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Kwek and Quek entities secure Pacific Mansion for S$980m

This marks the second largest collective sale ever in Singapore, after Farrer Court's sale in 2007

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The acquisition of Pacific Mansion marks the biggest collective sale in a more than a decade and the second-highest on record, according to CBRE, which brokered the deal.

Singapore

ENTITIES controlled by Singapore property tycoon Kwek Leng Beng and his Malaysian billionaire cousin Quek Leng Chan have joined forces to acquire a freehold site for S$980 million in Singapore's prime district 9.

The acquisition of Pacific Mansion marks the biggest collective sale in a more than a decade and the second-highest on record, according to CBRE, which brokered the deal.

Singapore-listed GuocoLand, controlled by Mr Quek, announced on Monday that it has successfully tendered for the Pacific Mansion site with Intrepid Investments and Hong Realty.

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Both Intrepid Investments and Hong Realty are majority owned by Hong Leong Investment Holdings, which is effectively controlled by Mr Kwek, though other extended family members also own stakes in these companies.

GuocoLand and Intrepid Investments each hold a 40 per cent stake in the redevelopment project, while Hong Realty owns a 20 per cent interest.

Their winning bid represents a 4.5 per cent premium to the apartment owners' reserve price of S$938 million. It works out to S$1,987 per square foot per plot ratio (psf ppr), based on the verified existing gross floor area (GFA) of 493,222 sq ft.

Including a 10 per cent bonus GFA for balconies, the land rate will be pared down to S$1,806 psf ppr; no development charge is payable.

Each owner of the 288 apartments at Pacific Mansion stands to gain gross S$3.26-3.48 million and owners of the two commercial units will receive S$2.2-4.5 million.

The latest sale of Pacific Mansion is only surpassed by the sale of Farrer Court for S$1.34 billion in 2007.

While it is not surprising for developers to form joint ventures or consortiums to acquire the larger sites in order to spread their risks, what is unexpected is the rare collaboration between the entities controlled by the two property bigwigs. There is no indication yet on who will take the lead in this project.

While extended family members own stakes in various Hong Leong entities, Mr Kwek chairs Hong Leong Investment Holdings and related companies including Singapore-listed City Developments Ltd; Mr Quek effectively controls Hong Leong Co Malaysia Bhd and its subsidiaries, including GuocoLand.

One market watcher noted that while they may be strange bedfellows, it makes sense for their entities to cooperate rather than compete, and to share the risks for this huge investment.

In the River Valley precinct, GuocoLand had launched last July a 99-year leasehold luxury condominium project called Martin Modern, where it sold over half of the 450 units at around S$2,300 psf on average.

CBRE director of capital markets Galven Tan said that the tender for Pacific Mansion drew interest from a handful of local and foreign developers that were attracted to the locational attributes of the freehold site.

Consultants estimate that the land cost for the Pacific Mansion site may translate into a breakeven price of S$2,530-2,800 psf, and a potential selling price of S$3,000-3,200 psf for the upcoming project.

"Assuming no external shocks for the year, the market is likely to be able to digest units at that price in the River Valley precinct," said Lee Nai Jia, who heads research at Edmund Tie & Company (SEA).

Dr Lee posited that land rates are likely to stabilise given that developers have more options and more risks to consider, including the higher development charge rates, interest rates, construction costs, and the traffic impact study.

JLL national director of research Ong Teck Hui noted that sentiments in the collective sales market are still highly positive as developers continue to build up their land banks to capitalise on the residential market recovery.

"This could be partly due to a favourable medium-term outlook since the last two recovery upcycles lasted four years each," he said.

So far this year, 14 collective sales clocked total proceeds of S$5.6 billion, which is already 64 per cent of the total proceeds of S$8.7 billion from 30 collective sale sites for the whole of last year.

JLL senior consultant Karamjit Singh, who was expecting last year's tally to be crossed by the middle of this year, said he believes the second-half of the year might see a slower pace as developers re-assess the supply from recent land acquisitions. "What is of concern is the elevated level at which sites are purchased and the pricing still remains untested."

Hong Leong Investment Holdings is deemed a substantial shareholder of GuocoLand, through its stake in Hong Leong Co (Malaysia) Bhd. Hence, Intrepid Investments and Hong Realty are deemed interested persons of GuocoLand under Singapore Exchange's listing rules.

GuocoLand disclosed that Mr Quek, its executive director and deemed substantial shareholder, is also a director and shareholder of Hong Leong Holdings Limited, a director of Hong Leong Investment Holdings as well as a shareholder of Hong Realty.

His brother Kwek Leng Hai is a director and shareholder of GuocoLand as well as a shareholder of Hong Leong Holdings and Hong Realty. (The different spelling of Mr Quek's surname is ascribed to a midwife's error on his birth certificate).

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