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?

BT_20171124_KROIL23_3192038

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!

 

Bloomberg says Singapore’s Property Market is set to sizzle! Are you excited?

Singapore’s Property Market Is Set to Sizzle

What an attention-grabbing headline from Bloomberg. How do you feel after reading the headline? As a homeowner, you may be feeling good that you are sitting on a property that looks set to increase in value the next year. As a home seeker, you may be rushing to hunt down your dream home before prices are set to increase.

Yes, that is the power of media and herd instincts.

Putting the psychological impact of the article aside, let’s take a look at some of the salient points in the article:

  1. Singapore’s residential and office market has passed its inflexion point, embarking on an exciting recovery journey
  2. With brighter economic prospects and improved market sentiment in the next two to three years, developers are increasingly sourcing land sites to ride the wave of growth for the rest of the decade
  3. Home prices could rise as much as 10 percent next year, according to analysts from Morgan Stanley, BNP Paribas SA and UOB Kay Hian
  4. With housing-affordability much better in Singapore, there may be a surge in demand next year
  5. Singapore’s property market has largely turned the corner, underpinned by a brightening economic outlook

Read full article here.

 

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Source: Bloomberg

 

Do you agree?

Well, at this point in time, SPK agrees with the article that there are a lot of positive signals in the market that are pointing towards a rising property market for at least the next year. Improvement in economy and job market, wealth creation through collective sales, positive sentiments driven by stock market highs and news headlines, herd instincts, family formation/upgrading and an extended period of low and competitive mortgage rates are probably to stir buying interests in property. But nonetheless, it is important to watch out for red flags in the economy and the market.

Property cycles are getting shorter these days and it is important to ride the cycle at the early stage and not ending up being the one without a seat in a game of musical chair.

Kopi Talk – 2 South Bridge Road shophouses sold for S$26.5 million to Sinar Mas-link company

BT_20170921_KRSOUTH21_3095683

A unit of well-known Singapore brand – Eu Yan Sang, has sold its 2 shophouses at 273 & 275 South Bridge to Top Global Limited, a Singapore real estate company linked to the prominent Indonesian conglomerate – Sinar Mas Group. The 2 shophouses have 999-year leasehold tenures that commenced from 1823 & 1827 and have a combined gross floor area of 10,027 sq ft. The purchase consideration of S$26.5 million is 7% below the original asking price of the vendor and this works out to be around S$2,643 psf on GFA.

Several condition precedents need to be met and the conclusion of the transaction is subject to the satisfaction of these condition precedents, that includes terms such as verification of the GFA, change of use of 2nd to 4th floor as hotel or hostel and leaseback of ground floor units to Eu Yan Sang.

Upon successful conversion of the use of 2nd to 4th floor, Top Global will asset enhance the space that will be used for its hostel business under the “5Footway Inn” brand. “5Footway Inn” is already operating in 5 locations in Singapore, in the heritage zones of Chinatown, Ann Siang, Boat Quay and Bugis. This new property will be its 6th hostel location and the 4th one to be located in Chinatown/Ann Siang area.

The investment by Top Global seems to be a savvy one. Converting the use from office to hotel/hostel does have a higher risk due to the cyclical nature of the business and poorer earnings visibility but it could potentially generate greater upside returns to the group. The leaseback of ground floor units to Eu Yan Seng would probably be the best use of the prime ground floor space (instead of using it as a lobby area) and would also help to improve the asset yield. Moreover, 999-year leasehold asset in the central area is a scarce commodity and this is a great opportunity to acquire a good asset.

A good deal for Top Global?

New Launch Review: Parc Botannia @ Fernvale

With the launch of Parc Botannia, one of the last major launch of the year, happening soon, let’s spend some time to review on this project before bringing your cheque book down to the showflat.

Parc-Botannia-Condo-Fernvale1

Project Details on Parc Botannia

Details

How good is the location?

