This is not an online get-rich-quick scam to invest in commercial property

It seems like the commercial property segment in Singapore is heating up.

Last week, GAW capital snapped up PoMo, a nine-storey office and retail development in Selegie Road with remaining leasehold of 64 years, for S$342 mil or S$1,900 psf NLA from Enviro-Hub and BS Capital. Oxley also confirmed its interest in buying Chevron House at a reported price of S$660 mil or S$2,526 psf NLA from Deka Immobilien and Oxley is currently doing due diligence on the property.

Today, it was reported that Nadathur Group, one of the co-founders of Infosys, is buying New Cape Inn, a 76-room freehold hotel in Tiong Bahru, for S$67 mil or S$881,579 per key. The price reflects about 2% gross yield.

Is the commercial property sector entering a new upcycle? How can I gain exposure to the multi-million commercial property sector? This are some questions that you might be thinking right now.

SPK is going to sell you an online get-rich-quick scam?

What if SPK tells you that there is an opportunity to:

  • Invest in a 929-year leasehold mixed-use development in River Valley at below S$1,500 psf?
  • Invest in a leasehold serviced apartment in River Valley at below S$1,200 psf?
  • Invest in a freehold office building in Tanjong Pagar at below S$2,200 psf?
  • Have some of the shrewdest businessmen in the property sector to take care of your investments?

Don’t worry. SPK is not running an online get-rich-quick scam.

If you think that the above opportunities are good enough to get you excited over, then you should look at investing in United Engineers Ltd.


Diversified exposure to commercial, retail and hospitality segments

United Engineers owns a diversified portfolio of prime commercial properties in Singapore. Most of its assets are either freehold or have long leasehold tenures, and they are strategically located either in prime districts or near transportation hubs or major thoroughfare. The flagship property of the group – UE Square is a familiar name among Singaporeans and you might be surprised to know that this property is valued at just S$1,482 psf NLA! Where can you find a commercial property at such price today?

UE also owns the freehold office building at 79 Anson Road, and the freehold office/industrial building at 450/452 Alexandra Road. It also operates the Park Avenue Rochester, a 351-room hotel and Rochester Mall in the One-North. Other smaller assets include Park Avenue Robertson (a 36-room serviced apartment in River Valley) and UE Bizhub Central at Ang Mo Kio (corporate HQ).


Valuation of these other assets is also undemanding. Just look at Park Avenue Robertson. It is valued at S$1,198 psf, almost half the price of what nearby new launch – Martin Modern is selling. Even though Park Avenue is an older property, such a big price gap might still be difficult to justify. The valuation of Park Avenue Robertson is probably the transaction price of a resale OCR condominium in today’s market.

Leave your investments in the good hands of Mr Zhong Sheng Jian and Mr Pua Seck Guan

With the recent change in controlling ownership at UE, the company is now being led by a consortium of experienced property developers – Yanlord and Perennial Real Estate. Yanlord is a very successful developer in China led by Mr Zhong Sheng Jian and Perennial Real Estate was established by Mr Pua Seck Guan and backed by Wilmar International.

With a strong team of businessmen behind UE, it will probably give you more confidence that your investments is being well-taken of!

So what do you get when you invest in United Engineers?

These are probably what you will get when you invest in United Engineers:

  • Diversified portfolio of commercial and hospitality assets in Singapore
  • Attractive property valuations that are probably below market transaction prices today
  • A hospitality business under Park Avenue Brand
  • A strong management team to manage your investments

Sounds like a good deal, isn’t it?

But readers should take note that investing in shares can be very different from investing in properties. Share price fluctuates daily and price movement could be a function of the general market sentiments or broad-based market movements that may not have anything to do with the fundamentals of the company, and it may take time for a company to realise its full value. Readers should consider their risk appetite, investment horizon, overall portfolio exposure before making an investment.

Happy investing!   



The information and opinion contained in this blog posting above is based solely on the personal analysis of Singapore Property Kaki (“SPK”) and is for general information purposes only. SPK assumes no responsibility for errors or omissions in the contents of this blog posting. In no event shall SPK be liable for any special, direct, indirect, consequential, or incidental damages or any damages whatsoever, whether in an action of contract, negligence or other tort, arising out of or in connection with the use of the content in this blog posting. SPK reserves the right to make additions, deletions, or modification to the contents at any time without prior notice.

