Government raises property development charges

The government is raising property development charges with effect from Saturday.

This follows the regular six-monthly review on development charge rates.

For non-landed residential use, the charge was raised by an average of 58 percent with prime areas like Cantonment Road seeing the biggest jump of 112 percent.

For commercial use, the hike is an average of 42 percent.

Market watchers say an increase was expected, but the steep hike is likely to slow down collective sales.

Margate Mansion off Meyer Road in District 15 was sold en bloc on Thursday to Soilbuild Group for S$58 million.

The developer had projected a 20 percent increase in development charge.

But based on the announced rates, the jump is estimated to be about 55 percent – or an additional $2 million.

That means about S$10 million instead of the projected S$7.8 million.

This will work out to about 2 percent of the total development cost which property consultants say is still acceptable.

Nicholas Mak, Consultancy and Research Director, Knight Frank, says: “I think the industry as a whole is expecting an increase in the DC rate but the steep increase that we just saw this evening is probably higher than what most people would have expected. In July, the government adjusted the computation rate and DC rate increased by about 40 per cent across the board.”

The average increase for non-landed residential use this time round is 58 percent.

Cantonment Road will see the sharpest hike at 112 percent followed by the Newton and River Valley at 108 percent and Anson Road at 104 percent.

Analysts attribute the jump to recent en bloc prices of properties like Oakswood Heights at Cantonment and Lincoln Lodge at Newton.

While market watchers expect the new rates to slow en bloc sales, they also note that developers might start looking at non-prime areas.

Mr Mak says: “I think that developers and sellers will have to go back and redo their sums, they’d have to factor in this new reality. Some developers may consider that some of the asking prices coupled with this increase in DC rate may make land prices a bit too expensive. Owners may have to adjust their asking price to see whether it still makes sense for them to proceed with the en bloc sales.”

Meanwhile, commercial DC rates have gone up by an average of 42 percent.

And market-watchers say this could affect plans to redevelop certain commercial buildings.

Areas seeing the highest increase (of over 100 percent) include Telok Ayer, Maxwell, Shenton, Anson and South Bridge Road. – CNA/ch

Source : Channel NewsAsia – 31 Aug 2007

Govt will continue to manage increases in construction costs

Trade and Industry Minister Lim Hng Kiang has urged developers and contractors not to price in expectations of increases in costs into their tenders for projects.

Speaking to reporters on the sideline of a groundbreaking ceremony on Friday, he said that the government would continue to manage the increase in cost of steel and other materials and try to mitigate the impact of higher costs.

He said: “The construction industry contributes about 4 percent of our GDP, and the construction cost itself is a very small part of the GDP, so the impact would not be that significant. But nevertheless, we don’t want to have a situation of it being built into expectations and contractors padding their tenders with very high expectations of continued cost escalation.

“This is something that we want to avoid, so Ministry of National Development is in constant dialogue with the Singapore Contractors Association to explain to them the situation, to make sure there isn’t this situation, that they don’t create a self-fulfilling prophecy. And they don’t have expectations built into their tender process. We must have a realistic view of the situation and know the measures that the different parties are taking to mitigate it.”

Mr Lim also touched on the need to make investing in hotel developments attractive.

He cited the increase in hotel rates, adding that these will continue to go up at a measured pace, and developers can factor this into their calculations.

Mr Lim said: “They can calculate the returns. We hope they will tender sensibly for the land price and then be in a position to build the supply that we need. If you look at the basic numbers, if we are practically doubling the number of tourist arrivals, simple common sense would say that you also practically double the number of rooms.” – CNA/ch

Source : Channel NewsAsia – 31 Aug 2007

Horizon Towers saga reaches a turning point

The long-running saga that has gripped the Singapore property market has reached a turning point; the majority sellers in the Horizon Towers debacle now have just over a week to respond to lawsuits filed against them.

Sued for allegedly messing up the en bloc sale of the development, the majority sellers need to decide if they should contest the action or give in to the demands.

BT spoke to several lawyers to determine the implications of each decision.

Background

The tale began in February when 84 per cent of Horizon Towers owners – the majority sellers – agreed to sell the Leonie Hill development en bloc to Hotel Property Ltd (HPL), Morgan Stanley Real Estate-managed funds and Qatar Investment Authority for $500 million.

