ERA Daily Research - 27 April

En bloc punts in play, but price gap threatens to spoil the party

The Business Times, 25 Apr 2021, Tue

By Fiona Lam

MORE properties could soon be put up for sale en bloc, as unit owners hope to cash in on resilient real estate prices in Singapore and developers' growing appetite for land.

But consultants are seeing "a mismatch in price expectations". That means deals might be slow to close or fall through entirely. Given this, potential buyers flocking to the collective-sale market should take pause.

Residential, commercial and mixed-use projects across Singapore are at varying stages of the pre-launch process. That includes those setting up their collective sale committees (CSCs), interviewing agents and lawyers, or working to obtain the required level of owners' consent. Developments in the midst of preparation include Spanish Village, Laguna Park, and City Plaza, BT understands.

JLL said this month that its capital markets team has, since the last quarter of 2020, received "significantly more enquiries" from projects that were starting to explore or were already undergoing preparations for en bloc sales.

Most of the projects that are now gearing up for launch had been unsuccessful in the last collective-sale frenzy in 2016-2018, said JLL Singapore executive director of capital markets, Tan Hong Boon, and senior director of research and consultancy, Ong Teck Hui, in a commentary published by BT just this month.

"With the shortage of land supply and keener interest from developers, many potential en-bloc sale owners are exploring whether this is the right time to try again," they wrote.

Showsuite Consultancy CEO Karamjit Singh told BT his team has received about three to five times more enquiries from en-bloc sellers this year, compared to last year. However, "many" projects were "assessed not to be viable at this stage", he said.

ERA Realty head of research and consultancy, Nicholas Mak, noted that many of the condominium unit owners eyeing collective sales were encouraged by the strong transaction volumes and prices of private residential properties since last year.

He observed activity among owners starting to pick up in Q4 2020, with extraordinary general meetings being conducted to elect CSCs. But most of the condominiums launched for en-bloc sale in the past six months have been small to medium-sized with an average reserve price of S$150 million, Mr Mak noted.

ERA group division director, investment sales and capital markets, Jeremy Chiu, estimated that more than 40 apartment, condominium and commercial projects in Districts 2 to 7, 9 to 11, 14 to 17, and 21 are preparing to go on the market.

On the demand side, interest has also grown as developers pare down much of their unsold stock and will likely look to the collective-sale market to replenish their land bank, Huttons chief executive Mark Yip said.

Colliers International senior director of investment services, Steven Tan, expects a revival of the en-bloc cycle this year, given that the unsold inventory of private housing stands at about 26,000 units, close to the last en-bloc fever's "trigger point" of 24,000 units in 2017. "With an annual average absorption rate of 8,000-10,000 units per year, the unsold inventory will be fully absorbed in 2.5 to 3.5 years," Mr Tan noted.

ERA's Mr Chiu said more than 15 developers and investment funds have contacted his team since January 2021 seeking information about potential en-bloc launches. They're mostly interested in bite-sized quantums of around S$30 million to S$100 million.

A few investors from mainland China and Hong Kong with "deep pockets" have also sought information on projects priced between S$200 million and S$500 million, said Mr Chiu.

In the previous collective-sale boom, many tenders did not culminate in deals because the buyers' offers fell short of the asking prices.

Between 2018 and 2020, more than 90 projects failed to attract bids above their reserve prices, PropNex's head of investment and collective sales Tracy Goh estimated.

Given this, marketing consultants have been advising some CSCs to lower their price expectations, BT understands. Unsurprisingly, they face resistance from certain owners, especially those who believe the recent uptrend in private home prices should justify higher land bids.

Showsuite's Mr Singh said that sellers whose earlier collective-sale attempts fell through are seeing the rise in resale condo prices, which erodes the perceived attractiveness and profits of pursuing an en-bloc sale.

And from the en-bloc buyers' perspective, stamp duties introduced in July 2018 have driven up developers' costs and risks. Construction costs have also climbed amid manpower shortages, Mr Singh noted.

The 2018 round of cooling measures - which pulled the brakes on the last en-bloc chase - included a 5 per cent non-remissible additional buyer's stamp duty (ABSD) for residential land purchases. Developers have to factor this into their computations of land prices, which could soften prices offered for en-bloc sites, JLL's Mr Tan and Mr Ong wrote in their commentary.