Happy reading!



Chevron House Acquisition – Another shrewd move by Oxley?

The Business Times reported today that Oxley is close to acquiring Chevron House in Raffles Place for S$660 mil, or S$2,526 psf on its net lettable area of 261,280 sq ft. Is this another shrewd move by Oxley? Or is Oxley overpaying for an old asset?


Chevron House is a 32-storey building with 215,667 sq ft of offices (from level 6 to 32) and 45,613 sq ft of retail space (from basement 1 to level 4). The building has a remaining leasehold of 71 years. Chevron is the anchor tenant of the building, occupying 83,000 sq ft of office space over 10 floors and it will be moving to Duo Tower by 2020. The building is currently 98% occupied. There is an asset enhancement potential of 14,950 sq ft of unused GFA that the Oxley could tap on.

Buy in Year 2017, Pay Year 2011 Price

Chevron House was put for sale in the market in Year 2011 at a price tag of S$656.6 mil or S$2,500 psf. There were no takers for the property back then. Looks like Oxley is now paying the asking price in Year 2011 (though it is a property that is 6 years older now) without any price inflation!

Is the seller leaving money on the table for the new buyer?

For readers who work in CBD and familiar with Chevron House, you might be wondering if there is any space on the retail podium that can be used to create new GFA. The area looks built-up and any usable open spaces are already utilised for kiosks and promotion space. Whilst these spaces can be utilised to create new GFA for shops, it is uncertain whether the incremental return on existing revenue can justify the AEI costs for the creating of such shops. Slabbing over existing voids to create new spaces? It will probably be an expensive effort and once again the question is whether the returns can justify the costs. Probably, we would need some expert advice here who can suggest how to tap on this unutilised GFA.

The seller – Deka Immobilien had brought up this unutilised GFA when it was marketing the property in Year 2011. After a long period of 6 years, it has not done anything to tap on this unutilised GFA. Is the seller kind enough to leave money on the table for the new buyer? Or is it that this hanging fruit is too high up on the tree for anyone to pick?

Multiple strategic options for Oxley

In SPK’s view, Chevron House offers a lot of strategic options for Oxley. There is no immediate pressure to do anything to the property as the anchor tenant lease expires only in 2020. Oxley can enjoy net property income of around S$25 mil per year, which translate to a yield of 3.8% on its reported purchase price. Not a bad yield, considering residential are trading at around 3% yield today?

Oxley can also concurrently plan its asset enhancement initiatives for Chevron House over the next 2 to 3 years to revamp the common areas of the office and try to tap on the unutilised GFA.

The big payday will probably come at a time that is closer to the lease expiry of Chevron. Subject to the market conditions in 2019/2020, Oxley can opt to keep Chevron House as an investment property, subdivide and lease out the Chevron floors and higher rental rates. Alternatively, Oxley can strata-divide the building and sell the individual strata units. Or if Oxley has built up a substantial portfolio of income-producing assets, it can try to spin off all these properties into a REIT.

Does strata-selling the office units make sense? SPK does agree that based on Oxley’s acquisition price, the returns might not be fantastic. Oxley is unlikely to make the kind of 30% to 40% returns that Perennial made from selling AXA Tower and TripleOne Somerset. But nonetheless, considering the 3.8% yield that Oxley will be getting every year, this would have made the overall returns more palatable. And time is on Oxley’s side. Over the next 3 years, it can continue to enjoy the rental income while waiting for an upswing in office property prices.

Looks like time is on Oxley’s side for this acquisition.

Oxley has been a shrewd player in the Singapore property market.  May its legacy continues with the acquisition of Chevron House!


Are the Developers ‘in two main camps’ or ‘in different factions within one single camp’?

It is always challenging to come out with a research that relies heavily on assumptions. Such reports can open up many questions on the underlying assumptions and data that support such assumptions.


Sun Rosier – The most aggressive land bid year-to-date?


