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Race for the $1 billion collective sale

cecilia.chow@bizedge.com

Even as the property market remains buoyant, concerns about finding a replacement home are rising. Will this cloud the prospects of collective sale hopefuls?

In January 2017, Chiang Kwok Shong had no interest in a collective sale when he was contacted by a property consultant. A director of several companies, Chiang was also chairman of the collective sale committee (CSC) at Faber Garden when it last attempted a collective sale in 2011. The reserve price then was $830 million. The tender period in 2011 coincided with a raft of property cooling measures rolled out by the government that year. And at the close of the tender, “nobody showed up at the box”, he says.

 

Faber Garden, which is on the market for $1.18 billion, is adjacent to the upcoming Bright Hill MRT station on the Thomson-East Coast Line (Credit: Samuel Isaac Chua/EdgeProp Singapore)

 

His trepidation over another failed collective sale was lifted when he saw several large privatised HUDC estates such as Rio Casa, Eunosville and Serangoon Ville sold in May and June last year. So, when the same property consultant contacted him again, he was more receptive. “I asked what the first figure for the reserve price was,” says Chiang. “When he said it began with a ‘7’, I was shocked at how low it was. When he countered with ‘8’, I said, ‘Okay, let’s talk.’”

Chiang rounded up his fellow members of the last CSC, and they decided to give the collective sale another shot. They invited five property consultants to make a pitch, and eventually selected CBRE as their marketing agent in August. After appointing the property consultant and legal adviser, the reserve price was set.

In September, the process of securing the 80% majority for a collective sale began. It took six months to get owners representing more than 80% of the share value and strata area to sign the collective sale agreement (CSA). “This was half the time it took the last time around when we secured 80% on the last day of the 12-month period,” says Chiang.

 

Chiang: This time around, it took six months to secure the 80% agreement, half the time it took the last time around when we secured 80% on the last day of the 12-month period (Credit: Samuel Isaac Chua/EdgeProp Singapore)

 

The collective sale of Faber Garden was launched on April 16, at a price tag of $1.18 billion. The existing development contains just 236 units sitting on a 12.5 acre, or 544,738 sq ft, site. There are just five blocks in the development: two high-rise towers of 15 and 19 storeys, as well as three low-rise blocks — a 4-storey and two 6-storey blocks. There are 233 residential units comprising apartments, maisonettes and penthouses, as well as three shop units.

 

Changing times

If the reserve price of $1.18 billion is achieved, the residential owners will receive gross proceeds ranging from $4.38 million to $6.75 million each. Meanwhile, owners of the commercial shops will walk away with $1.99 million to $4.83 million each. Ten years ago, Faber Garden made its first collective sale attempt. At that time, several factors were not

in its favour: the global financial crisis, the size of the site given the economic conditions then, and the fact that many owner-occupiers were happy living there. “We didn’t take it on then,” says Galven Tan, CBRE executive director of capital markets.

In fact, the collective sale attempt in 2008 never took off, as the necessary 80% consensus was never reached. “I think it stalled at 50%,” says Chiang.

 

View of Singapore Island Country Club and Lower Peirce Reservoir (Credit: Samuel Isaac Chua/EdgeProp Singapore)

 

Things have changed over the last 10 years, notes CBRE’s Tan. He cites the more buoyant property market; the upcoming Thomson-East Coast Line and Bright Hill MRT station which will be at the doorstep of Faber Garden; and the fact that it is the only freehold site in the Upper Thomson area of such size.

Located just off Upper Thomson Road, Faber Garden is also near the prestigious Singapore Island Country Club, overlooks the Lower Peirce Reservoir and is across the road from the Windsor Nature Park (TreeTop Walk).

Chiang has lived in Faber Garden since 1994. “I’ve seen my neighbours’ children grow up, and some are even married now,” he says. “Many of the owners have lived here for at least two decades.” Only 72 owners (31%) at Faber Garden have outside addresses, which means owner-occupiers make up about 70%.

 

Thomson address, freehold allure

“People who grew up in the Thomson area are fiercely loyal to the neighbourhood,” adds CBRE’s Tan. “They find it a struggle to move out of this area.”

