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The planning authorities have turned down an application for a medical centre development at the Eng Lok Mansion site on Napier Road, BT understands.

The freehold site was bought earlier this year by Napier Properties at a record land price of $1,218 psf per plot ratio.

Napier Properties, which counts former Parkway Holdings boss Tony Tan among its key shareholders, had paid the record price in hopes of redeveloping the site - which is next to Parkway’s Gleneagles Hospital - into an upscale medical centre.

Medical suites in prime districts make up some of the most expensive real estate in Singapore.

Units at the freehold Gleneagles Medical Centre, for example, are said to be going at up to $2,800 to $3,000 psf.

The Urban Redevelopment Authority (URA) turned down the medical centre proposal for the Eng Lok site as it is not in sync with the authorities’ planning intention for the site.

Under Master Plan 2003, the 70,810 sq ft site is zoned for residential use with a 1.6 plot ratio and 10-storey height limit.

However, Napier Properties is free to redevelop the Eng Lok site into a condominium or service apartments, according to advice given by the URA.

Mr Tan’s partner in the venture, Mark Wee of Penang’s Island Hospital group, said, when contacted by BT yesterday, that Napier Properties would appeal against the decision.

It would highlight the economic spin-offs that a high-end medical centre next to Gleneagles Hospital would have in attracting high-end medical visitors to Singapore. For such a facility to be successful, it would have to be located adjacent to the two private hospitals in the prime districts, namely Gleneagles and Mount Elizabeth, Mr Wee argued. ‘Eng Lok’s location is ideal for this purpose.’

But if the appeal fails, Mr Tan and Mr Wee will go with their back-up plan, as stated in March, of building a residential development. This could comprise some service apartments for lease and others for sale.

Or the owners could build an exclusive condo, tentatively named Embassy Row after the site’s proximity to foreign diplomatic missions, at an average price of over $2,000 psf.

Market watchers estimate that based on Napier Properties’ $1,218 psf ppr land price, the break even cost for an upmarket condo could be around $1,800 psf.

Napier Properties had planned to offer medical suites for sale and lease at its medical centre.

If it fails in its appeal, Napier Properties will be looking at a smaller profit than it has envisaged, as a condo would sell for less than medical suites.

Still, the turn of events is not expected to have wide repercussions on the collective sale market.

‘Yes, many owners when doing collective sales often peg their asking prices to the $1,218 psf ppr achieved for Eng Lok. But Eng Lok was a medical play. The big residential developers like Far East and City Developments did not top the list of bidders for Eng Lok,’ said one observer.

Agreeing, a property consultant said: ‘There aren’t that many Tony Tans around. The market will find its own level. Developers have to analyse the strengths and weaknesses of each site and decide the risk level they are willing to take.’

Source : Business Times - 28 Jun 2006

Fees have more than halved in a decade, further falls will make business uneconomical, say some lawyers

Lawyers are complaining that their fees for buying or selling a home are less than half what they were ten years ago.

While these conveyancing fees averaged $3,500 to $6,000 for a transaction in 1997, fees are said to have tumbled to between $2,000 and $3,000.

‘Fees have hit rock bottom and if they drop any further, it would be simply uneconomical to carry on business,’ said a lawyer.

Fees have dived so low that lawyers say the returns are sometimes simply not worth the effort required for a transaction.

Legal firms which charge a fee of $2,000 for the work involved in buying or selling someone’s home make only a few hundred dollars, as stamp duty and other necessary payments average $1,300 to $1,600 for each transaction.

‘A transaction can take a few months to a few years to complete. Each file is about two to four centimetres thick,’ lawyer Daniel Xu said.

Faced with falling profit margins, lawyers have diversified into other areas and reduced their reliance on retail conveyancing.

Mr Xu, who is a lawyer with MyintSoe & Selvaraj, said that his firm’s conveyancing partner gave up the practice and left the firm a few years ago.

The pummelling that conveyancing fees have taken is attributed to various factors such as the financial crisis in 1997 and the replacement of scale-fees in 2003 with voluntary fee guidelines.

Scale-fees involved an agreed set fee based on the value of a transaction.

Although the guideline fees are about 30 per cent lower than the scale-fees, lawyers say that in actual practice the fees charged are even lower as lawyers undercut each other in the search for business.

Another downward pressure on fees is said to come from banks for lawyers to keep their prices within the legal subsidies given to borrowers.

A check with some local banks indicate that the going market subsidy is 0.4 per cent of the loan subject to a maximum of about $2,000.

But despite the low fees, many firms are staying in the business of conveyancing so they can provide clients with a full range of services.

Michelle Lim, a partner at Colin Ng & Partners, said that one reason why her firm maintains a sizeable retail conveyancing department is to support the conveyancing requirements of its other departments.

For other firms, it is not a matter of choice. PK Wong, executive director of PK Wong & Associates, said that conveyancing is still a source of income for many firms which have to take whatever business is going.

‘Of course, lawyers prefer certain types of work but you don’t always get what you want,’ he said.