If you do a quick search on ‘Parc Botannia’ using Google, you will be able to find many property agents’ website that can provide you with details on the amenities surrounding Parc Botannia. So let’s not spend too much time on the details of what is around Parc Botannia and jump straight in a review of the strength and weakness of the location:

Strength

  • Located on the quieter side of SengKang West, lining along side the land houses at Jalan Kayu. Provides a sense of exclusivity
  • For young families, there are many primary schools within a 1km radius
  • Daily/Weekly necessity shopping can be done easily at nearby Seletar Mall (1 LRT stop away) or Greenwich V and Compass One (which are slightly further)
  • Thanggam LRT station is conveniently located beside Parc Botannia
  • There are many interesting F&B options in the area, such as Jalan Kayu, The Oval @ Seletar Aerospace Hub and nearby malls
  • Public recreational areas and facilities such as Punggol Promenade and SengKang Sports Centre are within short jogging distances. Good for families and sports enthusiasts
  • Easy access to town via CTE and airport via TPE by car
  • There will be a new road that provides shorter access from Fernvale Road to Jalan Kayu and residents can avoid the congestion along the narrow Jalan Kayu Road
  • Parc Botannia is close to business/industrial areas such as Seletar Aerospace Park and Ang Mo Kio Industrial Estates. Many big MNCs such as Rolls Royce and Airbus are located there. For investors, there should be healthy rental demand

Weakness

  • Public transportation is not well developed in the area at the moment. Residents rely heavily on LRT to get around place. But the bus network in the area should improve as more residential projects are developed

Verdict: Overall, the location of Parc Botannia offers a very well-balanced mix and varieties of amenities, accessibility, and facilities that cater well to all age groups from single adults to young families.

Other than High Park Residences (located next to Parc Botannia; fully sold) which offers similar attributes, other nearby projects tend to attract another group of buyer segment. H2O Residences, RiverTrees Residences and Riverbank @ Fernvale (located to the East of Parc Botannia and along Sungei Punggol River) tend to cater more towards a lifestyle and sports enthusiast crowd due to proximity to the river, park connector, and sports centre.

What are the future development plans in the area?

Master Plan

There are a couple of things to take note, relating to the future developments in the area:

  • There will be a public park between Parc Botannia and High Park Residences, which provides a green buffer between the 2 developments. South facing units of Blk 16 and 18 will be at a good distance away from High Park Residences and enjoy the park view
  • 2 new educational institutes will be built next to Parc Botannia, most likely to be secondary school or private school. There are already ample primary schools in the area
  • The land to the north of Parc Botannia is zoned for future residential development with plot ratio of 2.1. Considering that these sites are adjacent to the TPE, it is likely that these developments will have some set-back requirements from the TPE, multi-storey carparks facing the TPE and residential units along the side of Fernvale Street. If this happens, the north facing units of Blk 10 and 12 would eventually lose their unblock view towards the Seletar Airport area
  • Towards the South-west of Parc Botannia, there is a plot of land along SengKang West Way that is zoned for future commercial and residential development. Another small community mall could be built in future to give more shopping options to the residents of Parc Botannia

Verdict: Future developments in the nearby surrounding area look positive and beneficial to the residents in the area and Parc Botannia is likely to benefit as well. Buyers of the north facing units of Blk 10 and 12 may end up facing some other developments in the future, but well, this is probably a norm rather than the exception in a land-scarce city like Singapore, isn’t it?

How does the Site Plan look like?

Parc-Botannia-Site-Plan-1024x694

  • Vehicular access to Parc Botannia is via Fernvale Street. Access to TPE will be a breeze in future
  • There are side gates at the south-east corner (for access to LRT) and south (for access to public park) perimeter of the development
  • Car park is in the basement
  • Clubhouse, gym and majority of the recreational facilities are tucked at the western section of the development, probably due to building set-back requirements because of proximity to the landed houses beside
  • BBQ pits are located in between (1) Blk 10 stack 2 and Blk 12 stack 45 and (2) Blk 2 stack 12 and Blk 18 stack 34/35. For the lower floor units, do take note of potential noise and bbq smell
  • No indication of bin centre and substation on the site plan, but they seem to be located at the north-west end of the development, beside the main gate
  • Tennis court is located at the eastern part of the development
  • There will be a childcare centre located within the development
  • Majority of the units have open views and good spacing distance from the direct opposite block

Verdict: Parc Botannia comes with standard condominium facilities like most condo projects, but probably some of its selling points are the childcare centre within the condo which makes it convenient for the working residents and the large open recreational space for children to run around safely.

