Paradise lost

/ The Edge Property |

August 19, 2015 9:00 AM SGT

With more distressed sales at Sentosa Cove and developers considering the bulk sale of high-end condos in prime districts, buyers are on the hunt for deals. Where can they be found?

Hollywood celebrities Johnny Depp, Brad Pitt and Angelina Jolie as well as wealthy Chinese and Russians may be vying to buy their own private island in the wake of the great Greek land selloff to pay off debt. The Greek crisis may also have had a ripple effect on shores closer to home, namely the 117ha man-made Sentosa Cove, where 99-year leasehold luxury property prices have been sinking.

“In early July, some owners of condominium units at Sentosa Cove were feeling jittery about the Greek crisis,” says Grace Ng, deputy managing director of Colliers International. “Some sellers were even willing to consider a price that was 5% to 10% below the market price, which was $1,500 to $1,600 psf. But most of the buyers had disappeared by then.”

There was one deal at Turquoise, however. The 91-unit luxury condo fronting the waterway along Cove Drive seems to be at the epicentre of distressed sales at Sentosa Cove. A 2,185 sq ft, three-bedroom unit on the fifth floor of one of the six-storey blocks was sold for $2.9 million ($1,327 psf), according to a caveat lodged on July 8. The seller had purchased the unit for $6.04 million ($2,763 psf) in October 2007, when the project was first launched at the height of the last property boom.The seller, believed to be a Singaporean, incurred a loss of $3.1 million, a 52% drop from the original purchase price.

The price of $1,327 psf has set a new record low at Turquoise, and has even broken through the psychological floor price of $1,400 to $1,450 psf set by two units at the condo a year ago. These two transactions had triggered the downward spiral in prices, says Shaun Poh, executive director of capital markets at Cushman & Wakefield. “The transacted price is pretty close to the forced sale value and has therefore set a new floor price for the project. Subsequent buyers looking for a unit in the same condo or area will use that latest transaction price as a benchmark. It’s a vicious circle.”

The two units were 2,777 sq ft, four-bedroom units on the second and third floors of a neighbouring six-storey block at Turquoise. The unit on the second level was sold for $4.03 million ($1,450 psf), while the third-floor unit fetched $3.88 million ($1,397 psf). The prices were 43% and 45% below their respective purchase prices of $7.09 million ($2,553 psf) and $7.1 million ($2,558 psf) in November 2007.

At Seascape, a 151-unit luxury condo with sea views, a 4,133 sq ft, four-bedroom penthouse was sold for $5.8 million ($1,403 psf), according to a caveat lodged at end-May. The previous owner had paid $11 million ($2,661 psf) for the unit in December 2011, which means he incurred a loss of $5.2 million (47.3%).

The unit was a mortgagee sale that was first put up for auction by JLL in March. The opening price then was $9 million, but there were no bids. At the next auction, in April, the unit was again put up for sale, but the opening price was lowered to $8.25 million. It still did not receive any bids and was withdrawn before being sold in a private treaty deal.

“When someone is hard-pressed or anxious, they will sell at whatever price they can get,” says Joseph Tan, executive director of residential services at CBRE. “And that has also drawn buyers back to the market. Bargain hunters are now on the prowl as they smell blood.”

Will other developers be able to monetise their assets at Sentosa Cove the way City Development did with Quayside Collection ?

Developers’ unsold stock weighing on prices At Sentosa Cove, developers are still holding on to unsold stock at completed condo projects. For example, joint-venture partners Ho Bee Land and IOI Properties have yet to launch the 302-unit Cape Royale, which obtained its Temporary Occupation Permit (TOP) in 2013. The units have been offered for lease instead. Seascape, which was completed in 2011, also has unsold units that have been put up for lease by Ho Bee and IOI. Turquoise, which was completed in 2010, also has unsold stock that has been leased as well.

Seven Palms, the most exclusive condo at Sentosa Cove, saw two units sold at a record price of $4,131 psf, or a total of $28.55 million, last November. The buyer is said to be a Spanish tycoon. Seven Palms, which fronts Tanjong Beach, contains just 41 units. It was developed by SC Global Developments and is about onethird sold. Prior to the recent transactions that crossed the $4,000 psf threshold, units were sold at prices ranging from $3,091 to $3,605 psf.