Meanwhile, other firms which still bank on retail conveyancing rely on volume to make up for razor thin margins.

‘Conveyancing is no longer a piecemeal type of work but something we must do in bulk to enjoy economies of scale,’ Kenneth Tan, director of Asia Law Corporation, said.

To handle a large volume of transactions efficiently, his firm has tightened up its work processes to prevent duplication of work. It has streamlined operations and relies on technology to organise its work better and cut costs.

The opening up of the HDB loans market in 2003 also created a new source of income for conveyancing firms and an estimated ten law firms have set up shop at Toa Payoh where the HDB Hub is to tap into the new market.

Colin Ng & Partners, which is understood to have been the first to make the move, has its retail conveyancing portfolio evenly split between private and HDB transactions.

While lawyers are not optimistic that fees will be restored to pre-1997 levels despite the property market picking up, they say that increased activity means a larger pie for all.

‘There will be more work for us, but whether fees will rise depends on the unity of the profession not to undercut one another,’ Mr Tan of Asia Law Corporation said.

Falling conveyancing fees have caused some people to suggest that professionalism might be compromised.

‘At such low fees the lawyer will probably take no interest in the work,’ Bernard Doray, director of Bernard Rada & Lee Law Corp said. ‘To squeeze lawyers will lead to malpractices and that is beginning to show up with many errant lawyers and complaints about unprofessional conduct by lawyers.’

Philip Jeyaretnam, president of the Law Society, said that the offering of fees below the guidelines should be a red flag to consumers.

‘They should be thinking to themselves, is this firm going to provide me with the right level of service?’ he said.

In a recent message to lawyers, Mr Jeyaretnam called for solidarity among lawyers not to allow their fees to be beaten down below economic levels.

‘If you agree to do something at an uneconomical fee, I suppose you have yourself to blame, right?’ Mr Jeyaretnam said in an interview with BT.

‘I know that of course people have gone through hard times and therefore they will take any scrap of work which comes, but we need to kind of stick together a little bit,’ he added.

Source : Business Times - 27 Jun 2006

Moves are to fund $2.19b Raffles City purchase which will raise Reits’ DPU

CAPITALAND’S real estate investment trusts (Reits) - CapitaCommercial Trust (CCT) and CapitaMall Trust (CMT) - will both raise debt and issue new units to help pay for the $2.19 billion Raffles City complex.

The complex is owned by Tincel Properties, which is in turn 45 per cent owned by Raffles Holdings. Raffles City was sold to CCT and CMT in March, with CCT to own a 60 per cent stake and CMT to hold the remaining 40 per cent stake.

CMT intends to fund its 40 per cent stake through long-term borrowings and a bridge loan facility. The bridge loan will then be repaid with the proceeds from a proposed issue of new units of between $240 million and $420 million.

Depending on the final combination of funding, CMT’s gearing could range from 37.1-41.1 per cent.

The acquisition is expected to increase CMT’s distribution per unit (DPU) from 11.11 cents to 11.21 cents for the period from Sept 1 to Dec 31, based on an estimated issue price of $2 per new unit. For the financial year ending Dec 31, 2007, DPU projection is 11.43 cents.

CMT’s asset size will also rise from $3.5 billion to $4.3 billion. CMT CEO Pua Sek Guan said it is looking into enhancing the value of the Raffles City complex by rezoning areas like the convention centre into more profitable retail zones.

Taking advantage of its increased size, Mr Pua also said that the Reit will undertake local development projects with CapitaLand in the future. Under the government’s guidelines, Reits can take on development projects which are no more than 10 per cent of its deposited assets.

Mr Pua highlighted that there is a potential upside from rental increases. ‘If you strip away the anchor tenants, the Raffles City rent is not that much higher than rents at suburban malls like Tampines Mall.’ Currently, average monthly rental at Raffles City Mall is $13.80 psf. The office tower commands a rent of between $7-$7.50 psf.

As part of its growth strategy, CMT will also invest up to a 20 per cent stake in CapitaLand’s proposed China Retail Reit. Mr Pua, however, reiterated that it plans to expand its portfolio within Singapore as there are still opportunities here.

CCT, which will acquire a 60 per cent stake in Raffles City, hopes to raise up to $803.2 million by issuing new shares. The Reit also intends to borrow up to $519.8 million. This will raise gearing to 33 per cent.

CapitaLand Group president and CEO Liew Mun Leong said: ‘As a sponsor of CCT, we are pleased to provide a firm commitment to the trust by undertaking to subscribe new units to maintain our existing stake of 37.4 per cent, and we could even increase it to about 46 per cent to demonstrate our confidence in this transaction.’

CCT’s portfolio size will increase from $2.2 billion to $3.6 billion. It is forecasting an increase of 8.6 per cent in its distribution per unit (DPU) to 7.34 cents for the period from Sept 1 to Dec 31 with the acquisition at an estimated issue price of $1.65 per unit. For the year ending Dec 31, 2007, forecast DPU is 7.56 cents.

