Is KepLand ditching residences in Hoe Chiang Rd project?
AFTER putting it on the backburner, Keppel Land may finally be going ahead to redevelop its office asset in Hoe Chiang Road.
The property comprises two towers - Keppel Towers and Keppel Towers 2 - that have been been vacated.
Completed nearly 30 years ago, the property may be ripe for redevelopment to take advantage of its strategic location at the gateway to the much-talked-about Greater Southern Waterfront.
In May 2016, Keppel Land, the property arm of Keppel Corporation, obtained the Urban Redevelopment Authority (URA)'s written permission to redevelop the freehold property into a residential, office and retail project. The approval was to have lapsed in May 2018 but was extended for a further two years.
Word on the grapevine is Keppel Land may be doing away with the residential component and instead developing a full-commercial project, expected to comprise predominantly office space, with supporting retail space.
A change in strategy to drop the residential component might seem odd given that KepLand stands to gain up to 25 per cent more gross floor area (GFA) if it were to redevelop the Hoe Chiang Road property into a commercial and residential project, under the URA's CBD Incentive Scheme unveiled in March last year.
The scheme aims to encourage owners of older, predominantly office buildings in some parts of the Central Business District to redevelop their properties into mixed-use projects. By promoting a wider diversity of uses - including having more residences and hotels - the scheme seeks to inject a live-in population into the CBD and liven up the district in the evenings and on weekends. It took effect from Nov 27 last year, with the gazetting of URA's Master Plan 2019.
Why would KepLand give up the residential component and hence forego an opportunity to have a much higher GFA for the redevelopment project?
For one, market watchers say the group would probably have to pay development charges to the state in exchange for the higher GFA.
Another consideration would be the potential competition for home buyers in the Tanjong Pagar micromarket, which may have become more acute following last September's state land sale of a 99-year leasehold plot in Bernam Street to developer Hao Yuan that is designated for residential-with-commercial-at-first-storey use.
Then, of course, there are still units available for sale in GuocoLand's completed Wallich Residence project.
Beyond the immediate locale, there is a substantial pipeline of residential property launches in Singapore - thanks to the housing land-buying binge by developers in 2017 and the first-half of 2018. That frenzy came to an end with the introduction of property cooling measures in July 2018.
The Covid-19 outbreak, a weak economy and job worries are all expected to hit developers' private home sales this year.
Even before the latest turn of events, the challenges KepLand has faced in recent years with selling Singapore residential projects would have weighed on the group's plans for the Hoe Chiang Road property.
Instead of including a component of residences for sale, it would make more sense for KepLand to fully retain the new project as a long-term investment, especially given the site's freehold tenure and the potential upside from the Greater Southern Waterfront story.
Even if KepLand does not include a residential component (and hence is not able to take advantage of the CBD Incentive Scheme), it should still be able to develop a new full-commercial project up to the existing 58,600 sq m (about 630,765 sq ft) GFA for Keppel Towers and Keppel Towers 2, according to property consultants.
This reflects a 6.42 plot ratio based on the the site area - higher than the 5.6 plot ratio for the commercial-zoned site under Master Plan 2019.
Participation opportunity
All things considered, in the current climate, it may be better for KepLand to focus on the commercial office market, where it has fared better, and develop a predominantly office project - sans a residential component - in Hoe Chiang Road.
Having a substantial office development may also present an opportunity for KepLand's sponsored real estate investment trust, Keppel Reit, to participate in the project's development.
This means a lower entry cost and hence a higher yield for Keppel Reit compared with, say, buying office space in the project post-completion from KepLand.
Interestingly, Keppel Reit, formerly known as K-Reit Asia, used to own the two office towers back when they were named Keppel Towers and GE Tower. They were among the initial four buildings the Reit held when it was listed on the local bourse in 2006 through a distribution in specie by KepLand. In 2010, K-Reit divested Keppel Towers and GE Tower to KepLand in exchange for a one-third stake in the first phase of Marina Bay Financial Centre.
At the time, KepLand said that it would convert both office towers into a freehold residential project. The plans soon changed, with KepLand clinching URA's provisional permission in August 2013 for the residential, office and retail scheme.
If KepLand does indeed develop a full-commercial project on the Hoe Chiang Road site, things would come full circle.