SPK reads the article published in the Business Times today, titled “Developers in two main camps over how much to bid for land”, with much interest. Without the benefit of reading the full report from JLL, there are a couple of questions floating in SPK’s mind.

Are the Developers ‘in two main camps’ or are they ‘in different factions within one single camp’?

This is probably a question relating to the use of words and language. The words ‘in two main camps’ seem to give readers the impression that there are major differences in opinion between the developers. This is probably a good attention catching headline. But if we take a step back and look at the bigger picture, the research is telling us that almost all the new future projects will be launched at higher prices from the current level. In this sense, the developers are probably aligned with their outlook and it is just a matter of how hungry they are to replenish their land bank and bid for land. It might be more appropriate to say that the developers are “in different factions within one single camp”?

How meaningful is the above-mentioned observation? Probably not much, since any developers who succeed in winning the bid would obviously hold an optimistic outlook of the market. If not they would not have bid so high for the land, isn’t it?

What might be a more meaningful study? Probably a study of the winning bidders against the losing bidders, or a study of the active participants in the collective sales market or GLS tender against those developers who have sit out of the recent tender biddings.

Challenges in doing a market comparison on an adjusted basis

To be fair, a lot of effort has been made by JLL in making sure that the comparison of future launch price of new projects against 2017 transacted prices of comparable projects is done as accurately as possible. JLL has adjusted existing transacted prices for differences in age, tenure, location and median unit size. SPK applauds the team for the commendable effort.

But without the benefit of reading the full report from JLL, some questions might come to readers’ mind. How ‘comparable’ are those existing projects against the new projects? How are the 2017 transacted prices adjusted? What is the methodology for the adjustments?

Another question to consider is whether the study has taken into the account of the “market anomaly” of resale units selling at discounts to new launches. Should we factor this into the study to find out the ‘resale discount’-adjusted price increase?

Or should we also compare the expected launch price of these 26 future new projects against each other and also against the recent new launches?


These additional studies might give us further insights on the outlook for the market.


Capitol Singapore Lands In Controversy Again

The Straits Times reported that Russian tycoon – Mr Sergey Vbornov is suing the developer of Eden Residences Capitol Singapore (a JV between Perennial and Pontiac) for the return of more than S$10 million that he paid for a 314 sqm unit in the project. He claims that the unit is “unfit for habitation and does not comply with the promised luxury standard”, nor did it live up to the idea of “paradise found”, as allegedly marketed.


Capitol Singapore – A development marred by controversies and lawsuits

This lawsuit probably brings the level of controversy at Capital Singapore to another level. Things hadn’t been that smooth sailing for the consortium developers. Faced with internal fights between shareholders, delay in the opening of the 6-star Patina Hotel, weak shopper traffic, this lawsuit adds on to the list of issues that the developer is facing.

It is a pity that one of the most iconic places in the history of Singapore has turned into such a sorry state without fulling its fullest potential. This might have put a black mark on the sterling track records of industry veteran – Mr Pua Seck Guan, who is also the CEO of Perennial.

Probably not the best way to defend a case?

Lawyers from A&G, who were defending the developer, claimed that the unit was not sold under the agreement as a “luxurious apartment” and/or “paradise found”. Well, technically, A&G is correct as probably no developer would put in its SPA such ambiguous and open-end claims that could potentially result in liabilities in future. In addition, developers would have put a lot of disclaimers in fine prints in their sales brochures to disclaim against whatever that is being shown in the brochures.

Looks like it is a tough case for the buyer to fight using his argument. But if his intention is to damage the developer’s reputation, he might have succeeded. This would also serve as a good reminder to all buyers to take what you read or see on sales brochures with many pinches of salt.

Whilst A&G is probably correct in their argument, SPK thinks the argument could have a negative impact on the developer’s businesses and reputation in future. Are they telling people not to believe what they put in their marketing brochures? Are they telling people that a S$3,000 psf apartment is not necessarily a “luxurious apartment”? If a S$3,000 psf apartment isn’t a “luxurious apartment”, then what could it be? A mass market apartment?

They might succeed in winning the case, but what about the developer’s reputation? A case of winning the battle but losing the war?