Alluding to the timing for the issue of new shares in light of current initial public offer (IPO) woes, David Tan, CEO of CCT manager CapitaCommercial Trust Management Ltd said that an IPO is very different from a secondary offer as CCT already has a good track record.

‘We expect the secondary offer to do much better than an IPO,’ he added.

An extraordinary general meeting will be convened on July 13 to seek unitholders’ approval.

Source : Business Times - 27 Jun 2006

Q A WOMAN is the owner of an HDB flat and has two daughters, A and B. The father has died.

The daughters are grown up but are unmarried. The two of them invested jointly in a private property.

A is living in the private property while B lives in the HDB flat with her mother.

When the mother dies, what will happen to the HDB flat?

It still has an outstanding loan, and B is financing it.

The mother and daughters intend to have B take over the HDB flat (and B is likely to remain unmarried), and continue to finance it.

Is this going to be an automatic transfer?

Is there something that the mother must do to ensure this, such as by writing a will? What happens if she does not?

Or should the mother transfer, say, 10 per cent of the ownership to B first to ensure there is no problem?

A Whether or not the HDB flat can be transferred to B after her mother’s death will depend on the eligibility criteria under HDB rules and policy at the time. This is so whether or not the mother leaves the flat to B in her will.

As well as HDB rules, B will have to take steps to deal with any outstanding loan before the flat can be transferred to her.

If the mother leaves the HDB flat to B in her will, then B will be entitled to at least the net proceeds of the sale if she is not eligible for the flat to be transferred to her.

Partial ownership of private property is not an absolute bar to the flat being transferred to B - the HDB may consider granting an exemption in exceptional cases, including acquisition of the HDB flat by inheritance or by gift.

If the mother dies without making a will, then A would be legally entitled to a half-share of her estate, which would consist of all her assets, including her flat.

But A could give up all or part of her entitlement to B at that time if she wants to.

The fact that B is paying or contributing to the mortgage does not give her any legal rights to the HDB flat.

In many cases where the owner dies, the flat has to be sold, any outstanding loan repaid and the net proceeds of sale distributed to the beneficiaries - in this case, A and B.

The fact that A presently agrees or intends that B should take over the flat after their mother’s death is not much help if A later changes her mind and if the mother has not made a will leaving the HDB flat to B.

There is no automatic transfer of an HDB flat or any other real estate. Additional conveyancing steps must always be taken.

If the mother’s intention is for B to have the flat - or the proceeds of the sale - after her death, she should certainly make a will to express her wishes.

If she transfers 10 per cent of the ownership to B before her death, then B would be the owner of that 10 per cent share and only the mother’s 90 per cent share of the flat would be included in her estate with all her other assets.

There may be stamp duty to pay on the transfer of the 10 per cent share and possibly also additional estate duty after the mother’s death.

The mother might consider instead transferring the HDB flat to herself and B as joint tenants, in which case, as long as B outlives her, the flat ought to become the sole property of B on her death and can be transferred to B’s sole name by lodging a notice of death.

However, there are the costs to consider of transferring the flat to joint ownership, including any stamp duty which may be payable at the time of the transfer and, again, possibly a larger bill for estate duty after the mother’s death.

The potential estate duty problem does not arise if the HDB flat is simply left to B by will. This is because there is an exemption from estate duty of $9 million for inherited residential property; but the exemption is not available for gifts of residential property before death.

Simon Trevethick Associate Colin Ng & Partners

Source : Sunday Times - 25 Jun 2006

Q I recently bought a private property through a housing agent.

It is still tenanted. The sale/purchase process will be completed soon.

Through my lawyer, on numerous occasions, I have insisted that the tenant’s security deposit be transferred to me but the seller’s lawyer has refused to do so.

What can I do about this?

Do I have the right to insist on the transfer of the security deposit prior to the completion of the sale/purchase process?

A It is usual for the security deposit to be transferred to the purchaser of a property.

You should inquire as to why the security deposit has not been transferred to you. It may be because there are arrears of rental by the tenant to the seller.

But you do not have the right to insist on the transfer of the security deposit unless this was expressly included in the terms of the agreement for the purchase of the property.

If the security deposit is not transferred to the purchaser, there is no obligation for the purchaser to return the security deposit to the tenant.

The obligation remains with the seller of the property to return it to the tenant and the tenant is entitled to ask the seller for the return of the deposit.

As you purchased subject to the tenancy, the tenant is entitled to stay until the term of the tenancy expires so long as he pays the rent promptly and does not breach any of the terms of the tenancy agreement.

You should therefore monitor the payments carefully until the term of the tenancy expires as you will not have the security deposit to offset against any arrears of rent.

If the tenant falls into arrears, the tenancy should be terminated under the terms of the tenancy agreement as soon as possible.

Lim Choi MingLawyerTM Hoon & Co

Advice provided in this column is not meant as a substitute for comprehensive professional advice.

Source : Sunday Times - 25 Jun 2006