All quiet on the collective sale front as deals stall over price gap

En bloc sale environment remains challenging over mismatch in expectations

Apr 05, 2023

A “GULF” in expectations has opened up in the en bloc sale market, with a price gap of up to 15 per cent showing between what developers will pay and what owners are asking.

Only a third of collective sales have succeeded in the current 2021/2023 sales cycle, down from the 63 per cent success rate in the 2017/2018 boom cycle, noted a Knight Frank report on investment sales in the first quarter, which was released on Wednesday (Apr 5).

There is now a price gap of up to 15 per cent from what developers are prepared to pay, because current en bloc prices were probably valued last year before interest rates and construction-related costs continued to rise, said Tan Hong Boon, JLL’s executive director of capital markets in Singapore.

Horizon Towers, relaunched for collective sale for the second time in February at an unchanged reserve price of S$1.1 billion, closed its tender on Mar 30 with no bids, he told The Business Times on Wednesday. The price for the prime District 9 site included an estimated lease top-up premium of S$277 million, and worked out to S$2,049 per square foot per plot ratio (psf ppr) for the 204,742 sq ft plot.

Freehold site Trendale Towers, which was put back on the market for the third time last December at a reserve price of S$168 million, also closed its tender on Jan 12 with no bids, said Savills Singapore’s deputy managing director Galven Tan. The price tag for Trendale Tower, also in District 9, worked out to S$2,257 psf ppr, after factoring in a 7 per cent bonus gross floor area (GFA) for balconies.

A third prime plot, Orchard Bel Air, reopened its tender in January at S$587.5 million; it is still in private treaty talks following the close of the tender on Mar 1, said Knight Frank’s head of capital markets (land and collective sale) Chia Mein Mein.

The guide price for the District 10 parcel translates to a land rate of approximately S$2,620 psf ppr, after factoring in a lease top-up premium of about S$136 million. Including the 7 per cent bonus GFA allowed for balconies, this translates to approximately S$2,551 psf ppr.

Current prices for prime District 9 and 10 condos go up to about S$4,500 psf for a Nassim Park Residences unit sold last week, with the bulk of transactions in March 2023 coming in the S$2,200-S$3,300 psf range.

Homeowners’ price expectations have gone up as prices of private residential homes shot up by 20 per cent to 30 per cent over the year. Those who let go of their property in an en bloc sale are finding that their cost of replacement has inflated a fair bit – and is likely to continue increasing, said Chia. The Urban Redevelopment Authority price index has risen a cumulative total of 24 per cent from the most recent trough in the first quarter of 2020 to the fourth quarter of 2022.

Developers, on their part, will continue to be “very, very cautious” for this quarter and the next, said JLL’s Tan, even though their inventories may be low and they remain on the lookout for land to bank. High interest rates and rising construction costs are holding them back.

Several sites are on the table in both the residential and commercial segments. In February, 99-year leasehold commercial building Shenton House was put up for sale at a reserve price of S$590 million; Excelsior Hotel and Shopping Complex also launched a sale bid at a reserve price of S$458 million.

In the residential sector, freehold Hong Heng Mansions went on the market for a S$133 million reserve price in February, and 999-year leasehold Charming Garden made a second attempt last month, but kept its guide price unchanged at S$175 million. (*see amendment note)

On Wednesday, a freehold residential site at 64 Wilkie Road was relaunched for sale at a reduced guide price of S$10 million. The earlier tender, which marketed the five-unit block with the neighbouring 62 Wilkie Road at S$19.5 million, had closed with no bids.

Savills’ Tan noted that the new harmonisation of floor-area definitions by the Urban Redevelopment Authority, the Singapore Land Authority, the Building and Construction Authority and the Singapore Civil Defence Force is likely to have the biggest impact on pricing, compared to other factors such as rising construction and labour-related costs. This is because developers’ saleable area will be reduced.

PropNex’s head of investment and collective sales Tracy Goh pointed out that the resale market for owners is still “very strong and optimistic”, compared to the lowered bids from developers.

“Sellers are generally not eager to sell, because if they sell at a lower price, they have to buy a replacement at a higher price anyway, so they are not that keen,” she added. “If there is no buyer for their en bloc sale, sellers just wait for a better time to launch a collective sale again. They are not likely to reduce the price.”

Savills’ Tan said sellers with a higher en bloc premium of about 50 per cent to 60 per cent may consider a lower price if they can still achieve about 40 per cent to 50 per cent of the premium – even with a lowered price. The en bloc premium refers to the difference between the en bloc offer price and the resale market price of units.

But for projects with a very lean collective sale margin – say, between 30 per cent and 40 per cent – it might be difficult for sellers to accept a lower price in light of the high replacement costs, he added.

JLL’s Tan said motivated owners and smaller projects with fewer owners may be able to accept a lower price, although those looking to require a replacement property may still not budge.

But eventually, when the market and interest rates stabilise, and new sale prices continue to rise, developers may have to raise their bids accordingly, he said.

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