The sale fell through when the Strata Titles Board (STB) in early August refused to grant an order for the collective sale. The board said the sale application was defective because certain documents were missing.

STB’s rejection came just days before the Aug 11 deadline for the completion of the collective sale. To salvage the deal, HPL and its partners asked the majority sellers to extend the deadline and either to appeal against the STB’s decision or file a fresh application.

When the majority sellers did not respond, HPL and its partners decided to make good on their threat to sue.

The lawsuit

Through their lawyers, Allen & Gledhill, HPL and its partners filed an originating summons in the High Court last week – naming all 255 owners and the sales committee members who signed off on the collective sale as defendants.

It is believed that HPL feels the majority sellers may not have kept faith with them – especially when some sellers were not keen on having the en bloc sale succeed, when subsequent collective sales of neighbouring developments fetched much higher prices.

HPL and its partners are now demanding that the majority sellers ‘do everything necessary’ to obtain the collective sales order – including extending the sale completion deadline by four months to Dec 11, appealing against STB’s decision and/or filing a fresh application for a new sales order, if needed.

Should the sellers fail to take one of these actions, HPL and its partners will sue for damages of between $800 million and $1 billion. This means each of the majority sellers could be liable for about $4 million.

The majority sellers have until Sept 11 to decide on what to do.

The minority owners are not being sued because they were not part of the collective agreement to sell Horizon Towers, but the majority’s decision would impact whether they would have to move out of their homes.

What should Horizon owners do?

The sales committee of Horizon Towers told BT they have asked the High Court to appeal against STB’s decision, but have not yet decided if they should give in to the other demands.

Some sellers have indicated their intention to contest the lawsuit, with one apartment owner saying the sellers intend to raise up to $5 million to engage lawyers to prepare their defence.

The majority is now collectively represented by Tan Rajah & Cheah, but individuals have begun seeking their own legal advice.

BT spoke to lawyers not involved in the Horizon Towers saga. While refraining from making a direct judgment on the case, the lawyers acknowledged that the majority sellers are obliged to ‘do everything in their power’ to file a proper sale application to the STB, given that they agreed to do so in the sale-and-purchase agreement.

Patrick Ee, director of law firm Legal21 LLC, told BT: ‘It’s an accepted position in law that parties to an agreement have to use their best endeavours to achieve the condition precedent in that agreement. In a previous en bloc deal I was involved in, we advised the sales committee to extend the sale completion deadline because that was what was needed to ensure that the sellers were ‘doing everything in their power’ to make a proper collective sale application to the STB.’

Mr Ee also pointed out that in the case of Horizon Towers, the STB had rejected the collective sale order application because of improper documentation. ‘Speaking generally, technicalities which can be rectified should be dealt with,’ he said.

Some majority sellers have also indicated their intention to name the lawyers and sales agents who advised them on the collective sale application as third parties to the claims made by HPL and its partners.

A corporate lawyer, who asked to remain unnamed, commented on such a course of action: ‘Naming their advisers as third parties doesn’t absolve the sellers of their contractual obligations to the buyers; it merely serves to indemnify them against some of the damages which HPL is looking to claim against them.’

Alvin Chang of M&A Law Corporation explains the position further: ‘Bringing in the advisers as third parties doesn’t mean the sellers can shift the blame completely on the advisers. It just means that, should HPL prove its case against the sellers and succeed in their claim for damages, the sellers can try to get their advisers to indemnify them for those damages caused as a result of the advisers’ negligence or inadequate advice.

‘But whether the sellers have a case would depend a lot on the scope of work their advisers were supposed to provide during the en bloc sale application.’

Nicholas Narayanan of law firm Nicholas & Co believes the focus should be on resolving the issue, rather than assigning blame. ‘I feel it’s premature at this juncture to point fingers at various parties as to who’s to blame for the STB’s decision, when a resolution for the whole matter is clearly in sight. The majority sellers can easily rectify the situation: they can extend the deadline and refile an application to save the sale,’ Mr Narayanan said.  