 

CBRE's Tan: Scaring people doesn't work. Telling people that if they don’t sell now, they may have to wait another 10 years for the next collective sale cycle, or that the condominium is very old and falling apart will just make people more cautious (Credit: Samuel Isaac Chua/EdgeProp Singapore) 

 

The Thomson area has always been perceived as an affluent residential estate outside the prime Districts of 9, 10, 11 and the prime District 15 of East Coast. “While the East Coast may have sea views, the Thomson area boasts proximity to the Nature Reserve, the TreeTop Walk and the Singapore Island Country Club, which has three golf courses,” says Tan. “This plot is probably the best in District 20.”

Other sites in the area that are also attempting a collective sale include the 255-unit Thomson View condominium, which occupies a 99- year leasehold site of 540,314 sq ft on Upper Thomson Road. Shunfu Ville, a privatised HUDC estate sold en bloc to Qingjian Realty in June 2016 for $638 million, is a 99-year leasehold development and located next to the Marymount MRT station on the Thomson-East Coast Line. Qingjian Realty is expected to launch the new project in August or September, and market indication is that prices could be in the “$1,700 to $1,800 psf range”.

The last significant new launch in the Upper Thomson area was Thomson Impressions, a 99-year leasehold, 288-unit private condo developed by Nanshan Group. Launched in 2015, the project is almost fully sold and will be completed soon.

In District 15, collective sales on Amber Road and Meyer Road have achieved prices above $1,500 psf per plot ratio (ppr).

Meanwhile, Faber Garden’s reserve price of $1.18 billion translates into a land rate of $1,414 psf ppr.

 

Thomson Impressions, launched in 2015, is almost fully sold, and expected to be completed soon (Credit: Samuel Isaac Chua/EdgeProp Singapore)

 

Crossing the billion-dollar threshold

No collective sale site has broken the $1 billion threshold so far this year, although Pacific Mansion came close at $980 million. Incidentally, it was also brokered by CBRE. The sale of the 290-unit freehold condo on River Valley Close in prime District 9 translated into a land rate of $1,806 psf ppr.

The only collective site to have crossed the $1 billion mark was Farrer Court, which was sold en bloc to a CapitaLand-led consortium for $1.3388 billion. That was 11 years ago, and it has since been redeveloped into the 1,715-unit d’Leedon.

For Pacific Mansion, the recent collective sale was the fourth attempt. “They had this legacy of failed attempts behind them,” says CBRE’s Tan. “But we told them that if the reserve price was acceptable, we will lead them through the process.”

 

Pacific Mansion was successfully sold en bloc for $980 million in its fourth collective sale attempt last month (Credit: CBRE)

 

Since the start of the year, there have been 23 successful collective sale deals totalling $7.87 billion (see table). That has led to speculation that the current collective sale cycle has peaked and is expected to slow down by 2H2018. In his report on April 10, RHB analyst Vijay Natarajan cites the key reasons for this: “Steady build-up in supply pipeline, rising land costs, tighter policy framework and sufficient restocking of landbank.”

He expects developers to be selective in their bids, with preference for relatively smaller and well-located sites. While he expects property prices to jump 5% to 10% y-o-y, Natarajan remains cautious on the longer-term sustainability of such price increases. 

CBRE’s Tan believes, however, that there is still a lot of capital in the market. He points to the number of bids received at the close of the tender for the commercial-and-residential site at Holland Road last month. A total of 15 bids was received, with several developers submitting more than one bid. The expectation is that the site will fetch more than $1 billion, and that the land rate would be in the $2,000 psf ppr range.

 

About 71% of the owners at Laguna Park have consented to the collective sale, which is expected to be pegged at $1.5 billion (Credit: Samuel Isaac Chua/EdgeProp Singapore)

 

It is not just Faber Garden that will enter the market with a price tag of above $1 billion. Another one, making its third collective sale attempt, is Laguna Park, located on Marine Parade Road. The 528-unit privatised HUDC estate has a 99-year lease from 1977. Its first collective sale attempt was in September 2009, with a price tag of $1.2 billion and JLL as the marketing agent. In 2011,

Laguna Park was rolled out for collective sale a second time at $1.25 billion, with Knight Frank as the marketing agent. The following year, the price tag was raised to $1.33 billion. Laguna Park’s latest collective sale attempt began last September and, so far, about 71% of the owners have signed the CSA. Knight Frank has once again been appointed the marketing agent. The indicative price this time is about $1.5 billion. The 677,493 sq ft site can be redeveloped into a new development of more than 2,000 units, estimates Ian Loh, Knight Frank executive director and head of investment and capital markets.