Another consultant told BT: "Developers don't dare to bid too much for land nowadays because of thinning profit margins, and the risk of any potential new cooling measures causing weak demand for private homes in the future. So there's sort of an impasse now in the en-bloc market between developers and sellers."

Such a pricing gap could be bridged more easily in the past collective-sale waves, as land prices were increasing. But this time round, fears and risks of policy changes are keeping land rates under tight control, Mr Singh said.

Mr Tan from Colliers highlighted the need to strike "a fine balance" when setting a reserve price.

"It must be able to encourage participation of unit owners, and also encourage interest and bidding participation from developers," he said.

Huttons' Mr Yip expects greater chances of success for smaller sites yielding 200 or fewer units. "It may be an uphill task for larger sites, which developers are less likely to stomach due to the uncertainty and higher risks of incurring ABSD," he added.


As en-bloc market heats up, agency space gets more crowded

The Business Times, 25 Apr 2021, Tue

By Fiona Lam

COMPETITION is stiffening among marketing agencies in Singapore's collective-sale scene, with both incumbents and newcomers eager to grab a piece of the action amid renewed buying and selling interest.

Fresh faces joining the crowded arena have, at times, pushed into the scene by undercutting rivals on the commission rates or terms of appointment. That has also meant them proposing "unrealistically" high reserve prices as they vie for jobs, agents told The Business Times (BT).

Promising fatter margins for sellers is one way agents may try to clinch appointments. But if a reserve price appears to be set too high for a deal to close, experienced players may pull out of the pitch, BT understands. On the other hand, when a project is "priced to move", about five to seven teams may clamour to win the appointment.

An industry veteran said: "It's sometimes a chicken-and-egg situation... you never know what's the real limit and whether this reserve price will actually push the market higher. Some 'gung-ho' agents may say they're confident of their proposed reserve price, but who's to say how realistic it really is?"

The growing competition in the industry has also threatened to compress commissions, with some newcomers quoting ultra-low fees. Broadly, rates in recent months have inched down from levels seen in the 2016-2018 en-bloc boom, and are also a far cry from off-peak periods in the market, consultants told BT.

In the simplest terms, typically, the higher the reserve price or the bigger the redevelopment's allowable size, the lower the commission. But when quoting their fees, agents also consider factors such as how feasible it would be to market and sell the project, the amount of expenses to be incurred, and whether this is the project's first en-bloc attempt.

Commissions today can go up to one per cent for small sites. Larger projects priced at S$500 million or more are estimated to garner commissions of 0.3-0.5 per cent, which may be further shaved down if more agents are jostling for the appointment. Quotations have even dipped to as low as sub-0.2 per cent in a few cases - rare as they may be, industry players told BT.

Given the shrinking deal sizes, fees may have come down, some agents said. Bigger sites were once in vogue; now, small and mid-sized ones are more palatable to buyers.

In the last wave which took place from 2016 to mid-2018, the bulk of commissions were observed to be around 0.25 per cent to one per cent. Some reached 2 per cent, for smaller projects priced below S$50 million.

Meanwhile, during off-peak periods in the market, commissions often hit at least one per cent and go up to 3 per cent. This occurs as it is harder to sell when developers are not so keen on collective-sale sites, a broker said.

The Council for Estate Agencies (CEA) does not fix commission rates nor provide commission guidelines. "This allows market forces to drive competitive pricing in the real estate agency industry and incentivise agents to price their services competitively. Consumers can then negotiate the best rates for the services they require," a CEA spokesperson said.

An agent told BT that experienced teams may drop a project if the commission is "unreasonably low" and "not worth our while".

Huttons Asia's head of investment sales Terence Lian said expenses incurred per project can "easily" run into five-figure sums and even exceed S$150,000, depending on the size of the redevelopment.

Such expenses can include advertising, land valuation, baseline enquiry, and engaging an architect for outline planning permission for certain sites. If a collective sale is unsuccessful, no commission is paid and expenses are not reimbursed. Given these factors, agents need to balance the risks and rewards, Mr Lian added.

Tracy Goh, PropNex head of investment and collective sales, said that with the hefty costs, marketing consultants should have "a level of confidence" before they pitch for a project.

