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Market is segmented and upswing confined to selected projects, say property watchers

HOMEOWNERS thinking about cashing in on their properties through the hot collective sale market should not assume that every sale would fetch handsome returns.

Property consultants say that despite the recent highs reached for collective sales of properties, it is not an across-the-board phenomenon.

The recent sale of Eng Lok Mansion along Napier Road made waves, as the freehold property went for $138 million or $1,218 per sq ft per plot ratio (psf ppr) - making it the most expensive collective sale site ever. Far East Organization’s $120 million, or $1,058 psf ppr land price last month, for Angullia Mansion also created a stir, as its price was 65 per cent higher than the $643 psf ppr that Wheelock Properties paid in December for Angullia View, just opposite Angullia Mansion.

A check of successful collective sales transactions that were publicly announced this year showed that over $1 billion worth of property, or around 10 sites, has been sealed to date. Over 25 sites have been launched for collective sale so far this year.

Owners excited

Knight Frank’s executive director Foo Suan Peng estimates that 50 to 60 estates are considering going down the collective sale route, although not all will eventually take off.

‘Because of a few high profile sales, owners are getting excited. Because they get excited, everybody starts exploring and putting their estates on the market,’ he says.

Investment sales of property are seen by developers and big investors as a bellwether of confidence in the real estate market in the medium to long term.

While there’s no denying that the market has taken a turn for the better, property watchers cautioned that it is still segmented and confined to selected projects.

As they say, property is all about location, location and location. But home sellers in the prime district 9 and 11 areas can’t guarantee that developers will necessarily bite when offers are made.

‘When you say prime, it must be around the stretch from Scotts Road and Orchard Road vicinity. Some district 9 and 11 are not that fantastic,’ Jones Lang LaSalle’s regional director and head of investments Lui Seng Fatt said.

He notes that some homeowners are seeking prices northwards of $1,000 psf ppr, which is not always realistic.

‘Angullia Mansion by itself has factors that others cannot provide, because of its address, its being next to Four Seasons Park, and so on,’ he explains.

But already industry insiders see a glut of collective sale candidates. ‘To a certain extent, developers are inundated with sites. Over the next few months, they will perhaps become more choosy and the success rate will decrease,’ cautions CB Richard Ellis’ executive director Jeremy Lake.

Still, developers will compete for good sites as they look to replenish their landbank, especially before land prices rise even further.

‘There’s strong demand for good sites, so there’s competition, which means that the price you pay may not be determined by what the owners want but what the next guy is going to bid,’ Mr Lake says.

Besides the sale of Amberville, also to Far East recently, Mr Lui expects collective sales of other HUDC sites to be tough as developers don’t favour large sites.

The strategy, he says, is for developers to go for sites with half a million sq ft of potential gross floor area or less, so that the project can be sold in one phase and the developers can move on to another project.

With the recent hike in development charge rates announced last month, property consultants say breakeven costs for developers are affected. The costs may be absorbed by the properties’ buyers for a coveted site, but sellers might be forced to bear part of the burden when the collective sale market becomes a buyer’s market.

Still, the consultants believe that the market fundamentals are there to allow the collective sales market to keep growing, albeit largely confined to the top-end market.

Foreign buyers

It helps that there is foreign buyers’ presence. Knight Frank’s Mr Foo believes that foreigners’ willingness to buy will boost developers’ confidence in offering higher land bids.

‘The presence of foreigners in the market, whether they be buyers of new units or whether they be buyers of land, is a sign that the market is strong,’ CBRE’s Mr Lake concludes.

Source : Business Times - 9 Mar 2006