IOI's lone bet on Marina View is on an endemic future, 7 years on

Being the only bidder in a government land tender does not mean the winner is being foolhardy

Sep 30, 2021



A KEY source of acquiring land for development in Singapore is via participating in government land tenders. Typically, bidders submit their bids by a stipulated deadline with the highest bidder prevailing.

Behind the scenes, bidders would be furiously running numbers and getting supporting market data to see what bid price can be justified.

But determining the bid price is also a bit of an art. Bidders may try to get a sense through their networks as to who else may be bidding and refine their bid price, especially when a bidder is very keen to secure a site.

Generally, an ideal outcome is to win in a tender where there are a number of participants by a narrow margin.

Earlier this year, the tie-up between City Developments Ltd (CDL) and MCL Land won an executive condominium site in Tengah by a razor-thin margin of 0.03 per cent versus the next bid.

When the tender closed this week for two residential with commercial at first storey land sites at Slim Barracks Rise, each site drew ten bids. The top bids were 1.3 per cent and 2.4 per cent higher than the next bid.

So in a Singapore market where developers are hungry for sites, market watchers were naturally caught off guard when a unit of IOI Properties was the sole bidder for a white site along Marina View - a site earmarked largely for private residences and hotel use - earlier this month.

Perhaps excitement was mixed with nervousness in IOI’s boardroom when the Urban Redevelopment Authority (URA) awarded the Marina View site to IOI on Wednesday.

There are numerous seasoned and financially strong local and foreign property players with deep experience in Singapore’s Central Business District (CBD), yet no one else submitted a bid for the Marina View site.

IOI may have secured the site but its board will not be able to draw comfort from knowing who else wanted the site and at what price.

Even though there is only one bidder for the Marina View site, it is good that the URA has awarded the site.

This 99-year leasehold site with a maximum gross floor area of 101,629 square metres (sq m) or around 1.09 million square feet (sq ft) was on the Reserve List of the first half Government Land Sales Programme. It was released for sale after the URA announced in June that the government deemed the minimum price of S$1.508 billion that an unnamed developer had committed to tender for the land parcel as acceptable.

Just over three months after being told the government found the minimum price acceptable, it would not have made sense to turn down IOI’s sole bid of S$1.508 billion or S$1,379 per square foot per plot ratio (psf ppr), which was just S$101 more than the minimum price.

Possibly, the site could have fetched a higher price if it was not awarded and instead released for sale in the future.

But the acceleration of the CBD’s transformation into a more mixed use precinct with a higher residential component will be helped by the development at Marina View with its minimum of 51,000 sq m for residential use, which could translate to 905 homes.

Market watchers have suggested that other groups could have been put off from bidding for the Marina View site by the huge total development cost, which could reach around S$2.3 billion. Major construction uncertainties due to supply-chain disruptions caused by the pandemic and manpower shortages would also raise the risk profile of this project.

Perhaps the biggest draw back with the Marina View site is the large minimum hotel component of 26,000 sq m, which could translate to 540 rooms.

Betting on endemic Covid-19

The hospitality sector is badly affected by the pandemic, particularly in places like Singapore where demand for hotel rooms is very much dependent on international travel, which has yet to resume in a significant way.

But being the only bidder in a government land tender does not mean the winner is being foolhardy.

A residential with commercial at first storey site in Silat Avenue was awarded to its sole bidder, namely a consortium comprising UOL, UIC and Kheng Leong Company for S$1,138 psf ppr in 2018.

The project being developed on this site, Avenue South Residence, has sold 819 out of the total 1,074 units or over 76 per cent of total units as of August. Median prices of units sold in August was S$2,257 psf.

Uncertainties over construction costs will likely linger but this affects all projects not just large ones. Moreover, in time, with the joint efforts of the government, developers, contractors and suppliers, perhaps construction costs and timelines can be better managed.

The current strength in the private home market should lend support to the residential component of the future Marina View development.

The challenge will likely be to get the unit mix right, having the balance between smaller units with smaller absolute price tags that may appeal to local investors and singles or couples, and larger units that are popular with some wealthy foreigners.

As for the hotel component that may have deterred other groups from wanting to snare the Marina View site, could the hotel when completed actually prove to be IOI’s trump card?

IOI has experience in the hospitality segment. The URA has stipulated a seven-year project completion period for the Marina View site – compared with the usual five years for a typical residential development site.

The hospitality sector may now be in the doldrums. But a new hotel that opens say seven years from today may well be opening in an environment where international travel has bounced back briskly.

With the government’s efforts to support business travel, leisure tourism and meetings, conventions, incentives and exhibitions, Singapore may be a safe and attractive destination for travellers.

It will not be straightforward to reconfigure an existing hotel to meet the needs of travellers living with endemic Covid-19.

IOI has the opportunity to conceive a hotel in a central location from ground zero to potentially be the best in class for wellness, air quality and environmental sustainability.

Bursa-listed IOI has been generating unexciting return on equity in the low single digits in each of the last three financial years.

With the addition of the Marina View site, the group is increasing its exposure to Singapore. Here, it has a 49.9 per cent stake in South Beach and is developing IOI Central Boulevard Towers in Marina Bay, which has a large office component and a total net lettable area of around 1.28 million sq ft.

With its footprint in the CBD, IOI may be in a position to launch a real estate investment trust in Singapore soon.

In time too, the group may be rewarded for boldly undertaking a new hotel development, finding light amid the grey and gloom of the hospitality scene right now.