Developers keep the faith, make big bets

Developers keep the faith, make big bets
by Conrad Raj
05:55 AM Dec 03, 2010
The recent purchases by GuocoLand of a roughly 160,000 sq ft site at Peck Seah Street/Choon Guan Street and the Far East Group of the Paramount Hotel and Shopping Centre along East Coast Road are further reaffirmations of our developers' faith in the Singapore property market.

GuocoLand, the local property arm of Malaysian tycoon Quek Leng Chan, is paying a staggering $1.7 billion for the 99-year leasehold site, or $1,006 per sq ft per plot ratio (psf ppr). The bid is 12 per cent, or $180 million, more than the next highest bidder, a consortium comprising Keppel Land, Hongkong Land and Cheung Kong Holdings. The site will cost at least another $1.3 billion to develop.

The Far East Group, the largest locally-owned private property developer and founded by the late Ng Teng Fong, is buying the 102,685 sq ft Paramount site for $214 million. This translates to $1,178 psf ppr, including a development charge of $40.1 million for residential use at a plot ratio of 2.1; or $736 psf ppr, including a $12.8 million development charge for a mix of hotel and commercial use at a 3.0 plot ratio.

There were nine other bidders for the site, which again indicates that there is no shortage of risk takers, both among developers and investors, in the property market.

Why are GuocoLand and Far East willing to pay such hefty prices in the face of government action to cool the property market?

For one, GuocoLand has to replenish its dwindling land bank, having been unsuccessful in its bids for other large sites on which the Marina Bay Financial Centre and Ion Orchard now sit. The developer also appears to be confident that the property market will continue to be buoyant in the three to five years the project will take to complete. It will have to devote at least 60 per cent of the gross floor area of 1.7 million sq ft to offices, another 10 per cent to build a 300-room hotel, with the remainder to go to apartments.

According to property analysts, the office market is picking up once again. And the proposed residences are expected to cater to the office crowd who will have ready access to public transport, given that the site sits on top of Tanjong Pagar MRT Station, the second-busiest in Singapore.

The apartments, which are expected to be largely between 800 and 1,500 sq ft and which will occupy the topmost floors of a 78-tower building, appear ideal for the yuppie Singaporean and the expat crowd working in the city. The site is near enough to various entertainment and cultural centres, including cinemas, museums, the Esplanade and the two integrated resorts.

GuocoLand has gambled big before and won big. It bought the former Casa Rosita site near Newton Circus in April 2006 for $280 million or $706 psf ppr. It has named the project on the site, Goodwood Residences and has sold about half the 210 units it plans to build for an average $2,500 psf. According to some observers, the development is expected to bring in profits of around $500 million when fully sold.

Both developers have the resources to hold on to their properties should the market soften. They are among the few companies who will be able to bear the penalties under the current rules that call for stricter enforcement on deadlines for projects or the sale of finished developments.

After all the property market behaves in cycles. In Singapore, the property market is said to have an 11-year price cycle.

The Government's recent measures are meant to cool the market, stabilise housing prices and ensure home ownership remains affordable for the majority. There are still plenty of buyers out there, while interest rates are at their lowest levels in ages and are expected to remain relatively low in the next few years.

Source: www.todayonline.com