Reality check for 99-year lease top-up assumption

http://www.businesstimes.com.sg/sub/...82026,00.html?

Published June 4, 2008

Reality check for 99-year lease top-up assumption

Recent decisions show such extensions not a given as govt retains planning flexibility

By KALPANA RASHIWALA


(SINGAPORE) The market used to assume that the government would top up leases for sites to 99 years as they came up for redevelopment. A series of recent decisions - in which the authorities either declined lease top-ups or allowed them, but for shorter tenures - have put a big question mark over that assumption.

Property players say these decisions could have an impact on investment sales of 99-year leasehold properties or at least the way such deals are structured.

In January, when the proposal for Market Street Car Park's redevelopment into an office tower was made public, owner CapitaCommercial Trust revealed that the authorities declined to top up the lease for the site, which has another 65 years to run.

More recently, the market learnt that the former Crosby House site at 71 Robinson Road - which is being built into a new office block - had its lease topped up in April last year, not to the usual 99 years but 85 years and 10 months instead. This was apparently to match the remaining lease term of SIA Building next door.

BT understands that no lease top-up was granted for Marina House last year, which is proposed to be redeveloped, although HMC Building nearby (being developed into Lumiere condo) got a lease top-up to 99 years earlier. Sources say another building at Cecil Street has also had its lease top-up application rejected. Again, the Urban Redevelopment Authority (URA) may have plans for the streetblock where it is located.

In recent years, the government has topped up leases of nearby sites to the original 99-year term, including 1 Shenton Way (being redeveloped into One Shenton), NatWest Centre (being redeveloped into The Clift) and HMC Building.

The recent decisions appear to run contrary to the perception that the government would generally agree to top up leases of such sites to the original 99 years, so long as the planned redevelopment scheme is in sync with URA's long-term vision for the area.

Instead, Singapore Land Authority (SLA) said: 'The government will generally allow leases to expire, without extension.' It noted that 'the state generally sells land on leasehold to allow it the flexibility to reallocate land to meet socio-economic needs.'

'However, the government has considered and allowed lease extensions based on whether the proposed redevelopment is in line with the government's planning intention and long-term development plans, and factors such as whether there would be significant intensification, or greater optimisation in land use. That remains the government's policy,' SLA said.

SLA evaluates each application on its merits and in consultation with the relevant agencies. The specific circumstances of each development dictate whether it should be given a lease extension - and for how long.

Market Street Car Park's lease was not topped up 'as there is a need to retain planning flexibility over the future development of the site', SLA said.

URA said it evaluates requests for topping up leases based on 'a range of planning considerations in relation to the specific location and context of the area'. This approach gives 'the state flexibility to review the longer-term plan for the area, as and when the existing leases expire or come in for extension in future, and to reconfigure the parcels, if required, to provide for better land utilisation', it added.

In the Central Business District, for instance, the considerations may vary from streetblock to streetblock, URA said, when queried about the unusual lease top-up to 85 years and 10 months for 71 Robinson Road. 'This lease period is sufficient to allow for the owner to redevelop the site to a new modern office building,' URA added.

DTZ executive director Ong Choon Fah said: 'In the past, the government may have been pretty liberal in topping up leases. Now, they've to think of Concept Plan 2011 and how to accommodate a long-term population of 6.5 million people.

'So they have to be more creative and safeguard land for the future, by having a common lease expiry period.'

The head of a property consulting group said: 'URA's probably doing a housekeeping exercise of trying to coordinate lease expiries of buildings in the same streetblock, to give themselves some flexibility. So they may ask: 'What's the longest remaining lease in this block? Let's now try, going forward, to have leases in this streetblock expire at the same time, so that in future, if we want to do anything, we'll be able to do that.'

DTZ's Mrs Ong observes: 'There are many pencil buildings on tiny plots in the CBD. It would be more efficient if the government has common lease expiry periods for adjacent plots so that they may amalgamate them into bigger land parcels and resell them in future.

'It's more efficient to intensify land use for bigger land parcels. Globally too there's a trend of mixed developments, with a live, work, play environment. It's more environmentally friendly and reduces commuting time. For that too you need bigger sites.'

http://www.businesstimes.com.sg/sub/...82025,00.html?

Published June 4, 2008

Uncertainty over lease top-ups may affect sentiment

Govt may approve shorter extensions or not top up leases

By KALPANA RASHIWALA


(SINGAPORE) The government's recent decisions to either not top up leases of some leasehold sites to the original 99-year term or to approve shorter lease extensions could affect sentiment towards investment sales of such properties.

The decisions may have implications for the likes of other leasehold properties such as DBS Building, UIC Building and Shenton House, market watchers say. 'We can't take it for granted that the Government will agree to extend leases for sites it had sold in the past to 99 years,' an investment sales veteran said.

While some may be tempted to hold back investment sales deals, a property consultant points out that in reality, the economic life of an office building is probably about just 40 years. 'It's just the emotional thought of being stuck with say just 60 years lease, that may make some potential investors reluctant to redevelop a property,' he added.

Knight Frank executive director Foo Suan Peng added: 'If an investor is planning to develop a new office block and hold it for rental income, he may not necessarily be deterred if he receives a shorter lease top-up or even no lease top-up on the site, since the rental income from the new office block would not vary according to the site's leasehold tenure.

'However, for residential collective sale sites, a potential developer may find it tough selling a new condo built on a plot with a remaining lease of say, 70 years or 80 years, in the Singapore context. If he develops the plot into serviced apartments or apartments for lease, though, it may still be a viable proposition.'

DTZ executive director Ong Choon Fah did not think the government's decisions would scare away investors. 'The shorter lease-term will be priced into the property. The return has to be recouped within the allowed lease period. What would be good is if investors had clarity on lease top-ups; if you know the risk, you can manage the risk.'

There were calls to take some precautionary steps before inking deals, especially for collective sales of residential sites.

'Buyers and sellers should check with the authorities about lease extensions before they agree to anything. The authorities for their part should also come up with clearer guidelines on lease top-ups,' says Credo Real Estate managing director Karamjit Singh.

Agreeing, Knight Frank's Mr Foo said: 'If there's an element of risk that the lease may not be topped up, the buyer will factor this into his pricing. One way to eliminate this risk, would be for the buyer to make the deal subject to the lease being topped up to 99 years.'While that would be one option, Credo's Mr Singh argues: 'It does not cover a situation where the authorities may agree to extend the lease, but not to 99 years. 'Practically, it would be difficult to impute a formula to recalibrate the sale price depending on the number of years that SLA approves for lease extension.'

Instead, Mr Singh suggests 'that where the redevelopment proposal is in line with the Master Plan, Singapore Land Authority consider processing an in-principle application for a lease upgrade without a need for the applicants to first obtain an outline planning permission (OPP) from Urban Redevelopment Authority'. An OPP may cost anywhere from $5,000 to $100,000, or even more, depending on the size of the proposed redevelopment project - and owners, especially in a residential collective sale, may find this a costly upfront payment.

In early 2005, history was made when Eng Cheong Tower in the Beach Road area became the first collective sale of a 99-year leasehold property. Paving the way for the deal was an unprecedented decision by SLA to grant in-principle approval to top up the site's lease to 99 years before the site's sale.