Quality of Development is the heart of the issue

Without in-depth knowledge of this case, it is difficult to ascertain which party is right or wrong, or what kind of misunderstanding might have happened in between. Was it a case of poor workmanship? Is the buyer unreasonable? We will probably find out more when the case goes to trial next year.

But once again, this case highlights the critical issue of quality of developments, which is something that SPK brought up in his earlier post (“Are Singaporean property buyers discerning enough?”).

Let’s hope that Capitol Singapore can shed away all the negative publicities one day and return back to its former glory soon!


Jalan Besar Plaza Collective Sales – What went wrong?

It was probably 3rd time unlucky for the owners of Jalan Besar Plaza.

The Business Times reported that no bids were received for the property at the close of the enbloc tender on 10th November 2017. However, there was an expression of interest from a developer to purchase the property.


An attempt that is doomed to fail from the start?

It is probably no rocket science to guess why there was no bidder for Jalan Besar Plaza despite the enbloc craze. Owners were asking for S$390 mil or S$2,170 psf ppr for this freehold mixed-use development. Whilst the price quantum is still within the investment appetite of most developers, its high per square foot price would probably mean very little (or no) profit potential and higher risk for a developer to redevelop this place.

Based on SPK’s estimation, a new development on the site will have a breakeven price point of around S$2,800 psf to S$2,900 psf. Such a pricing might still be achievable if the developer can strata-sell small retail units, like what we had seen a few years back in the early 2010s. But with the strata-retail resale market as good as dead now, this leaves developers with one less trick in their bags and hence making it more difficult for developers to achieve the required selling price to justify the high enbloc acquisition price.

At this asking price, SPK believes that it will be a tough sell for the owners of Jalan Besar Plaza.

Hopefully, the owners can strike jackpot if they can conclude a deal with the developer that expressed interest in the property. Anyway, there is probably no pressure for owners to sell since they are sitting on a freehold land. Owners can always sit back and wait for a good offer to come. But let’s hope they will not wait too long for it!

Keep calm and carry on waiting!


Are Vista Park owners hitting their jackpot this time round?

Vista Park owners have jumped on the enbloc bandwagon and launch the tender for enbloc sale today. Vista Park sits on a big plot of rectangular-shaped land with an area of 319,250 sq ft. The site has a plot ratio of 1.4 and height limit of up to 5 storeys. Maximum potential plot ratio (before bonus) would be around 446,951 sq ft. The site has a remaining leasehold of 61 years and the buyer will have to pay a lease top-up premium of S$66 million to top up the leasehold to 99-year.

Vista Park owners are asking for at least S$350 mil, which translates to S$969 psf ppr. If bonus GFA is included, price per plot will reduce to S$903 psf ppr. Each owner could take back S$1.16 mil to S$3.5 mil, and this is 60% more than what they can sell in the market.

Vista Park

News report on Vista Park enbloc can be read here.

Vista Park will be an interesting and yet challenging project for developers

Why does SPK say so?

If you look at Vista Park’s location, it seems to lack the factors to sell, such as proximity to MRT and transportation, amenities, shopping centres and schools etc. But let’s not discount the location too soon yet. Vista Park does have some unique attributes, such as its proximity to nature, exclusivity of the estate and unique hill location that offers Pasir Panjang container port views (for port lovers?).

The typical build-small-and-sell-cheap strategy may not work for this site as the location would not be particularly attractive to investors and there could also be potential issues relating to the new policy relating to traffic impact on surroundings (SPK shall discuss more on this in the next section).

Primary target market would probably be the well-to-do families staying in the surrounding landed estates, upgraders in the neighbourhood, and nature lovers. Hence, this project may require an experienced and creative developer who can come out with an interesting product to leverage the uniqueness of the location. And this would probably mean that there might not be strong competition among developers for this site, since there are so many enbloc sites to choose from and some developers would probably go for the easier-to-sell enbloc sites.

Any potential issue from the traffic impact assessment?

Access to Vista Park is via the 2-way road (single lane each way) – South Bouna Vista Road. As SPK had flagged out in his previous blog post, Vista Park seems to fall into the category that is considered at higher risk of facing restrictions in the allowable number of new units in redevelopment.

