Kopi Talk – Leasehold favoured over freehold properties in current en bloc fever




SPK briefly talked about this observation in an earlier blog post – Deep diving into the Singapore enbloc scene (Part 1) and coincidentally, The Business Times did a full coverage on this topic this morning.

Below is a summary of the expert views quoted in the Business Times article:

  • Industry players see insufficient supply from government land sales (GLS) and strong purchasing demand for mass-market private homes among the biggest factors
  • Larger leasehold sites that can achieve greater economies of scale and churn out substantial revenue
  • The collective sales cycle started from the mass market. This came on the back of strong purchasing demand for mass-market private homes from Singaporeans
  • Many of the HUDC owners are in their 60s and would want to cash out of their ageing properties that have depleting leases
  • The urgency among owners of former HUDC estates may explain their land rates being more reasonable than some freehold properties
  • 10-15 per cent price premium that freehold properties tend to command over leasehold properties also present a hurdle to quantum-sensitive buyers and investors

Probably one of the important factors that led to this change in trend was missed out in the coverage by Business Times – the introduction of Additional Buyer Stamp Duty (“ABSD”) remission rules in 2011. Under the ABSD remission rules, developers who complete and sell ALL their units within five years of the acquisition date of a site will not have to pay ABSD on the purchase of land. In the event that they fail to do so, they will incur a 15% on their land cost. A 5% interest rate per annum will also be levied.

In the past, developers prefer to buy Freehold sites as they can landbank the sites and have greater flexibility and control over their launch strategy. But with the ABSD remission rules, land banking is not feasible anymore. Also, with the run up in property prices and a 10-15% price premium of a freehold project over leasehold projects, affordability of freehold projects may be an issue which could lead to slow take-up rate, and, in turn, result in ABSD on their land cost if they can’t fully sell their projects within 5 years. On the other hand, leasehold projects are more affordable and take-up rates tend to be stronger than leasehold. Hence, from a risk management perspective, it would have made more sense for developers to go for leasehold sites instead.

The owners of ageing leasehold properties would probably have the government to thank for this round of leasehold enbloc frenzy!


Kopi Talk – 9,300 new homes from enbloc sites? Let’s not get worried too soon

9,300 new homes to result from slew of en bloc sales, warn URA – The Business Times



Kopi Talk:

Yes, the headline number of 9,300 new home supply looks bad and this figure could even be higher than what URA estimated. A reverse engineering of URA’s estimate seem to imply the following key assumptions in URA’s estimate:

  • URA has not assumed that the developers will go for the bonus GFA scheme, which is a fair assumption as it is at the developer’s discretion to decide whether they would like to subject themselves to the scheme requirements and apply for the bonus GFA;
  • An assumed efficiency of 85%;
  • An average unit size of 820 sq ft per unit

Pessimistic Scenario: 10,800 new units from enbloc sites

Let us take a more extreme, ‘pessimistic’ view of the supply outlook, assuming that all of the developers apply for the 10% bonus GFA scheme and maximise their efficiency to 90% that is already the norm in today’s developments. Average unit size assumption looks reasonable, especially when a lot of the enbloc plots are big in size and will have a good mix of small and large units. Under this ‘pessimistic’ scenario, we could be looking at a potential 10,800 new units from enbloc sites, which is 1,500 units or 16% more than what URA has estimated.

Looks bad? Let’s not get worried too soon. A significant number of the enbloc sites are in the Outside Central Region and developed mature estates, where demand tends to be primarily driven by new homeowners and upgraders purchasing for own stay, with a smaller proportion of buyers for investments. New homeowners and upgraders are likely to be more location-specific in their purchases. They may look for a place closer to their current homes or childhood homes, or somewhere near their parents, for example.

Hence, SPK thinks that as long as the enbloc site is located in an established matured estate, with limited new residential supply and if developer comes out with a good product and reasonable price, the new development should still see healthy demand from buyers. Moreover, there is also a potential demand from the enbloc sellers who might be keen to re-investment part of their profits in the new development, due to sentimental reasons or familiarity with the neighbourhood.

More new condo options for Kovan and Hougang residents

However, there might be some cause for concern on the potential new condo supply in District 19, which is the current enbloc hotspot. 3 of the biggest enbloc projects – Rio Casa, Serangoon Ville and Florence Regency, are located within close proximity in the Kovan and Hougang area. Even though these are matured estates, it is still unsure how much of these new condo supply can be absorbed by the buyers. SPK estimates that these 3 projects could potentially yield a total of 3,600 units (which makes up about 34% of the total potential new supply from enbloc sites), which is quite a large number of units to be absorbed for the area.

But, let’s look at the brighter side of things! If you are staying in Hougang or Kovan, there will be ample choice of new condos for you to choose from in 1 or 2 years time!

Keep calm and start saving!

Kopi Talk – Crystal Tower enbloc – 3rd time lucky for the owners?

Crystal Tower up for en bloc sale at S$138m – The Business Times



Kopi Talk:

Crystal Tower had 2 previous collective sale attempts back in 2011 and 2012, when asking prices were S$155 mil (S$1,600 psf ppr) and S$150 mil (S$1,458 psf ppr). This 3rd time round, the asking price of S$138 mil (S$1,406 psf ppr) looks more palatable to developers.

The current asking price would translate to an estimated breakeven price of about S$1,900 psf, and at an average selling price of the new units at S$2,300 psf, the developer would enjoy a nice profit margin of 18% base on SPK’s estimates. Not bad in the current competitive market for land. The is still room for developers to increase their bid to secure the land, and developers can still bid up to S$144 mil (4% above asking price) and yet maintain a decent 15% margin. Downside risk seems limited as in a worse case where the developer has to sell at breakeven price, it is unlikely to be an issue for a freehold development in the area. S$138 mil is also a reasonable quantum to acquire a piece of prime land in Orchard Road area. There should be sufficient interests from developers for this site.