Source : Business Times – 31 Aug 2007

Chevron House sets record price for office block deals

CapitaLand and its partners have sold their stakes in Chevron House (formerly known as Caltex House) at Raffles Place in a deal that values the leasehold office block at $730 million or $2,780 per square foot of net lettable area.

This sets a new record for an entire office building, surpassing the $2,650 psf set earlier this year for the freehold 1 Finlayson Green. Chevron House stands on a site with a remaining lease of about 81 years.

Market watchers are wondering if a new record price will soon be achieved, possibly for Hitachi Tower next to Chevron House and in which CapitaLand also has a 50 per cent stake.

The 999-year leasehold Hitachi Tower, which faces Collyer Quay, was earlier reported to have attracted a top bid of $3,200 psf of net lettable area, following an expression of interest exercise.

However, industry talk now is that negotiations with the top bidder may have met with some hitches – although it is suggested that this does not necessarily mean the deal is off. ‘It could just mean that negotiations may now be open with the other bidders,’ one observer said.

When contacted, a CapitaLand spokeswoman said: ‘The owners of Hitachi Tower are negotiating with several parties to divest their interests, and we will make the appropriate announcement if any definitive agreement has been signed.’

CapitaLand owns Hitachi Tower jointly with National University of Singapore.

The property giant declined to identify the party to whom it and its partners have sold their stakes in Chevron House. But it is believed to be a foreign fund.

‘Globally, in the real estate investment market, it is the international funds that are buying, because that’s where the capital is being raised. And you have a whole variety of investors – including private equity, savings (including pensions), professional investment groups,’ an industry player said.

Jones Lang LaSalle is understood to have brokered the sale of Chevron House.

CapitaLand owns a 50 per cent stake in Chevron House, with IP Property Fund Asia and NTUC Income Insurance Co-operative each holding 25 per cent. The three parties own their stakes in Chevron House through Savu Properties Ltd and under yesterday’s deal, are selling their stakes in this company.

The completion date of the sale is Sept 24. ‘Upon completion, CapitaLand will recognise in its group consolidated accounts a gain of approximately $150.8 million,’ the group said yesterday.

The average prime office capital value rose 117 per cent year-on-year in the second quarter of this year to $2,500 psf, while average monthly Grade A office rental value in Q2 this year was $13.10 psf, up 92.6 per cent from the same period last year, according to CB Richard Ellis data.

Source : Business Times – 31 Aug 2007

Soilbuild paying $58m for Meyer Road site

SOILBUILD Group Holdings has bought the freehold Margate Mansion off Meyer Road for $58 million through a collective sale.

The deal reflects a unit land price of $882 psf per plot ratio including an estimated $6.5 million development charge (DC) based on July 18, 2007 DC rates. Provisional permission for a new development has not been obtained, so the $6.5 million estimated DC quantum has not been locked in.

Soilbuild will have to pay DC based on Sept 1, 2007 rates, which most market watchers say will shoot up in tandem with sharp gains in residential land values over the past six months.

Asked why Soilbuild announced a deal just a day before the latest DC rates are announced, the group’s executive director Low Soon Sim said: ‘We have factored in a 20 per cent rise in DC rates for the area come Sept 1, and we see the potential of the area. This is a District 15 site located in the much sought-after Meyer Road residential enclave.’

Margate Mansion’s collective sale, which is subject to approval by the Strata Titles Board, was brokered by CB Richard Ellis.

The 34,804 sq ft site has a 2.1 plot ratio – the ratio of maximum potential gross floor area to land area. Assuming an average size of 1,500 sq ft per unit, the site can be redeveloped into a new project up to 24 storeys high, with a total of 48 units, Soilbuild said in a statement yesterday.

The project may be launched towards the end of next year.

Separately, the Urban Redevelopment Authority launched a tender yesterday for a 5.13-hectare industrial site in Sin Ming Lane. The land has a 2.5 plot ratio and is being sold on 60-year leasehold tenure. Colliers International director (industrial) Tan Boon Leong reckons the top bid is likely to be in the $60 psf per plot ratio range. This would translate to a breakeven cost of $230-250 psf for the completed development.

‘If a developer wants to maximise profit, he will build a ramp-up development,’ Mr Tan said.

