Has Guocoland overpaid for the site along Martin Place?.
The private residential site along Martin Place that GuocoLand secured at a recent state tender has key attributes - including its prime location - that are a strong plus factor for any developer planning a condo project.
But at a winning bid of S$595.1 million for the 99-year leasehold 1.6-hectare site, a talking point is whether the developer, which is part of the Malaysia Hong Leong Group helmed by Malaysian tycoon Quek Leng Chan, has overpaid for the land.
The price paid translates to S$1,239 per square foot per plot ratio (psf ppr) - the highest unit land price for a pure residential site sold at a state tender since 2009.
First a look at the site's salient features. The site can generate up to 450 residential units. Located at the corner of Martin Place and River Valley Close, the land parcel can lay claim to having a District 9 address - though it is not in the most posh part of District 9. Still, it has some strong locational attributes. The new condo on the site will be a short walk from the future Great World MRT Station on the Thomson-East Coast Line; this station will be just one stop from the Orchard Station and five stops from Marina Bay Station. Moreover, the site is near the Robertson Quay F&B belt and GuocoLand's future condo project will also appeal to families seeking places for their children at the popular River Valley Primary School nearby. Part of the site has a 20-storey height restriction, while the rest of the plot can be built up to 30 storeys.
Property consultants have estimated GuocoLand's breakeven cost at between S$1,800 psf and S$1,910 psf. This seems to leave a fairly thin profit margin as property consultants expect a new 99-year leasehold project on the site to fetch around S$2,000-2,200 psf on average if it were to be launched today.
They based their estimates using sale evidence this year at Rivergate and Martin Place Residences (two freehold projects nearby, completed in 2009 and 2011 respectively) and Cairnhill Nine, a 99-year leasehold project off the Orchard Road shopping belt that sold like hot cakes when released in March this year. The consultants factored in differences in age, tenure, location and average unit sizes. The Urban Redevelopment Authority has stipulated a maximum 450 units for the latest site, probably because of traffic conditions in the area, which means the average unit size in GuocoLand's project will be 1,067 sq ft. This is smaller than the average size of units that have changed hands in Rivergate and Martin Place Residences this year but bigger than that for Cairnhill Nine.
In practical terms, the earliest that GuocoLand is likely to be able to launch its project would be late next year given the time required for the design phase of what is expected to be a high-end product; GuocoLand has said that thanks to the substantial land area of the District 9 site, the project will feature some of the group's "trademark luxurious living and lush amenities" as seen at its Goodwood Residence and Leedon Residence condos.
However, GuocoLand could also bide its time and roll out its project later, say in 2018 or even 2019; this would sync with a view gaining currency that the outlook for high-end homes in Singapore's Core Central Region (CCR) is set to improve over the next few years.
For one, the supply picture is likely to brighten in the CCR. Developers affected by sales deadlines under Qualifying Certificate (QC) conditions are generally expected to be done selling a chunk of new units in their completed projects in the CCR in the next couple of years - to avoid or at least minimise payment of extension charges to the state. There is also a limited fresh supply of new condo projects in Singapore's prime districts; collective sales - the traditional land source for a residential project in these locations - are hard to buy. And as for Government Land Sales tenders, residential land parcels in Singapore's prime districts - such as the Martin Place plot that GuocoLand has bagged - are relatively rare offerings.
Already, prices of high-end condos seem to be bottoming out, after having corrected more substantially than their suburban counterparts during the initial stages of the current downcycle. According to the marketing pitch of property agents, when demand in the prime market recovers, there could be a shortage and prices could shoot up again.
If the salespersons turn out to be right, GuocoLand could stand to make a bigger profit by waiting for a few years before launching its Martin Place condo on the market.
has five years, till June 30, 2021, to complete the project and sell all the units - as part of the conditions for upfront remission of the 15 per cent additional buyer's stamp duty (ABSD) on the purchase price of the residential site.
So from all accounts, GuocoLand stands to reap a small profit if it were to launch its project in the near future, and probably a more lucrative return if it launches later.
That said, adopting a longer-term strategy is not without risks. There may be external events that could trigger another property downturn. Or what if institutional and other investors who have made bulk purchases in Singapore high-end condo developments start offloading their units to cash in on a price recovery in the CCR? This may limit the price upside in this segment, including GuocoLand's project. In any case, any potential price recovery in the CCR would be limited unless the cooling measures, especially the prohibitive 15 per cent ABSD on foreign buyers, are removed.
To be fair, GuocoLand was not alone in placing what seems to be a bullish bid for the Martin Place tender. Its bid was just 1.2 per cent more than the second highest bid of S$1,224 psf ppr from the Singapore Hong Leong Group, headed by Mr Quek's cousin Kwek Leng Beng.
Both bids were above the top end of market expectations. The remaining 11 bids in the tender came in below S$1,200 psf ppr.
We can't be entirely sure what went into their calculations but perhaps the two men with a strong track record in property development are able to envisage something that others find it hard to fathom at this stage. Time will tell.
Adapted from: The Business Times, 3 August 2016