If the enbloc sale goes through, the 18 owners of the 2,713 sq ft unit will each receive S$4.6 mil, the 9 owners of the bigger 3,261 sq ft unit will each get S$5.0 mil and the single penthouse unit owner will receive S$9.2 mil. Current penthouse owner bought the unit for S$4.05 mil in 2006. If the enbloc goes through, the owner gets to profit S$5.15 mil, or an attractive annualised return of 7.7% per annum. The penthouse unit is currently put on sale at S$9.8 mil.

Probably a 3rd time lucky this time round? Let’s wait for the results on 28th November.

Kopi Talk – URA’s request for en bloc tender details intrigues market

URA’s request for en bloc tender details intrigues market – The Business Times


Kopi Talk

Well, it is anyone’s guess on what is URA’s real intention to request for more details. URA’s fundamental objective is to ensure a stable and sustainable property market, planning for long-term sustainability and facilitating development and business needs. All these requires carefully planning and manoeuvring around the policies to ensure fairness to all stakeholders and stability to the property sector, banking sector and economy of Singapore.

An ill-planned policy move driven by the recent enbloc craze could lead to a pro-long downturn in the property market with multiple knock-on effects, such as, affecting Singapore’s reputation as an open and fair economy and foreign developers losing confidence in Singapore as a fair and open market, developers and construction firms going into a downturn and affecting employment, rising property bad debts within the banks and affecting financial stability, and decline in consumer sentiments and ‘wealth destruction’ from declining property prices that might ultimately affect consumer spending, with knock-on effect to retail sectors etc.

The above points are just to illustrate how bad things can get if the government decides to implement an ill-planned measure just to counter a temporary trend in the market. But let’s not overthink on this issue. It could well be the case of URA doing more due diligence to prevent against instances of money laundering, or like what some analysts say, using the data to plan for the coming GLS.

Keep calm and carry on!

Kopi Talk – 25/10/2017

Cairnhill Mansions and adjacent site up for sale – The Straits Times


Kopi Talk:

At owners’ asking price of S$477 mil (S$2,100 to S$2,200 psf ppr), the estimated breakeven selling price for the developer would be around S$2,600 psf to S$2,700 psf net area and the developer will probably need to sell at S$3,000 psf to S$3,200 psf net area for profit. With the 99-year leasehold Cairnhill Nine (by Capitaland) already selling at S$2,500 psf to S$2,700 psf, it seems like our estimated selling price is achievable, considering that this is a freehold land. Total quantum of S$477 mil should not be a problem for cash rich foreign developers or local consortium developers.


New property app allows homeowners to ‘test market’ – Today Online


Kopi Talk:

Well, it looks like a good attempt to challenge the incumbents – PropertyGuru and 99.co, but it is a tough market out there for the online property portal businesses. End of the day, it is the scale, user base and outreach of a portal that counts, if you want to get the highest price out of your property, or get the best bargain for your purchase. Hopefully, this new Soho app has some formula that can disrupt the property portal business and give consumers and agents better value add!

Kopi Talk – 24/10/2017

En bloc contagion spreads to commercial, mixed-use properties – The Business Times


Kopi Talk:

Katong Shopping Centre’s last reserve price of S$630 or S$2,248 psf ppr looks a bit stretched, considering the 60% residential use requirement set by URA. Taking into consideration CDL/Hong Leong’s recent acquisition of Amber Park at S$1,515 psf ppr, and if we price KSC’s residential component at the same rate, that would imply a S$3,300 psf ppr value pegged to KSC’s commercial component! Almost double the S$1,689 psf ppr that IOI paid for a Marina Bay site last year!

With the failure of the last enbloc attempt, reserve price should come down. Could CDL/Hong Leong come in and snatch up KSC this time round, to protect its pricing power for the new Amber Park redevelopment? Given that CDL owns 60 units and 323 carpark lots in KSC at a very low cost, their effective cost will also be reduced by offsetting with the enbloc proceeds for the units they owned there. Hopefully, KSC owners will get lucky this time round.


Dunearn Court sold to Roxy-Pacific for $36.3m – Property Guru


Kopi Talk:

Enbloc has been a daily affair in recent times. Each owner will get S$2.91m to S$3.12m! Congratulations to the 12 multi-millionaires!


Kopi Talk – 23/10/2017

Mitsui eyes property in Singapore and consumers in Asia for growth – Business Times


Kopi Talk:

The Mitsui Group is no stranger to the Singapore property market. Mitsui Fudosan (a member of Mitsui Group) has an established track record of developing residential properties in Singapore via TID Pte Ltd, a JV company with Singapore’s Hong Leong Group.

Through Mitsui & Co, the group will now expand its presence into Commercial and Industrial properties in Singapore and regionally. Mitsui & Co already has a partnership with Ascendas-Singbridge and with a working structure already in place, deploy of funds can be rapid when right opportunities arise.  


Mayfair Gardens up for enbloc sale at $265 million – Property Guru


Kopi Talk:

Another day, another property up for en-bloc. Nothing new these days. Expected all-in cost to developer is around S$310 mil including lease top-up or S$1,058 psf ppr, still a reasonable sum of investment for a developer to absorb in today’s market. Another 124 new millionaires in the making!


Florence Regency sold to Chinese developer in S$629m deal – Today Online


Kopi Talk:

Must have been one of the best days for the residents of Florence Regency! Kingsford met the initial reserve price of S$600 mil but the deal was almost jeopardised by the S$629 mil valuation from Colliers! But now, residents have the last laugh as Logan came in to snatch the property at the valuation price. Residents now have to thank Colliers for the extra moneys. Another 336 new millionaires in the making!