The site is zoned for Business 1 use and can be used for clean and light industrial use. It is within the established Sin Ming Industrial Estate.

The tender for the site, which is on the confirmed list of the Government Industrial Land Sale Programme, closes on Oct 24.

Source : Business Times – 31 Aug 2007

Wing Tai chief cautiously upbeat on property prices

WING Tai Holdings’ head honchos yesterday said the US sub-prime woes have slowed property transactions across the whole market here but believe that property prices are still on a growth path ‘if the sub-prime (crisis) stabilises within a reasonable period’.

Wing Tai chairman Cheng Wai Keung said: ‘Yes, temporarily, it has affected some of the take-up rates. But it is actually not a bad thing. The market needs a bit of consolidation. High-end home prices have gone up 100 per cent within the last six to nine months. It’s just not sustainable. But if sub-prime settles within a reasonable period, I believe there is still room to grow in the property market. We are not at the end of the property cycle.’

Mr Cheng and his brother, Edmund, the group’s deputy chairman, were fielding questions during the group’s full-year results briefing.

‘On the other hand, if sub-prime or the credit market continues to be in turmoil and it affects confidence in general, then of course it will be a completely different scenario,’ he added.

Mr Cheng also acknowledged that Wing Tai had seen an increase in buyers not exercising options but the rate is ‘not alarming’, at ‘just a handful’.

Buyers giving up options is a factor of two things: how aggressively a developer pushes for a sale and its selling price. ‘Our style is that given that the market is slow, there’s no point to push for a sale (and then have the buyer) back out later. Secondly, our pricing maximises our profit but we also leave something on the table (for the buyer) so at least he has a hope that the price is supportable,’ Mr Cheng said.

As for the proposed changes to legislation governing collective sales, Mr Cheng reckons they will slow down en bloc sales since such deals will now take longer to execute. ‘From a positive angle, it will slow down supply of land with redevelopment potential which means there will be less competition for companies that already have some landbank. But on the other hand, if you have less land to buy, then you cannot grow your business as fast as you would like to.

‘But given the recent run-up in property prices, people will be a lot more cautious in buying more development land. So in a nutshell, I think it’s good. At least it allows the market to consolidate and adjust itself, and also takes away some of the uncertainty under old en bloc rules.’

Source : Business Times – 30 Aug 2007

Property firms record good H1 gains, outlook bright

ALL the big listed property groups have reported substantial gains in net earnings for the period ended June 30, 2007.

And the earnings outlook for the second half is positive, as developers continue to progressively recognise profits from Singapore residential projects already sold based on percentage of completion, enjoy higher rents from their Singapore office portfolios and book fair value gains on investment properties, says DBS Vickers Securities analyst Wallace Chu.

In fact, in the latest results reason, bottom lines were substantially boosted in many instances by revaluation gains on investment properties – particularly office properties that have gone up sharply in price – arising from the implementation this year of Financial Reporting Standard 40 (FRS 40).

This standard requires that fair-value gains and losses on investment properties be recorded in the profit-and-loss account. Some companies chose to do valuations and book gains on investment properties for their financial periods ended June 30 this year, such as CapitaLand and UOL Group, while others, such as Keppel Land and Singapore Land, have said they will do so at the end of the year.

The biggest revaluation gains seen this reporting season came from CapitaLand. It booked fair value gains of $645.4 million for Q2 ended June 30, 2007 and $647.4 million in H1 2007. But that’s not surprising since the group, including its listed unit CapitaCommercial Trust, has one of the biggest office portfolios in Singapore.

But even without such gains, CapitaLand’s net earnings were up substantially year-on-year for Q2 and H1, due to the strength of its overall operations, especially residential development sales in Singapore and China, and higher fee-based income from commercial and retail operations.

City Developments, too, posted the best result in its history – with strong showings from residential property development, rental properties and hotel operations under listed Millennium & Copthorne Hotels and CDL Hospitality Trusts. Q2 net earnings rose 333 per cent year on year to $194.4 million, and CityDev’s H1 bottom line improved 272 per cent to $320.5 million.

Management emphasised that the sterling results were achieved without booking any revaluation gains on the group’s substantial investment property portfolio, including offices.