What is the Unit Distribution?

Unit Mix

Parc Botannia has a total of 735 units and a summary of the unit mix is given below. Please take note that the estimated pricing is based on indicative pricing that was obtained from online sources.

  • 1-Bedroom
    • 67 units (9% of total units), typical size of 431 sq ft
    • Estimated average price of S$600k or S$1,397 psf
  • 1+Study
    • 126 units (17% of total units), typical size of 506 sq ft
    • Estimated average price of S$685k or S$1,355 psf
  • 2-Bedroom
    • 206 units (28% of total units), typical size of 581 sq ft (compact) to 667 sq ft (premium)
    • Estimated average price of S$800k or S$1,361 psf for compact
    • Estimated average price of S$872k or S$1,308 psf for premium
  • 2+Study
    • 63 units (9% of total units), typical size of 786 sq ft
    • Estimated average price of S$1.0 mil or S$1,277 psf
  • 3-Bedroom
    • 189 units (28% of total units), typical size of 872 sq ft (compact) to 980 sq ft (premium)
    • Estimated average price of S$1.10 mil or S$1,256 psf for compact
    • Estimated average price of S$1.23 mil or S$1,262 psf for premium
  • 4-Bedroom
    • 63 units (9% of total units), typical size of 1,152 sq ft (compact) to 1,281 sq ft (premium)
    • Estimated average price of S$1.35 mil or S$1,174 psf for compact
    • Estimated average price of S$1.50 mil or S$1,174 psf for premium
  • 5-Bedroom
    • 21 units (3% of total units), typical size of 1,453 sq ft
    • Estimated average price of S$1.65 mil or S$1,137 psf

In terms of unit mix and distribution, it seems like the developer had carefully thought through it and came out with a pretty balance mixed of small units (26% of 1-bedroom, 1+Study) catering to investors, medium size units (37% of 2-bedroom. 2+Study) for singles and young families, as well as big units (37% of 3/4/5 bedrooms) for bigger families/extended households.

The smaller units of 1-Bedroom and 1+Study could be found in Blk 10, 12 and 18. These units face the north and will enjoy unblock Seletar Airport view, provided no new developments come up in the plot opposite. The bigger 3/4/5-bedrooms units are located at the corners of each block, which gives these units 180 degrees viewing directions and good ventilation within the units. The developer has also made the bigger units more conducive for families by giving most of the bigger units pool view or landed/garden view.

Blk 16 should be considered the ‘premium’ block, with 8 units per floor, garden/landed views and away from the road. This blk would cater more for families as it contains only 2/3/4-bedroom units. Blk 10, 12 and 18 have 9 units per floor. The premium 4/5-bedroom units come with exclusive private lifts.

Verdict: It seems like the developer has put in effort in its development planning to cater to the different groups of buyers and designed according to their different needs. It would also make sense from a risk management perspective by targeting a wide catchment of different buyers.

What about the unit layouts?

Generally, the layouts across all unit types at Parc Botannia can be considered efficient and well-designed with regular shapes, decent size rooms, and do not have overly excessive big balcony and aircon ledges. Sizes are optimal, i.e. not too small that compromise on quality of life and yet not too big and over-luxury that buyers have to pay a high price. Some of the minor points that buyers might want to take note would include big entrance walkway area and lack of natural ventilation for toilets of smaller units. But many would consider this as what we typically see in development these days and hence, no cause for concern.

Below are SPK’s comments on the layout of the typical unit types for readers’ reference:

1BR
1-Bedroom
1+S
1-Bedroom + Study
2BRC
2-Bedroom Compact
2BRP
2-Bedroom Premium
2+S
2-Bedroom + Study
3BRC
3-Bedroom Compact
3BRP
3-Bedroom Premium
4BRC
4-Bedroom Compact
4BRP
4-Bedroom Premium
5BR
5-Bedroom Premium

 

How does Parc Botannia compare to High Park Residences?

