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Sellers are warming to the idea of nailing potentially higher prices amid bidding war

MENTION an auction to home owners a few years ago and most would conjure up a down-at-heel image of desperate mortgagees offloading their homes at fire-sale prices.

But like an HDB upgrade, the image has undergone an extreme makeover, with owners now seeing auctions as a fast and potentially more profitable way to sell their properties.

The number of residential properties going under the auctioneer’s hammer has surged over the years as Singaporeans warm to the idea of nailing potentially higher prices amid a bidding war.

Colliers International noted recently that 172 homes were auctioned off by owners last year compared with 156 in 2004. But the figures can be misleading as the actual sales do not reflect the trend towards auctions because many transactions are done after the hammer falls.

Auctioneers said interested buyers at the bidding may approach the owners privately to negotiate prices and conditions of the sale, despite the fact that a winning bid was not made during the auction. So while only eight homes were sold by auction last year for $7.81 million compared with 13 homes for $10.81 million, the year before, the actual sales were higher.

‘We are definitely seeing increased sales of properties sold by owners, but most are transacted after the auction,’ said Ms Grace Ng, Colliers auctioneer and executive director.

She said more owners see auctions as a quick and transparent way to catch the eye of a larger pool of potential buyers.

One such owner, who wanted to be known only as Mr Yong, said: ‘Your property gets more exposure when auctioned off by a large corporation that has a bigger contact base compared to individual agents.’

‘It is also more transparent, as you can see the bids,’ added Mr Yong, a businessman who auctioned a 18,000 sq ft bungalow near Coronation Road for more than $7 million last year.

More owners now recognise that the publicity generated by auction houses can help them score higher prices that make up for the additional costs.

It costs between $600 and $800 to auction a property. This covers advertisements, photographs, printing of the property’s particulars and rental of the auction room. This is in addition to auction charges of 1 per cent of the sale price, similar to what property agents charge. However, the auction fee may be waived for larger properties, said Ms Ng of Colliers. A goods and services tax charge of 5 per cent is also levied.

The headline-grabbing prices fetched by some homes, such as the $12.55 million bid for 49A Binjai Park, owned by former Citiraya boss Ng Teck Lee, have also shown how auctions can draw crowds of suitable buyers.

The attendance at auctions has been quite consistent, but recently, more people have been quicker to put up bids, said Mr Lee Tang Keat, Jones Lang LaSalle associate director and head of auctions and sales.

If a property fails to sell at the auction, usually because bids are below the reserve price, they are then put up for private treaty sale before being entered for a repeat auction.

Source : Sunday Times - 2 Apr 2006

Two real estate investment trusts (Reits) have just made their trading debuts on the Singapore Exchange with contrasting fortunes.

Pan-Asian service residence Reit, Ascott Residence Trust (ART), closed trading yesterday at $1.15 per unit, giving shareholders of The Ascott Group, who subscribed for units in ART at the preferential offer price of 68 cents per unit, a capital gain of 69 per cent.

Meanwhile, Allco Commercial Real Estate Investment Trust (Allco Reit), which made its trading debut on Thursday afternoon, closed trading yesterday at 98 cents - lower than its initial public offering (IPO) price of $1 per unit.

Based on their closing prices yesterday and their forecast distribution per unit for this year, ART and Allco Reit are trading at annualised distribution yields of around 5.3 per cent and 5.9 per cent respectively.

While it is early days yet in the trading history of Singapore’s two newest Reits, industry observers say that Reits which trade below their IPO price may find difficulty getting investor support to fund future acquisitions.

Moreover, the higher the yield at which a Reit trades, the less flexibility the Reit has to make accretive acquisitions.

ART and Allco Reit are the first two Reits to have started trading on the SGX this year, bringing the number of Reits traded on the SGX to nine.

Several more Reits are expected to start trading on the SGX this year including office Reit, K-Reit Asia, and a retail Reit by Fraser and Neave, amidst continued efforts to grow the Singapore Reit market.

Allco Reit’s IPO is the first Reit IPO for 2006. Industry observers note that the Allco Reit IPO did not enjoy the retail investor interest that was shown in last year’s two Reit IPOs.

Excluding reserved units, Allco Reit’s public offer tranche drew 3,222 applicants for 14.12 million units.