CityDev said it is continuing its conservative accounting policy of stating investment properties at cost less accumulated depreciation and impairment losses, an option allowed under FRS 40.

KepLand, which has said it will revalue its investment properties at year-end, saw its Q2 and H1 net earnings go up 42 per cent and 56 per cent respectively on the back of strong residential sales in Singapore and overseas and the robust Singapore office market.

Analysts expect the group to book gains of $221.6 million in the second half of this year from the divestment of its one-third stake in One Raffles Quay to K-Reit Asia – if the transaction is approved by shareholders of both companies.

As well, KepLand’s second-half earnings are expected to be boosted by fair-value gains on revaluation of its investment properties at year-end under FRS 40, given the group is a major office landlord.

Most Singapore listed developers, which have enjoyed strong Singapore residential sales in the recent past, can look forward to continue progressively booking profits from these projects in accordance with the percentage of completion. CityDev will start booking from its Solitaire condo from Q4 2007 onwards, while profits from One Shenton will be recognised in stages starting next year.

The group sold 1,315 homes valued around $2.4 billion in H1 2007 – about three times the value in the same period last year. The group’s share of pre-tax profit from residential sales yet to be booked is about $1.4 billion. This is expected to be recognised progressively over the next few years.

So far, the sub-prime woes and ensuing credit crunch in the US do not appear to have cooled developers’ residential sales in Singapore or prices – as is evident from the strong take-up rate for Frasers Centrepoint’s Soleil @ Sinaran launch, despite the benchmark price for the location.

But if and when they do, that could cast a pall on developers’ residential profits going forward. ‘Sentiment and strength of the equity market will be more important share price drivers for listed property groups,’ an analyst with a foreign broking house says.

Source : Business Times – 30 Aug 2007

Good class bungalow sold for record $29m

A GOOD class bungalow at 15 White House Park has become mainland Singapore’s most expensive, after it was sold for a record $1,308 per sq ft (psf) – eight years after the historic property was restored and put on sale.

The 22,000 sq ft conservation bungalow – called Glencaird – was sold to a Singaporean for $28.8 million, Wheelock Properties said in a statement yesterday.

Wheelock has been managing the property for Oroll, a wholly-owned unit of The Wharf (Holdings), which is also owned by Wheelock’s parent, Wheelock and Company.

Glencaird is one of 12 luxury bungalows that make up The Glencaird Residences and the only conservation bungalow in the series.

Oroll developed the bungalows.

The other 11 bungalows have already been sold at an average price of $838 psf.

Before it finally found a buyer, Glencaird – a restored, 105-year- old Victorian bungalow with five bedrooms – had sat empty since its completion in 1999.

‘We received several offers for Glencaird over the years,’ said Mr David Lawrence, Wheelock’s chief executive officer, in the statement.

‘However, we felt they were not reflective of the value, given that this is a very unique conservation piece in an excellent location.’

Prior to Glencaird’s sale, the record for mainland Singapore’s priciest bungalow was held by 63 Dalvey Road – sold in March for $16.45 million, or $1,091 psf.

On Sentosa, the highest price fetched by a bungalow plot is $1,473 psf.

Good class bungalows, Singapore’s most prestigious homes, are now enjoying astronomical asking prices amid the property boom.

Source : Straits Times – 30 Aug 2007

Ascott to buy Wilkie Road serviced apts for $79m

THE Ascott Group has agreed to buy a 99-year leasehold serviced residence in town for $79.3 million, the company announced yesterday.

The property, located at Wilkie Road, is part of lifestyle complex Wilkie Edge, which is under construction. Wilkie Edge is a mixed development consisting of offices, retail, and food and beverage outlets.

The acquisition, to be funded from internal resources and external borrowings, will bring Ascott’s property portfolio in Singapore to 11, with a combined 1,042 units. It will be named Citadines Singapore Mount Sophia and open in the first half of 2009.

‘Citadines Singapore Mount Sophia is strategically located in the heart of Singapore’s upcoming arts, learning and entertainment hub in the Bras Basah-Bugis area,’ said Ascott president and CEO Jennie Chua. ‘It is in the city centre with excellent access to the central business district and the shopping and entertainment attractions of Orchard Road.’

