Collective sales remain a relevant option for property owners to exit from their ageing assets and for developers to replenish their development pipeline, despite the current standstill in the en bloc market.
But an expectation gap is continuing to impede en bloc deals.
Sellers who are still hoping to strike rich overnight through an en bloc do not seem to have awoken to the new market reality. Developers, on the other hand, are looking for a higher risk discount now to mitigate the headwinds in property development given the softening market.
It is inconceivable that buyers (developers and landlords) are going to pay anywhere close to outrageous sums for development land, unless it makes economic sense.
Developers were more willing to pump in “what seemed like astronomical sums” in the past due to the intensification of development potential and change in land use zoning for many sites. This is no longer the case now.
Year-to-date, there is no en bloc deal that has successfully taken place, the consultancy observed. Many rounds of government cooling measures to curtail speculative activities have not only taken the froth out of the property market but also taken the steam out of collective sale activities.
The success rate of a collective sale attempt has fallen to 33 per cent last year, compared to 41 per cent in 2012. This means that only three in every 10 en bloc sale attempts last year were successful.
The freehold Tanglin Shopping Centre in Orchard district is back on the en bloc market since late last year. Millennium & Copthorne Hotels plc, which owns 34 per cent of the shopping-cum-office complex, put the property back on the market in the fourth quarter of last year when it signed the collective sales agreement with other selling unit-holders.
The reserve price for Tanglin is said to have come down to S$1 billion or S$3,190 per square foot per plot ratio. Media reports last year had cited a reserve price of S$1.25 billion for the freehold site of about 68,512 sq ft, which some analysts considered steep.
BT understands that owners of Tanglin Shopping Centre are in the midst of gathering the requisite consent level to launch a collective sale.
As new shopping malls and grade-A office buildings spring up, owners in a strata-titled single-use or mixed-use development can consider the en bloc route to dispose of older assets and upgrade to a better business environment.
Strata-titled retail malls, which are often characterised by a lack of tenant-mix control, are also potential candidates for en bloc, such as Serangoon Plaza, which houses a branch of well-known retail giant Mustafa and was sold en bloc last November for S$400 million.
Similarly, owners of ageing residential assets are still likely to achieve better prices through en bloc and tuck in tidy profits compared to selling their units piecemeal.
Spring Grove condominium in the prime Grange Road area was launched last month for sale by tender with an asking price of more than S$1.39 billion – a level that many consultants regard as “ambitious” vis-a-vis Farrer Court’s record S$1.34 billion en bloc sale in 2007.
Source: Business Times – 21 August 2014