Vista Park Road

Having said so, is this a cause for concern?

Not really if the developer is not going to build to the maximum number of units and this is likely to be the case for the buyer of Vista Park if the project is positioned for owner stay rather than for investment. A sigh of relief for Vista Park owners?

Can developer still make money after paying S$350 mil for the site?

Yes, SPK would think that it is possible. SPK estimates that the breakeven price for the redevelopment of Vista Park would be in the region of S$1,350 psf to S$1,400 psf. A nearby comparable project would be the recently launched 24 One Residence, a freehold 24-unit development by Tee Land. This project was sold at around S$1,630 psf on average. If we assume that the redevelopment of Vista Park is being sold at S$1,650 psf which is at premium considering its size and probably a unique positioning of the project that could more than compensate the premium of 24 One Residence’s freehold status, the developer could potentially make a nice profit margin of 15% to 18%! Not bad isn’t it?

Thumb’s up or down?

Yes, SPK would probably give the potential enbloc of this project a thumb’s up. Good luck to all the Vista Park owners!


What is the October developers’ sales data telling us?

URA released the latest October data on prices of private residential units sold by developers. No major surprises from the headline data, but let’s put on our analysis hat and dig deeper to gather further insights from the data!


Source: Straits Times


Developers’ housing stocks are clearing up at a very rapid pace

In October, developers sold some 969 new private residential homes and executive condominiums (ECs), an increase of 7 percent from September. Yes, nobody mentions that this was 37% lower than the same period last year since such a statistic is meaningless to talk about during a time when everyone is talking up the property market. (Just an interesting point for everyone to note!).

If we talk about non-landed private residential sales (i.e. excluding ECs and Landed), a total of 727 non-landed private residential units were sold during the month. But, what is probably more interesting to note (other than the headline sales figure), is that developers’ unsold inventory is clearing up at an alarmingly fast pace. Considering that there were only 242 units being launched in October, the implied take-up rate of new condo units is at 300%! This means that the monthly new units release by developers are not able to satisfy the demand of home buyers and older stocks are now selling very rapidly!

Number of unsold units have reached multi-year low

As at end of October, developers were left with only 6,670 non-landed private residential units to sell. Out of these 6,670 units, 2,296 units are from projects that have already been launched and ready for immediate purchase. There are 1,758 unreleased units from launched projects and the remaining 2,616 units (Parc Botannia included) are from future projects that have not been launched yet.

To have a better view of how the market had moved, let’s go back to the beginning of 2017. At that time, there were close to 13,000 unsold non-landed units and within a short span of 10 months, the number of unsold units has declined by half! If we go further back in time to 2015 and 2016, the number of unsold units were in the range of 15,000 to 20,000 units at any point in time. Talking about the current supply crunch? Yes, it definitely looks real.

Supply of private homes to double. So what?

My apologies for sounding too complacent in my headline. But let’s not consider this statement ‘supply of private homes to double’ at face value and try to understand in its complete picture.

On first look, this statement looks pretty worrisome but let’s not forget that this ‘doubling’ of supply is actually coming from a low base now. If we talk about supply doubling from developers’ existing unsold stock of 6,670 units, this would mean that future supply could go up to 13,000 units. Is this a major cause of concern? Not when historically our unsold inventory is around 15,000 to 20,000 units. This doubling of supply would probably bring us back to where we started at the beginning of 2017, in terms of housing supply.

What is the list of immediate future new launches telling us?

So, what are the big new launches that might happen in the near future? We have already witnessed the launch of Parc Botannia, that moved 230 units over the last weekend. Some of the other possible bigger new launches in the near future would include 1) 8 Saint Thomas (St Thomas Walk; 250 units); 2) South Beach Residences (Beach Road; 190 units); New Futura (Leonie Hill Road; 124 units); and Parksuites (Holland Grove Road; 119 units). These are projects with more than 100 units for sale.

There is one striking observation from the above statistics. There is no mass market new launches in the immediate pipeline! This is likely to create a pent-up demand and probably some of the enbloc sites might be able to catch this demand if they time their launch early.


Looks like better times ahead? Keep Calm and Carry On!