The Ascott Group had earlier inked a memorandum of understanding to manage Wilkie Edge’s serviced residences for an initial 10-year term with an option to extend it for another 10 years.

‘Strong demand for extended-stay accommodation, the vibrant real estate market, and the property’s attractive location are reasons for Ascott to acquire leasehold interests in the serviced residence instead of only managing the property for fee income,’ added Ms Chua. ‘This will enable us to maximise shareholder returns.’

The new property will have 154 units and be Ascott’s first Citadines-branded serviced residence in Singapore. It will cater to the young and trendy, expatriates working in the creative services community as well as foreign students and academics from the nearby Singapore Management University, Nanyang Academy of Fine Arts and LaSalle College of The Arts.

The acquisition agreement is inked between Ascott’s indirect wholly owned subsidiary Ascott Scotts Pte Ltd, CapitaLand Selegie Pte Ltd and HSBC Institutional Trust Services, which is the trustee of CapitaCommercial Trust (CCT).

Just last month, CCT had announced that it is buying Wilkie Edge for $262 million. The pact comes with an option to lease the serviced apartments for a $79.3 million consideration. When this option is exercised, CCT’s purchase price for Wilkie Edge will be reduced to $182.7 million.

Source : Business Times – 30 Aug 2007

Alexandra condo site up for tender

THE Urban Redevelopment Authority yesterday asked for tenders for a 99-year leasehold residential plot at Alexandra Road, close to the Redhill MRT station and opposite the Metropolitan, after receiving a minimum bid price that triggered the launch from the Reserve List.

The site occupies some 8,559 square metres with a gross plot ratio of 4.9, which can generate a maximum permissible gross floor area of 41,939 square metres.

It is zoned for development of condominium or serviced apartments. Property consultancies said the site could be developed into a 40-storey condominium.

Knight Frank managing director Tan Tiong Cheng said that he expects the project to have some 380 units averaging 1,200 square feet in size, given that its height and plot ratio are similar to those of the Metropolitan – a joint project between CapitaLand and Lippo Group.

Mr Tan reckons that bids for the site could have been in the region of $400 per square feet per plot ratio (psf ppr) or a lump sum of $180 million and expects the units to fetch average prices of $950-1,000 psf when they are put on the market, given that units in the nearby Metropolitan are fetching some $924 psf in resale prices in the third quarter.

CB Richard Ellis executive director Li Hiaw Ho estimates that the site could have drawn bids in a higher range of $650-750 psf ppr.

‘This will translate to an average selling price of between $1,200 psf and $1,300 psf, which could be attainable in the second half of 2008,’ he said, expecting strong demand to come from upgraders and investors who are looking to rent out the units given its proximity to the city and amenities.

In comparison, the Metropolitan site was purchased by the developers at $350 psf ppr in November 2005.

Based on the strong demand seen in Metropolitan where all 382 units were sold within six months, market watchers said that they expect the Alexandra site to draw strong interest from developers given that it is located at the fringe of the established Tanglin housing district which is within a five to 10 minute drive to Orchard Road, the Central Business District, Marina Bay, and the southern waterfront area.

Yesterday, the Housing & Development Board invited tenders for the sale of a commercial site at Toa Payoh Lorong 6, under the Confirmed List of the Government Land Sales Programme.

The 99-year leasehold site has a land area of 1,396.8 square metres with maximum allowable gross floor area of 4,190.4 square metres, and is located near the HDB Hub.

Its tender will close on Oct 16 and the project is expected to be completed by 66 months from the date of tender acceptance.

Mr Li from CBRE estimates that the site could yield about 34,000 square feet of net lettable area of commercial space and can be developed for a variety of uses including retail, F&B, office and entertainment facilities such as cinemas, bowling alleys and fitness centres.

‘It is likely that the successful bidder would devote 100 per cent of the maximum gross floor area for retail use, so as to tap on the large population catchment within the Toa Payoh housing estate as well as workers and visitors at HDB Hub,’ he added.

‘We expect bids to range between $600 and $700 psf ppr. Assuming that the mall is able to fetch a monthly rent of about $7-9 psf per month, this would provide the developer with a stabilised yield of about 5.5-6 per cent.’

Source : Business Times – 30 Aug 2007