Time for CDL to unlock value of Swiss Club Road GCB site

Aug 26, 2021


AT CITY Developments (CDL)'s recent results briefing for the first half of FY2021, its group chief executive officer, Sherman Kwek, said the group will find ways to increase its exposure to Singapore's high-end residential market given the strength of this sector.

"We do see that luxury has so far remained strong," he added, citing the example of the Good Class Bungalow (GCB) market's performance. "Although we don't really play in that market, if you look at the GCB market it has gone from strength to strength over the last two years. Despite the pandemic, despite so-called 'no viewings', GCB transactions have gone up to record volumes and record prices."

An analysis of URA Realis caveats data, done by List Sotheby's International Realty, showed 66 transactions in GCB areas totalling S$1.98 billion since the start of this year (with the latest transaction dated Aug 11). This has surpassed the 46 deals totalling S$1.09 billion for the whole of last year.

Mr Kwek made that observation as part of his response to a question on whether it was time for CDL to grow its prime residential landbank.

Bungalows in the 39 gazetted GCB areas have to comply with stringent planning conditions stipulated by the Urban Redevelopment Authority to preserve their exclusivity and low-rise character. Among other things, a minimum plot size of 1,400 square metres (about 15,070 sq ft) is stipulated as the planning norm for newly-created bungalows in GCB areas.

One generally has to be a Singapore citizen to be allowed to acquire a landed property in a GCB area.

If CDL is keen to ride on the GCB buying fervour, which has been fuelled by high liquidity and strong demand from both well-heeled locals and new Singapore citizens, it need not look very far for land. The group has in its landbank a sizeable freehold plot in the Swiss Club Road GCB area.

The property is listed in CDL's annual report as 15,19 and 21 Swiss Club Road, covering an area of 215,429 sq ft.

CDL took more than a decade to acquire the land.

The property has been carved into 13 GCB plots in a back-to-back configuration; the plots face either Swiss Club Road or Jalan Kampong Chantek. There is also a plot for road widening and another for a substation.

CDL appears to have acquired this asset in at least three stages. The initial portion of 77,113 sq ft was picked up a long time ago. The group has never disclosed when it bought this or how much it paid for it, although a media report in March 1996 suggested it could have been at S$50 psf.

In March 1996, just two months before the government unleashed cooling measures to douse a raging property-buying fever, CDL won a bid for Goodyear Tyres' 94,199 sq ft plot at Swiss Club Road for S$46.5 million or S$494 psf.

Nine years later, CDL purchased 42,270 sq ft at a much lower price of S$303 psf (for a total of S$12.8 million). That was in July 2005, soon after the 2003-2004 trough in private home prices.

By some market watchers' back-of-the-envelope calculations, CDL could have paid on average about S$300 psf for its Swiss Club Road site.

GCB potential

If CDL chooses to unlock the value of its Swiss Club Road property, it can go about this in a few ways. One would be to sell the 13 bungalow plots. If sold individually to potential end-users looking for land to build their own bungalow, the plots could fetch between S$1,500 psf and S$1,700 psf on land area, according to estimates from Realstar Premier founder William Wong. Other market watchers, however, suggest a lower price of S$1,500-1,600 psf.

If the entire site of 215,000 sq ft were to be put up for sale at one go a developer could still be prepared to pay S$1,300-1,500 psf, said Mr Wong. But another seasoned observer put a lower price of about S$1,200 psf, to provide a buffer for the developer to manage the risk of having to complete and sell the new bungalows within the timeframe stipulated by the authorities.

Another option would be for CDL itself to develop the individual bungalows on the 13 sites for sale. This option potentially offers the biggest upside for the group.

But those paying, say, S$35-40 million or even more for a new bungalow in Swiss Club Road or Jalan Kampong Chantek would probably not want to live in a house that looks the same as their neighbours' homes. Here, there is room for CDL to custom build according to the individual buyer's design, space usage, layout and other preferences - for example, whether to allocate room for four cars or 10 cars in the basement, how big the wine cellar should be, and whether an entertainment room can be packed in as well.

The appeal to the individual buyer of entering into such an arrangement with an established residential developer such as CDL, compared with acquiring their own individual plot of land and developing it themselves, is that CDL can reap economies of scale - in terms of construction costs, for instance. It can also offer buyers access to a panel of, say, three or four reputable architects, along with interior and landscape design firms, and develop each bungalow according to the respective buyer's specifications while overseeing the entire process and ensuring each home is built to a high standard.

Such a tailor-made offering should be well received. The current dearth of brand-new, move-in condition GCBs, coupled with buoyant sentiment, presents a good time for CDL to cater to this demand.

The good thing about CDL's Swiss Club Road property is that it is not subjected to Qualifying Certificate rules. Because CDL acquired the site prior to the introduction of the additional buyer's stamp duty in December 2011, the site is not subjected to regulatory deadlines to finish developing the residential site and selling all the bungalows on the site.

Creating value for shareholders

CDL could simply choose to continue sitting on the Swiss Club Road land with an eye on further price appreciation. But that does not generate any yield or returns from this asset in the meantime. Although GCB land prices on the whole could continue to rise, the increase will not be the same in all locations.

Since the start of the year, the biggest GCB price gains have been in the areas closest to the Singapore Botanic Gardens - such as Nassim Road, Cluny Park, Cluny Hill and, Dalvey Estate - as well as those near Orchard Road such as Chatsworth Park. "These are the most sought-after prime GCB locations and transacted prices this year are up to 40 per cent higher than they were in early 2020," said Mr Wong.

Over the same period, locations further away such as Binjai, Yarwood and King Albert Park have seen prices rising about 25 per cent, he added.

Prospects for price gains for CDL's property in the Swiss Club Road/Jalan Kampong Chantek locale may be more limited vis-a-vis the prime locales.

Like many other long-time property owners in GCB Areas, the group should consider unlocking the value of the Swiss Club Road land as part of a strategy to accelerate capital recycling, free up cash for acquisitions and lower its gearing to optimal levels.