Last year, what is now called Macquarie MEAG Prime Reit’s public offer tranche involving 30 million units drew 27,876 applicants while Mapletree Logistics Trust’s public offer tranche involving 32.3 million units drew 35,237 applicants.

Reits were hotly favoured by retail investors until the later part of last year when retail investors started to be put off by concerns over rising interest rates.

Industry observers note that investors may demand a higher yield from Allco Reit of its exposure to Australian real estate. Yield on real estate in Australia typically exceeds that in Singapore because Australian interest rates are higher than Singapore’s.

With ART, observers believe investors are pricing in the possibility of accretive growth via acquisitions.

ART has started with a portfolio of 12 properties in five countries, worth $856 million.

Source : Business Times - 1 Apr 2006

He had bought 6 freehold bungalows for $5.8m each, sells one for $9m

SIMON Cheong has again proved himself a savvy property investor. In about three months, he has made a handsome $3 million-plus profit on a Good Class Bungalow.

Mr Cheong recently sold for $9 million one of six freehold Peirce Road bungalows he bought for an average price of $5.83 million each. The buyer is believed to be a permanent resident who is a director of an international fund.

Mr Cheong paid $35 million for the six bungalows in a deal signed in December last year and completed in March. The property he has just sold - 26 Peirce Road - has two storeys plus a basement and a site area of 15,834 sq ft.

Mr Cheong’s purchase of the six bungalows was brokered by Jones Lang LaSalle. The bungalows, completed about five years ago, were designed by renowned architect Ettore Sottsass, a grandee of late 20th century Italian design and founder of the early 1980s Memphis Collective architectural movement. Mr Cheong bought the properties from the mortgagee, Citibank.

His average acquisition price worked out to $365 per square foot of land area. The $9 million he has achieved for No 26 translates to $568 psf. The five neighbouring bungalows Mr Cheong bought are at No 26 A to E Peirce Road.

Good Class Bungalows are governed by stringent planning rules that ensure the exclusivity and low-rise character of their neighbourhood is preserved.

Mr Cheong’s listed SC Global Developments recently bought 13 freehold apartments at The Tomlinson for about about $55 million or $1,500 psf. A subsidiary of SC Global bought them from the project’s developers, Wing Tai and AIG, and is expected to sell them later for a profit.

In March, SC Global clinched Paterson Tower in a collective sale for $266 million, which works out to $1,064 per sq ft per plot ratio (psf ppr), inclusive of an adjoining 6,459 sq ft plot of state land that can be bought for about $4.5 million.

Source : Business Times - 1 Apr 2006

THE collective sale fever continues, this time outside the downtown prime areas.

Owners of three properties in the Thomson area - Lock Cho Apartment, Comfort Mansion and a 4-storey walk-up apartment - fetched $156.3 million after they joined forces to collectively sell their properties by tender.

At that price tag, the freehold land works out to be about $344 per square foot per plot ratio (psf ppr), after factoring in the purchase price of a plot of state land next to it for about $14.8 million and half a million dollars in development charge.

The price fetched is a tad lower than the $160 million, or around $350 psf ppr, that the owners had hoped for.

Property heavyweight City Developments (CityDev) beat two other developers to win the site in a tender, said Credo Real Estate, which handled the deal.

The three developments, at Jalan Datoh and Jalan Raja Udang, currently have a total of 165 units.

They have a combined land area of about 137,479 sq ft and 40,526 sq ft of state land. With a plot ratio of 2.8, it could yield about half a million sq ft of gross floor area (GFA), with a height control of up to 36 storeys - making it one of the largest collective sale projects launched this year in terms of GFA.

Credo reckons that CityDev could break even at around $600 psf and expects around 400 condominium units, each about 1,200 sq ft.

‘These three adjoining sites were extremely attractive because collectively, it will provide us with the opportunity to amalgamate the sites to create a sizable land area for redevelopment.

‘Such collective en bloc opportunities are rare,’ said CityDev’s group general manager Chia Ngiang Hong in a statement.

Each seller stands to get between $840,000 and $1.3 million, Credo said, which is a 60 to 90 per cent premium over their current market values.

Credo’s executive director Tan Hong Boon said that including this sale, the total collective sale tally for the first quarter of this year is $1.2 billion, with 17 projects sold. Mr Tan said that figure is already more than half of 2005’s total of $2.26 billion.

Source : Business Times - 1 Apr 2006