In appointing an agency, some collective sale committees may decide to simply go with the lowest quotations. But cheaper is not necessarily better, as it may indicate scant experience and a lack of access to potential buyers, seasoned brokers said.

"The role of a marketing agent goes beyond placing newspaper advertisements... You also need to have reach and access, relationships with developers, and know how to handle the entire process to ensure compliance with legislation, come up with a fair method of apportionment, and so on," a consultant said.

Jeremy Chiu, ERA Realty group division director, investment sales and capital markets, noted that there have been a select few agents pitching for projects even though, in his words, they "only attended an en-bloc training course" and "don't know what to expect in the actual process".

"Some had trouble calculating numbers such as the development charge (DC), differential premium, and development baseline or maximum gross floor area," Mr Chiu said.

DC is levied when planning permission is granted to carry out development projects that increase the land value. In a collective sale, the agent usually provides an estimation of the DC, if any is payable, based on the baseline record obtained from the Urban Redevelopment Authority.

PropNex's Ms Goh said: "The first thing developers will ask the marketing consultant is how much DC is payable, as it needs to be factored into the land cost... If the actual land cost is uncertain, developers will likely lose interest."

CEA "takes a serious view" of those who do not act responsibly and professionally, including agents that provide inaccurate DC calculations for collective sales and fail to exercise due diligence, its spokesperson said.

CEA does not impose mandatory courses for specialised markets - such as collective sales - as it is up to agents and their key executive officers to decide on the courses that will support their learning and work. "Agencies have a responsibility to ensure their agents are adequately trained before the agents embark on estate agency work, including en-bloc sales," the spokesperson noted.


Cambodian-Chinese pair pays S$33.5 million for Hilltops penthouse

The Business Times, 25 Apr 2021, Tue

By Kalpana Rashiwala

SC Global Developments has sold another penthouse at its Hilltops condo in Cairnhill Circle, this time for S$33.5 million or S$3,995 per square foot on a strata area of 8,385 square feet.

It is being bought by Chen Liangbin, a Cambodian citizen, and Li Xiaoping, a citizen of China, BT understands.

The unit has five bedrooms with ensuite bathrooms, inclusive of the master suite which comes with a jacuzzi tub and walk-in closet. It also has a large balcony off the living area with views of the city and Marina Bay area.

This is the third penthouse in the completed freehold development that SC Global has sold, based on caveats data.

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In October last year, the developer sold a 6,372 sq ft penthouse for S$26 million (or S$4,080 psf) to Yu Yongfu, a Singapore permanent resident (PR) and a member of the Alibaba Partnership, as reported by BT at the time.

However that unit was sold with furnishings, unlike the latest penthouse deal at Hilltops.

Also sold on an unfurnished basis was the first penthouse transacted in the completed freehold project in late 2019; that was for a 7,728 sq ft unit that fetched S$25.08 million or S$3,245 psf.

SC Global is now left with just one penthouse at Hilltops, a 12,669 sq ft, five-bedroom unit with a dedicated private lift and four exclusive car park lots.

According to the grapevine, the price tag is about S$60 million.

All four penthouses at Hilltops are duplex units, with a main living area on the 20th storey, and a private pool and landscaped deck on the 21st.

The 241-unit project, which received Temporary Occupation Permit in 2011, stands on elevated ground and also has two-, three-, four- and five-bedroom apartments.

It is not known who brokered the recent S$33.5 million deal.

Knight Frank Singapore's head of residential project marketing, prime sales and leasing, Linda Chern said: "In tandem with Singapore's attractiveness among family offices, we observed in the first quarter of this year that both foreign and local homebuyers are looking for penthouses, or luxe apartments of at least 3,000 sq ft in prime areas."

According to Knight Frank's Wealth Report 2021, the number of ultra-high-net-worth-individuals (UHNWIs, with at least US$30 million net worth inclusive of their primary residence) in Singapore increased 10.2 per cent to 3,732 in 2020 from 3,387 in 2019 - despite the pandemic-led recession.

Jacqueline Wong, executive director and head of The Private Office at Savills Singapore, said that the luxe housing market here began regaining momentum late last year, with new Singapore citizens (typically from China) purchasing Good Class Bungalows (GCBs), while PRs and non-PR foreigners pick up penthouses and large apartments - mostly for their own use.