High Park Residences is developed by a consortium of Singapore developers – Chip Eng Leong, Heeton and KSH. This project was launched in July 2015 and on the first weekend of sales, nearly 1,100 units were snapped up out of a total 1,399 units. What could have driven such strong sales? It was most likely due to the low price quantum and affordability of the units. A studio/1+study cost between S$425k to S$486k on average, whereas a bigger 3-bedroom unit costs only S$929k on average. Average selling price per sq ft for High Park Residences was only S$963 psf back then.

HPR

In terms of unit mix, High Park Residences have more mid-size units (2BR, 2+Study), with a total of 595 units that is equivalent to 43% of total units. Larger units are also dominant in this project, with 570 units of 3/4/5 + Semi-d and Bungalows, equivalent to 41% of the total units. The remaining are small studio/1+study units, with a total of 225 units that is equivalent to 16% of total units. In terms of % unit mix, this seems lower than the 26% of 1-BR and 1+Study at Parc Botannia, but in terms of the absolute number of units, both projects have approximately similar numbers of units at around 200 each.

HPR vs PB

Let’s do a side by side comparison between Parc Botannia and High Park Residences. On a like-for-like comparison, similar unit types at Parc Botannia are mostly bigger in size compare to units at High Park Residences, with some unit types as much as 25% bigger in the area. The average price per square foot at Parc Botannia is also approximately 30% more expensive than High Park Residences. A combination of bigger unit sizes and higher price per square foot resulting in the absolute price of a unit at Parc Botannia costing 35% more than a similar unit type at High Park Residences on average.

Does it mean that High Park Residences is a better buy? In terms of price, High Park Residences is obviously a better choice. But in terms of value, we would need to look beyond pricing alone. Let’s look at some other metrics to compare. In terms of land area per unit, High Park Residences has a ratio of 128 sq ft of land area per unit in the development, whereas, for Parc Botannia, the ratio is 252 sq ft of land area per unit, almost double that of High Park Residences. What does this tell us? It simply means that Parc Botannia is less densely populated than High Park Residences and probably the intangible benefits of a more exclusive, less crowded and quieter environment would be able to justify a premium for Parc Botannia. In addition, unit sizes at Parc Botannia are more luxurious in comparison and it would be a better choice for long-term owner occupation.

We use an example to illustrate this. Let’s compare Martin Modern and Starlight Suites in District 9. These 2 projects are beside each other. Martin Modern is a new 99-year leasehold luxurious project whereas Starlight Suites is a Freehold compact development completed in 2015. Martin Modern is able to command premium prices of around S$2,300 psf but Starlight Suites, despite being a freehold project is selling at S$1,800 psf to S$2,000 psf. It is probably the perceived value that really matters rather than the absolute price.

Verdict: Whilst High Park Residences was designed to sell, Parc Botannia, on the other hand, was designed to live. Both developments cater to a different group of buyers and Parc Botannia does have its own unique selling points and hopefully, these can justify the premium of its price and attract value buyers and investors.

 

Should I buy Parc Botannia?

Well, SPK can’t answer this question on your behalf. Everyone has a different priority and preference in evaluating a property purchase and hence, it is difficult or rather unprofessional to give a boilerplate answer for everyone to follow. But, since Singapore Property Kaki is supposed to be a sharing platform, SPK shall share with readers on SPK’s personal and general opinion relating to decision-making process when comes to evaluating a potential property purchase:

  • If affordability is not an issue, go for a development with better value instead of a cheap one. A better value project tends to preserve value better and offers better chance of profit opportunity and future buyer demand
  • If the property is for long-term occupation, do think long term, especially on space planning and family planning. A small space might last you for a couple of years, but may not be good for long-term

Coming back to Parc Botannia, SPK would consider it as a value for money property that is conducive for a young family and it could probably preserve value better over the longer term.

Happy Shopping!

