Developers may baulk at price of larger collective sale sites

Larger and more collective sales are in the pipeline as home owners attempt to cash in on the hot property market – but experts say the actual number of successful sales might disappoint.

Hawaii Tower along Meyer Road along with former HUDC estate Pine Grove are among those in the latest batch to have secured the necessary 80 per cent approval from residents. Also more than 53 per cent support has been secured so far in the collective sale process for Pearl Bank apartments in Outram.

The reserve price for Hawaii Tower’s 192,340 sq ft plot, which was originally developed in 1984, has been set at $700 million.

This excludes a development charge of $55 million which, when included, works out to about $1,402 per sq feet per plot ratio. This is the freehold development’s third collective sale attempt. The tender is expected to open early this month and close at the end of next month.

Pine Grove was reported to have been put up for collective sale at a record-breaking $1.7 billion reserve price, after it achieved the crucial 80 per cent approval last month.

More collective sale tenders are expected in the first half of next year. However experts say a wide gulf could be opening up between owners’ asking price expectations and what developers are willing to pay.

They add that high reserve prices and the bumper release of state land in the government land sales programme might reduce demand from developers cautious after the Government’s recent property cooling measures.

Karamjit Singh, managing director of Credo Real Estate, said that while some collective sale projects set reserve prices in line with the market, others could seek the comfort of higher prices to assure themselves of sufficient profit to purchase replacement homes.

Even then, those that start off realistically may find themselves needing to raise the reserve price midway to win the 80 per cent approval, he added.

EL Development’s Lim Yew Soon said that large quantums for mega sites were risky for single developers and would mostly price out small to mid-sized developers.

Development charges have increased substantially and the new rules regarding the completion period for developers with foreign shareholders would place further downward pressure on what developers are willing to bid, he added.

The proposed amendment to the Residential Property Act early next year will apply to private projects developed by developers with at least one foreign shareholder or foreign director – effectively covering most listed developers.

Such projects, built on residential sites bought from private-sector sources including collective sales, will in future have to be completed within a stipulated period. If not, developers could not only lose their bankers’ guarantees but would also have to pay the state for any time extension.

DMG & Partners property analyst Brandon Lee said these amendments are more likely to affect prospective collective sales.

‘Developers who now acquire (collective sale) sites will effectively have their building period cut down from seven to five years. As such, we reckon this could act as a further dampener to the still-sluggish (collective sale) market, where developers replenish their mid- and high-end land bank,’ he noted.

But property market watchers say developers are often keen on such sites as they provide an opportunity to purchase freehold land in prime locations, unlike those from the government land sales programme, which are on 99-year leases.

CapitaLand chief executive Liew Mun Leong said last week that it was ‘a possibility’ that CapitaLand could be interested in bidding for the Pine Grove site.

Although the plot is attractive, the price tag of $1.7 billion is a hefty one and the group might consider tying up with partners to bid for the site.

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