Ms Wong added that the strong buying demand for luxe homes has extended to the leasing market. "For the past couple of months, we have seen a shortage in supply of private residential properties for lease in general and more acutely, for GCBs, penthouses and luxe apartments. This is because more of such properties are either sold to buyers who require them for owner occupation or the owners themselves need the property as their home."

As a result, achieved rents in the past couple of months are about 10 to 15 per cent higher - compared with two years (the typical duration of leases) ago, she added.

The firm's executive director of research and consultancy, Alan Cheong, says: "Despite anecdotal evidence of expats relocating from Singapore due to job loss, the high-end private residential rental market has been heating up as UHNWIs from the region take refuge from the raging pandemic back home, where they fear being infected and not getting timely medical treatment due to a shortage of hospital beds.

"Some of those leasing upmarket homes in Singapore these days had already set up a family office here some time ago but were not that active. But with the pandemic, they are bringing almost their entire families here."

Urban Redevelopment Authority data released last Friday show that its overall private residential rental index rose 2.2 per cent quarter on quarter in Q1 2021, after inching up 0.1 per cent in Q4 2020.

The first-quarter rental increase was led by non-landed homes, especially those in prime areas or the Core Central Region, where rents surged 2.9 per cent in Q1 2021, contrasting with a 1.2 per cent drop in Q4 2020.

Analysts note that the rental gains come amid delays in housing completions last year due to disruptions in construction amid the Covid-19 outbreak. Only 3,433 private homes received Temporary Occupation Permit in 2020 - half of the 7,527 units in 2019.


Higher success rate for property auctions in Q1 as investors chase yields: Knight Frank

The Business Times, 25 Apr 2021, Tue

By Fiona Lam

THE first quarter of this year saw seven properties sold under the hammer at a gross sales value of S$13 million, out of a total 201 auction listings in Singapore.

This success rate of 3.5 per cent, based on auction listings, surpassed pre-Covid levels in 2019, when quarterly success rates had hovered between 1 per cent and 3 per cent, Knight Frank Singapore noted in a research report published on Monday.

The improved success rate came as auction properties "continued to garner interest among opportunistic retail investors looking for viable yields in a low interest-rate climate", the real estate consultancy said.

The 201 listings in Q1 2021 included repeat listings and excluded properties sold outside of auction, and were 28 per cent fewer than the year-ago period.

On a quarter-on-quarter basis, the figure kept largely steady from the 198 listings in Q4 2020. Auctions returned to full swing in the fourth quarter last year, following the lull during the Covid-19 pandemic when physical auctions were barred for most of last year.

By asset type, there were 67 retail properties put up for auction in January-March this year, increasing by 76.3 per cent from the 38 listings in the final quarter of 2020.

On the other hand, industrial asset listings dropped about one-third to 38, from 60 in the previous quarter.

Auction properties attracted heightened interest from buyers in the first three months of 2021 as the economy improved, the research report stated.

"Coming out of the recession, more local businesses and investors with private wealth are on the lookout for properties at auction," wrote Sharon Lee, Knight Frank Singapore's head of auction and sales.

The research team expects purchasing interest and enquiries for auction properties to grow in the coming months, especially from Singaporeans with an investment preference for holding real property instead of other alternative investment instruments.

Properties with unique characteristics - such as strata office space or landed homes - and those in good locations are more than likely to be sold under the hammer as buyer demand strengthens, it added.

"Other than commercial units with attractive opening prices, heightened interest in bigger-quantum landed sales is also expected, due to their limited supply motivating upgraders," Knight Frank said.

More auction listings are also likely to surface, especially in the sectors hit harder by 2020's pandemic-led recession, the consultancy noted.

Knight Frank predicted that success rates for the rest of 2021 could reach about 5 per cent of auction listings.

Meanwhile, by the type of sale, mortgagee sale listings totalled 122 in the first quarter of this year, making up about six in 10 of all auction listings.

Residential properties accounted for nearly half - or 56 - of mortgagee sale listings in Q1 2021. Buyers' interest in landed units remained "strong", with a semi-detached home along Aida Street changing hands at almost S$500,000 higher than the opening price, Knight Frank noted.

Industrial mortgagee listings declined to 25 in the latest quarter, from 41 in the October-December period last year. "Improved prospects and optimism in the industrial sector led to more enquiries and viewings, especially for industrial units with a relatively affordable quantum of below S$1 million," the research team wrote.

