Billion-dollar en bloc candidates still in play, but will developers bite?

Singapore

MANDARIN Gardens, a 99-year leasehold condominium, recently raised its asking price by nearly 12.5 per cent from S$2.479 billion to S$2.788 billion, after it was discovered that the land that the residential development is situated on had been undervalued by over S$300 million.

This came after the Collective Sales Committee (CSC) carried out a check of the property's development baseline record.

The "drastically increased baseline" that was received allowed for a reduction in the differential premium payable by developers to the authorities, "which enable us to increase the reserve price and at the same time reduce the per square foot per plot ratio (psf ppr) for the developers," said CSC chairman Vincent Teo in a Nov 11 letter to residents.

The land cost has come down from S$1,236 psf ppr to a more attractive S$1,191 psf ppr, and at the reduced land cost, the CSC estimates a developer could launch the new development at S$2,200 psf.

Sixty-two per cent of residents have agreed to the collective sale so far. The CSC and marketing agent C&H Properties are hoping that the increase in the asking price acts as enough of a sweetener to entice more owners to sign, allowing them to hit the 80 per cent mark by end January 2019. Owners could stand to pocket from S$1.8 million to S$5.7 million from the sale, depending on the size of their unit.

C&H said the lower land cost is grounds for a higher reserve price, since developers are looking at a fatter profit margin and lower development charges. Plus, the site is seen by analysts as attractive due to other factors such as its location and unblocked sea-view.

Still, the S$2.79 billion price tag - which, if successful, would make Mandarin Gardens the largest en bloc sale in Singapore to date - is a lot of money. Market watchers expect no single developer to be able to take on such a deal singlehandedly. Instead, a consortium of developers - local or foreign - is likely.

Mandarin Gardens also sits within one of the nine areas that are soon going to be subject to a minimum average unit size of 100 square metres.

To temper the number of smaller units in new private residential projects outside the central area; from Jan 17, 2019, the Urban Redevelopment Authority (URA) will require the minimum average unit size to go up from 70 sq m to 85 sq m. However, nine areas have been singled out for a more stringent minimum average requirement of 100 sq m.

ZACD Group executive director, Nicholas Mak, said: "The Mandarin Gardens site, with a plot ratio of 2.8, can be redeveloped into an estimated 2,790 units with an average size of 100 sq m each. This would be one of the largest condo developments in terms of the number of units, even with the larger average unit size."

Developers may be daunted by the risk of being hit by additional buyer's stamp duty (ABSD) charges if they fail to sell all those units within a five-year period.

But Mandarin Gardens isn't the only one braving the market with a higher reserve price. Pine Grove last month reportedly raised its reserve price from S$1.72 billion to S$1.86 billion against the advice of its former marketing agent Huttons Asia, which has since stepped down.

The recent property cooling measures, which brought higher ABSD and tighter loan-to-value (LTV) limits, may also prompt developers to baulk at heftier price tags.

According to the latest quarterly Real Estate Sentiment Index (RESI), developers' sentiments towards the residential market have weakened sharply after July's cooling measures. And where collective sales are concerned, about 90 per cent of respondents felt the en-bloc market would be "seriously affected" over the next six months by the ABSD hike.

The index by the Real Estate Developers' Association of Singapore (Redas) and the National University of Singapore surveys senior executives of Redas member firms.

In something of a double whammy for sellers, developers have plenty of choice where the en bloc market is concerned.

Tan Hong Boon, regional director at JLL, pointed out that since the beginning of this year, at least 60 sites closed their tenders without a buyer. He expects a bumper crop of relaunched tenders in the first and second quarter of next year, some of which may be forced to offer lower reserve prices.

While there seem to be no shortage of en bloc hopefuls, the question is whether there will be enough takers in the current environment, or if the odds are stacked against them.