City Developments Ltd (CDL) developed The Residences at W Singapore, Sentosa Cove, as well as the adjacent 240-room W Hotel and the 44,000 sq ft commercial block called Quayside Isle, which features restaurants, a gourmet supermarket and upmarket stores fronting the marina. The entire project is called Quayside Collection. The Residences at W was completed in 2011, and more than 20 of the 228 units in the W branded residential development have been sold so far. The last transaction was in October 2014, when a 1,259 sq ft, three-bedroom unit fetched $3.64 million ($2,891 psf). About half the units have been leased so far.

However, CDL succeeded in monetising its Quayside Collection assets by setting up a $1.5 billion investment platform called a profit participation security (PPS) in partnership with Blackstone’s Tactical Opportunities Fund and CIMB Bank Bhd, Labuan offshore branch. Under the investment scheme, the partners will receive 5% interest a year in addition to the cash flows from the assets over the next five years. In projecting the future cash flows, CDL and the investors in the PPS are assuming that the selling price of the residential units will be at least $2,400 psf.

At Sentosa Cove, foreign and listed property developers are exempted from the conditions of the Qualifying Certificate (QC) that they have to comply with on the mainland of Singapore. One of the conditions of the QC that is posing the greatest challenge for developers of prime condos on the mainland is that they have to sell all the units in their residential projects within two years of TOP. If they fail to do so, they have to pay extension charges of 8%, 16% and 24% for the first to third years respectively, pro-rated according to the number of unsold units.

With 29,000 units of unsold housing stock as at end-March, rents and prices have come under pressure. However, when it comes to freehold condos in the traditional prime districts, “there is going to be a shortage of new supply”, says CBRE’s Tan.

Those facing the QC deadlines have two choices: either pay the extension charges or embark on a bulk sale. “Anyone with unsold stock will be on the radar of private equity funds — they will factor in the 15% ABSD [additional buyer’s stamp duty], the SSD [seller’s stamp duty] and then knock off 40% from the asking price,” notes Tan.

Some have opted to pay the extension charges, while others have bought the remaining units themselves. Kajima Overseas Asia, which completed its 31-unit luxury project Bishopsgate Residences in early 2013, had sold some units at prices ranging from $10.7 million ($3,292 psf) for a 3,165 sq ft unit to $25.8 million ($3,899 psf) for a 6,620 sq ft, ground-floor unit from July 2012 to April 2014. Kajima is believed to have bought two-thirds of the units in the project that have remained unsold when the deadline for the QC approached. They have since made those units available for lease.

Bulk sales Last December, Hiap Hoe Ltd announced that its privately held parent company, Hiap Hoe Holdings, was buying all the shares in Hiap Hoe Superbowl JV Pte Ltd, the entity that holds all the 48 units of the freehold Treasures on Balmoral. This was to avoid paying hefty extension charges, as all the units in the project were unsold. The purchase price worked out to $72.83 million, after accounting for shareholder loans and other liabilities, and was based on a market value of $185 million ($1,789 psf) for the 103,439 sq ft project.

Treasures on Balmoral was first launched in September 2012, at prices ranging from $2,044 to $2,375 psf. Failing to find buyers, the developer appointed Savills to put up the project for bulk sale, with an asking price of $2,100 psf. As no buyers emerged at that price, it attempted a second bulk sale in July last year, with the asking price revised downwards to $1,850 psf. The highest offer received was $181 million, or $1,750 psf, which was below the developer’s asking price.

Another boutique listed developer that attempted a bulk sale is Heeton Holdings Ltd. In April, Heeton appointed Cushman & Wakefield (C&W) the sole marketing agent for the en bloc sale of iLiv@Grange, its 30-unit high-end condo on Grange Road. The project was designed by Italian architect Massimo Mercurio and completed in October 2013. The clock is ticking, as after October, it will be subjected to hefty extension charges under the QC rules if the project remains unsold.

