Jan 11, JLL announced that Bagnall Court, a 43-unit freehold condominium development along Upper East Coast Road, was sold en bloc for $115.28 million. This works out to a land rate of $1,006 psf ppr, including 8% bonus GFA.
The freehold Bagnall Court is the first successful collective sale of 2023. It was sold for $115.28 million on Jan 11 in a deal brokered by JLL. (Picture: JLL)
The project was sold during the 10-week private treaty period following the close of the tender in October 2022. The reserve price then was $125 million.
Each owner of Bagnall Court is expected to receive gross proceeds of between $2.03 million and $3.78 million.
Overall, 2022 was a moderate year for the collective sale market, with about 16 sites sold for a total of $3.79 billion, according to JLL.
“Developers will pay close attention to the outcome of the first few new residential project launches in order to get a more accurate reading of the private residential market,” says Mak.
The volume of en bloc deals this year is unlikely to exceed the recorded numbers last year, says Tan. “The government has stepped in this year to boost the supply of GLS sites in 2023, which offers an alternative for developers to bulk up their landbank,” he says. (See potential condos with en bloc calculator)
The 1H2023 GLS programme features 16 sites that can yield a total of 7,715 residential units, up from 7,310 units in the 2H2022 GLS programme.
This year, there could be more collective sales done at prices below the original reserve price, says Poh. “Developers are still keen to acquire redevelopment land but they are price-sensitive and are somewhat held back due to financing concerns this year,” he notes.
It is just a matter of time before developers need to replenish their landbank and return to the collective sale market, adds Mak. “The en bloc momentum is expected to pick up pace this year and into 2024.”
Check out the latest listings near Mandarin Gardens, Seaside Residences, The Continuum, La Ville, Peace Centre, Maxwell House, Pine Grove, Bagnall Court, Dakota MRT Station
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