 

IMPORTANT NOTICE

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!


 

More estates get in on collective sale action. Who may get lucky this time?

http://www.straitstimes.com/business/property/more-estates-get-in-on-collective-sale-action

ST_20171031_GLENBLOC31_3524007

Another day, another enbloc news. Another 3 residential estates are going for collective sale. Let us take a look at 2 of these projects – How Sun Park and Pearl Bank Apartments, to evaluate their chances of success for their enbloc attempts.

How Sun Park

Quick Facts

  • Tenure: Freehold
  • Location: How Sun Road, near Bartley MRT (12 min walk)
  • Number of owners: 20
  • Land Area: 54,942.7 sq ft
  • Zoning: 5-storey residential with 1.4 plot ratio
  • Permissible GFA: 76,920 sq ft (before bonus GFA)
  • Asking Price: S$78 mil (S$1,052 psf ppr, including development charge of S$2.92 mil)

Kopi Talk: Price quantum of S$78 mil is low enough to attract developers. Asking price of S$1,052 psf ppr is 21% lower than the price that SingHaiyi paid for nearby Sun Rosier. Considering that this piece of land is smaller in size (which means a development would come with less facilities) and has a long west-facing frontage, it is not unexpected for this site to come with a lower asking price.

But is a 21% price differential (compare to Sun Rosier’s price) a good enough price gap for developers to snatch this site? It probably does, considering the margin of safety that a developer has at this price point. Based on SPK’s estimate, breakeven price for How Sun Park would be around S$1,400 to S$1,450 psf and selling price would probably be around S$1,650 psf to S$1,750 psf. With the expectation of Chip Eng Seng’s new 99-year residential development at Woodleigh selling at S$1,720 psf to S$1,800 psf and Sun Rosier selling at an even higher price, the estimated selling price of How Sun Park would appeal to buyers due to its Freehold and proximity to the other 2 projects.

Verdict:

220px-Facebook_like_thumb    How Sun Park is likely to be sold, but owners should not expect a huge premium from developers.

 

Pearl Bank Apartments

Quick Facts

  • Tenure: 99-year leasehold from
  • Location: Pearl Bank Road, near Outram Park MRT Interchance
  • Number of owners: 280 residences + 8 commercial units
  • Land Area: 82,376 sq ft
  • Zoning: Residential with 7.2 plot ratio (Baseline plot ratio is 7.4479)
  • Permissible GFA: 613,530 sq ft (before bonus GFA)
  • Reserve Price: S$728 mil (S$1,505 psf ppr, including upgrading premium of S$195 mil)

Kopi Talk: This is the fourth time that Peal Bank has gone for an enbloc attempt. This time round, the asking price of S$728 mil is slightly lower than the S$750 mil that owners were asking for back in 2011. Would this make Pearl Bank an attractive enbloc opportunity for developers now?

Let us take a quick look at the numbers. Asking price of S$728 mil works out to be around S$1,505 psf ppr after adding in a lease upgrading premium of S$195 mil. That means a whopping S$923 mil for a 82,376 sq ft of mid-size prime land! A new development on the Pearl Bank site will need to be built high, and come with sky facilities due to land constraints and to leverage on its unblock views in order to make the development more premium and sellable (probably Sky Habitat would be a good reference). But all these would come at a higher construction costs to developer. Base on SPK’s estimate, such a project would probably breakeven at S$1,900 psf to S$2,000 psf and developer will need to sell at S$2,200 psf for a decent margin. Despite Pearl Bank’s prime location, it might be a challenge to achieve such a high pricing for a 99-year leasehold in current market. Moreover, the investment quantum is huge. Hence, the risk-reward for this site might not be optimal for most developers.

Verdict:

897px-Not_facebook_not_like_thumbs_down     Pearl Bank still looks too expensive for any sensible developers to absorb. But let’s hope a rich foreign developer comes in and make it fourth time lucky for the owners!

 

Good luck to all the enbloc owners!

 

IMPORTANT NOTICE

The information and opinion contained in this blog posting above are 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 torts, 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!