Retail assets put up for mortgagee sale totalled 41 in Q1 2021, up 64 per cent quarter on quarter and 57.7 per cent year on year. This is the highest quarterly total in Knight Frank's records, "as some investors struggled with mortgage payments", the firm said.

At the same time, opportunistic buyers remained active in the hunt for retail assets, with two units at Golden Mile Complex snapped up for a total of S$610,000 during the first quarter, "likely with a view to possible en-bloc potential", according to Knight Frank.

As for owner sales, listings increased slightly to 76 in Q1 2021, from 71 in Q4 2020.

More individual owners have and currently are divesting their properties through auction. In March 2021, there were 36 such listings, up from a monthly average of 22 from October 2020 (when up to 50 people were allowed at auctions) to February 2021.


Flexibility with China hires and more time among measures to help construction firms

The Business Times, 25 Apr 2021, Tue

By Janice Heng

CONSTRUCTION firms will get temporary flexibility in recruiting workers from China; an additional 49-day extension of time for eligible public sector construction contracts; and quicker payouts from the public sector under cost-sharing arrangements, in the first wave of additional measures to support the industry, the Building and Construction Authority (BCA) said on Monday.

Last week, border measures with India were tightened further due to the Covid-19 situation in the country, affecting the flow of Indian workers into Singapore and "companies in the construction sector that are dependent on them", said BCA.

On Monday, it announced three moves to mitigate the impact, adding that it continues to study more measures to help firms cope with rising costs due to labour shortage, with these to be rolled out progressively.

Construction firms welcomed the moves, but noted that the degree of mitigation would be limited.

From May 7, a temporary six-month scheme will let new work permit holders from China get their skills certification in Singapore, rather than having to first enrol in overseas testing centres (OTCs).

As some OTCs in China have yet to resume operations, not all prospective workers have been able to get the qualifications needed to enter Singapore as "basic-skilled" workers.

The temporary scheme will allow employers to bring in work permit holders from China without skills certifications, though they must comply with the other prevailing entry approval and work pass requirements.

Employers can submit applications to BCA's approved training and testing centres from May 7. The list of such centres will be made known within the next two weeks.

While this will help, it is already hard to get workers from China, as there is less interest in coming to Singapore now, said Koh Brothers group chief executive Francis Koh.

Kori Holdings chief executive Hooi Yu Koh said that some industry areas rely more on workers from other source countries, who have relevant skillsets. In his firm's area of structural steel and tunnelling, workers from China are relatively rare.

But with close to 90 per cent of its work in the public sector, Kori Holdings is poised to benefit from another measure. Government agencies will grant an extra 49-day extension of time to eligible construction contracts that have been delayed due to Covid-19 for the period Aug 7 to Dec 31, 2020, "to help ease contractors' cashflow and relieve anxiety on being unable to meet project timelines".

This is in addition to the earlier 122 days provided under Part 8A of the Covid-19 (Temporary Measures) Act. Contractors do not need to make claims for this additional extension.

"That is helpful because it will lessen the pressure that we are facing now," said Mr Hooi.

Mr Koh also welcomed this move, but added that the estimated delay due to Covid-19 is closer to six to nine months, with the labour crunch likely to make progress even slower.

Facing continued overheads, main contractors themselves "don't want to take so long" and would like support to finish projects earlier, said Mr Koh.

Third, for quicker disbursement of cost sharing of non-manpower-related costs under Part 8B of the Act, the public sector will provide 0.1 per cent of the awarded contract sum for every month of delay.

This is for eligible contracts up to an awarded contract sum of S$100 million. Contractors do not need to put up detailed substantiation on qualifying cost incurred for this 0.1 per cent. Those who wish to claim beyond the 0.1 per cent can continue to submit claims with substantiation.

"Details on the above measures will be shared with the construction sector once ready," said the BCA.

Julia Bensily, director of Prime Structures Engineering, said that language barriers can make it hard for firms to switch to sourcing workers from China, if their workforce is not already significantly from there.

She hopes that more of the future additional measures could apply to firms involved in private projects. Reductions or waivers of foreign worker levies would help firms cope with "massive manpower overheads incurred due to the delays", she added.


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