Horizon Towers | Photo by JLL Singapore
A gap in expectations has emerged in the en bloc sale market, with developers willing to pay up to 15% less than what owners are asking for. According to a recent Knight Frank report on investment sales in Q1, only one-third of collective sales have been successful in the current 2021/2023 sales cycle, a significant drop from the 63% success rate during the 2017/2018 boom cycle.
JLL's Executive Director of Capital Markets in Singapore, Tan Hong Boon, attributes the price gap to current en bloc prices being likely valued before interest rates and construction-related costs continued to rise. For instance, Horizon Towers, which was relaunched for collective sale at an unchanged reserve price of S$1.1 billion in February, closed its tender on March 30 without any bids. The District 9 site's price included an estimated lease top-up premium of S$277 million and worked out to S$2,049 per square foot per plot ratio (psf ppr) for the 204,742 square feet (sq ft) plot.
Trendale Towers, a freehold site located in District 9, failed to receive any bids when it was put back on the market for the third time last December at a reserve price of S$168 million, according to Galven Tan, Savills Singapore's Deputy Managing Director. The site was priced at approximately S$2,257 psf ppr, which includes a 7% bonus gross floor area (GFA) for balconies.
Meanwhile, Orchard Bel Air, a prime plot in District 10, reopened its tender in January at S$587.5 million and is currently in private treaty talks after the close of the tender on March 1, according to Chia Mein Mein, Knight Frank's Head of Capital Markets (Land and Collective Sale). The guide price for the site, which includes a lease top-up premium of about S$136 million, translates to a land rate of approximately S$2,620 psf ppr, or approximately S$2,551 psf ppr when factoring in the 7% bonus GFA.
In March 2023, the majority of transactions for prime condos in Districts 9 and 10 ranged from S$2,200 to S$3,300 per square foot (psf), with the highest recorded price of S$4,500 psf for a unit in Nassim Park Residences sold last week.
The prices of private residential homes have increased by 20% to 30% over the year, leading to higher price expectations among homeowners. Those who have sold their property in an en bloc sale are facing significantly inflated replacement costs, which are expected to continue increasing, according to Chia.
According to the Urban Redevelopment Authority (URA) price index, there has been a cumulative increase of 24% from the first quarter of 2020 to the fourth quarter of 2022. Despite low inventories and a desire to acquire more land, developers are exercising extreme caution in the current quarter and the next due to high interest rates and escalating construction expenses, as per JLL's Tan.
There are various sites available for purchase in both the residential and commercial sectors. In February, the 99-year leasehold commercial building Shenton House was put up for sale with a reserve price of S$590 million. Additionally, the Excelsior Hotel and Shopping Complex launched a sale bid with a reserve price of S$458 million.
There are various sites available for purchase in both the residential and commercial sectors. In February, the 99-year leasehold commercial building Shenton House was put up for sale with a reserve price of S$590 million. Additionally, the Excelsior Hotel and Shopping Complex launched a sale bid with a reserve price of S$458 million.
In the residential market, freehold Hong Heng Mansions was listed for sale with a reserve price of S$133 million in February. The 99-year leasehold Charming Garden made a second attempt to sell last month but maintained its guide price at $$175 million.
The freehold residential site located at 64 Wilkie Road was reintroduced for sale on Wednesday, with a reduced guide price of S$10 million. In the previous tender, the five-unit block along with the neighboring 62 Wilkie Road had been marketed for S$19.5 million, but there were no bidders.
According to Savills' Tan, the new harmonization of floor-area definitions by the URA, the Singapore Land Authority (SLA), the Building and Construction Authority (BCA), and the Singapore Civil Defense Force (SCDF) is expected to have the most significant impact on pricing, compared to other factors such as rising construction and labor costs. This is because the saleable area available to developers will be reduced.
Tracy Goh, the head of investment and collective sales at PropNex, highlighted that the resale market for property owners remains robust and positive, in contrast to the reduced bids from developers. She also mentioned that sellers are generally not in a rush to sell as they would have to buy a replacement property at a higher price if they sell at a lower price. Therefore, they are not very keen to do so. She added that if there are no buyers for an en bloc sale, sellers tend to wait for a better time to launch a collective sale again, rather than reducing the price.
According to Tan from Savills, sellers who have a high en bloc premium of around 50% to 60% may consider reducing their selling price if they can still obtain about 40% to 50% of the premium, despite the price reduction. The en bloc premium represents the gap between the en bloc offer price and the resale market price of the individual units.
However, Tan pointed out that for projects with a narrow collective sale margin, such as those between 30% and 40%, it could be challenging for sellers to accept a lower price due to the high replacement costs.
Tan from JLL added that owners who are highly motivated and have smaller projects with fewer owners may be willing to accept a lower price, although those who require a replacement property might not be willing to do so. Eventually, when the market stabilizes, and interest rates and new sale prices continue to increase, developers may have to raise their bids, Tan stated.
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