The building sits on a freehold site of 20,325 sq ft and has a mix of one- to three-bedroom units ranging from 1,098 to 3,305 sq ft. There are also two penthouses of 3,294 and 3,477 sq ft each. This is not the first time that the developer has put the 16-storey condo block on the market for bulk sale. Its first attempt was two years ago, and the asking price then was $2,200 to $2,300 psf. Based on the gross floor area (GFA) of 58,534 sq ft, the price translates into an absolute price of $128.77 million to $134.63 million. This latest bulk sale attempt saw the condo priced at $110 million to $120 million, or $1,879 to $2,050 psf. Hence, the asking price had been lowered by 11% to 15%. The sale by expressions of interest started on April 16 and closed on May 7.

While there were offers, most of them were below $110 million, says C&W’s Poh. “All those who submitted bids were local investors, predominantly high-net-worth investors, private-equity firms or family offices. Their intention is to buy over the holding company. For foreign interested parties on the other hand, the 15% ABSD and the QC conditions are hurdles that are hard to overcome unless the discount from the seller is substantial enough.” Even at $110 million, the price of iLiv@ Grange amounts to 70.6% of Heeton’s entire market capitalisation, which stood at $155.8 million at the close of July 23.

Some sources reckon if Hiap Hoe Holdings’ purchase of Treasures on Balmoral is successful, Heeton could also consider selling the units to a privately held entity owned by the Toh family.

Listed property group OUE Ltd is also believed to be exploring a bulk sale of its 482-unit OUE Twin Peaks, which obtained its TOP in February this year. The luxury condo project comprises two identical 35-storey towers that sit on a 130,093 sq ft, 99- year leasehold site. As at end-June, 70 units in one of the towers had been sold. The project was launched in 2010, and units were sold at $2,469 to $3,462 psf.

Word on the street is that CDL could also be contemplating the bulk sale of its 174-unit freehold luxury condo, Gramercy Park, on Grange Road. The project comprises twin 24-storey blocks that sit on a freehold site of 169,189 sq ft. Gramercy Park is expected to be completed next year. CDL is said to have received offers from several parties interested in exploring a bulk purchase of the project and has therefore held back the launch of the project.

Looking for prime property In the meantime, many well-heeled buyers are on the hunt for prime properties, which could lead to more deals if the gap between sellers’ asking prices and the prices buyers are willing to pay could be bridged. “We have been getting a lot of calls from buyers looking for freehold properties in prime districts 9, 10 and 11,” says Colliers’ Ng. “They want to buy units in the older condos, which are larger, and interest has been focused on Ardmore Park, the Claymore area and Grange Road.”

Auctions are a favourite hunting ground. At Knight Frank’s auction on July 14, a 1,894 sq ft, four-bedroom loft unit at Jardin was sold for $2.9 million after active bidding by several parties. The unit was a mortgagee sale, and that was the first time it was put up for auction. The previous owner had paid $3.34 million ($1,794 psf) for the unit in December 2007, when the project was first launched. Located on Dunearn Road, Jardin is a 140-unit freehold high-end condo developed by Yeo Hiap Seng Ltd, part of giant developer Far East Organization. The project was completed in 2012.

Interest in the unit at Jardin was high, as it is a newly completed project and located near the upcoming King Albert Park MRT station, good schools such as Methodist Girls’ School, Pei Hwa Secondary School, Singapore Chinese Girls’ School and Swiss International School, as well as the future King Albert Park shopping mall.

Coming up for auction next month is a penthouse at Residences @ Killiney. The 68-unit high-end condo was developed by privately held Hoi Hup Realty and completed in 2012. The 5,059 sq ft penthouse at the project was put up for auction for the first time in August last year by DTZ. At that time, it had an opening price of $7.4 million ($1,463 psf). However, the unit did not receive any bids. According to Sharon Lee, head of auctions at Knight Frank, the unit has been put up for auction at least five times over the past 12 months. It will be up for auction by Knight Frank on Aug 12. The indicative price is $6.8 million ($1,344 psf).

The penthouse is a mortgagee sale. The original owner had paid $7.84 million ($1,550 psf) in 2010. The penthouse comes with a roof terrace and private Jacuzzi, but whether it will find a buyer remains to be seen. “Everything boils down to price,” says Lee.

This article appeared in the City & Country of Issue 687 (July 27) of The Edge Singapore.

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