 

Taking longer to secure majority

“A $1 billion collective sale in the current buoyant market is not impossible,” says Tan Hong Boon, JLL regional director. Incidentally, JLL is marketing the 212-unit Horizon Towers on Leonie Hill Road in prime District 9. The project has 60 years left on its 99-year lease with effect from 1979. So far, about 70% of the owners have agreed to a collective sale. Using the latest land rate of $1,806 psf ppr achieved for a collective sale in prime District 9 — with Pacific Mansion as a benchmark — market indication is that Horizon Towers, which sits on a land area of 204,742 sq ft with a plot ratio of 3.2828, is likely to have a price tag above $1 billion.

 

If Horizon Towers achieves 80% consensus, the project could enter the market for sale at over $1 billion (Credit: Samuel Isaac Chua/EdgeProp Singapore) 

 

Property consultants concede, however, that securing the 80% consensus for a collective sale has become more challenging. “With land parcels transacted at higher prices, the collective sale owners have also raised their price expectations,” says Knight Frank’s Loh. “And in a rising market, the price of a replacement home has also gone up, which makes securing the 80% consensus more challenging than a year ago.”

The cost of a replacement home has always been a concern, especially for collective sales where the premium is marginal, agrees JLL’s Tan. “It depends very much on the premium above the prevailing market price. If the premium is big enough, it will be easier to obtain the 80% agreement.”

 

‘Equality of price, no equality of profit’

The difficulty in finding a replacement home is real, however, especially for the collective sale beneficiaries that have only one property. “Collective sales frequently happen when there’s an uptick in market prices,” says Adrian Tan, partner of litigation and dispute at TSMP Law Corp. “Sellers receive the actual sales proceeds two years later, and they are buying their replacement units in a rising market.”

 

TSMP Law's Tan: The seller's stamp duty has to be paid even if an owner did not agree to the collective sale (Credit: Geoff Tan)

 

Offering a different perspective to a collective sale, Tan adds, “Collective sales are carried out because some owners want to sell at a larger profit than they otherwise could in the open market. In doing so, they are forcing other people to sell, and are infringing on their property rights as well as disrupting their lives. And the profit motive brings out a lot of ugliness in the process. There’s no equality of profit, just equality of sale price.”

It is usually very exciting within the first one or two months of a collective sale, and this is where most projects secure 40% to 50% of the owners’ consent. “And then it stalls because people start asking questions,” notes Tan. “The process is very long drawn out, and it sometimes takes several months to secure the 80% majority to sign the CSA. Some people who have signed at an early stage may regret later.”

Sometimes, the issues are personal. For instance, a family may have purchased a home in a specific condo because it is about 1km from a school they want their child to be enrolled in. The child obtains entry into the school, and the condition is that they have to remain at that same address for at least a year after the child starts Primary 1, but then they are forced to move out because of a collective sale, says TSMP Law’s Tan.

Some people buy homes within 1km of top schools that they want their children to be enrolled in, for example, Anglo-Chinese School (Barker Road), St Nicholas Girls' School (pictured) or Nanyang Primary School (Credit: Samuel Isaac Chua/EdgeProp Singapore)

 

Persuasion

Another concern in a collective sale is also the seller’s stamp duty, which has to be paid. This affects recent home owners who purchased their units before the collective sale was launched. “SSD has to be paid even if an owner did not agree to the collective sale,” says TSMP’s Tan. “And the SSD is paid directly to the government, out of the owner’s sale proceeds, so the owner effectively receives far less than his or her neighbour.”

There were also some owners at Faber Garden who bought their units in 2017, who may be affected by SSD. To persuade owners who were sitting on the fence about the collective sale, as Faber Garden’s CSC chairman, Chiang decided to adopt a personal approach. “I enjoy writing, and I personalised each note to the individual owners,” he says. He purchased Conqueror brand’s quality stationery for that purpose, and even the envelopes were handwritten. “I believe that’s the correct strategy because some owners do not like people knocking on their doors. But the handwritten letters did create conversation, and some of them started talking to me, and I explained why I did it.”

A fortnight ago, 12 of the 13 owners he wrote to signed the CSA. According to Chiang, the two ingredients for securing an 80% consensus are clarity and sincerity. CBRE’s Tan agrees. “Threatening or scaring people won’t work,” he adds. “Telling people that if they don’t sell now, they may have to wait another 10 years for the next collective sale cycle, or that the condominium is very old and falling apart will just make people more cautious because they will think you have an ulterior motive for wanting to sell.”  

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