What next for the Jurong Lake District plan?

This week in Property

• “Too low” bid for Jurong Lake District mega tender rejected
• Could lower interest rates raise the risk of bad deals? 
• New home sales still on gloomy path

No-go on Jurong Lake District

A bold plan to create Singapore’s second Central Business District in Jurong came undone last week. A heavyweight consortium’s bid for the first batch of sites at Jurong Lake District was assessed to be “too low” and rejected.

That the URA would not award the tender was a prospect floating about once market talk picked up that the bids submitted were low. But even so, most had expected the JLD tender to be awarded so that the government could get the ball rolling on the massive project that would unfold over the next 10 to 15 years.  

Last Friday, almost six months after the close of the tender, the bid proposed was revealed to be S$640 per square foot (psf) of gross floor area, Ry-Anne Lim reports. That was well below the S$900-S$1,000 psf level estimated for the master developer site when the tender closed.

In his Hock Lock Siew column today, Leslie Yee writes that the no-go on JLD is a huge blow not only to the property giants that stepped up to the plate, but also to the government’s much-touted decentralisation vision. CapitaLand Development, City Developments Ltd, Frasers Property, Mitsubishi Estate and Mitsui Fudosan (Asia) would have already invested resources and costs to evaluate and conceptualise the mammoth project, which could have generated significant profit and created an outstanding development. 

The question for planners and developers is, what now? Will the JLD project be shelved for now, or adapted? The government hinted it would take a different tack in the future, saying it would review the master developer approach it took with the first tender. The sites go on the reserve list in the meantime, and could be parcelled out differently in subsequent tenders. Such an approach, however, could mean a less cohesive line in design and planning of the area and piecemeal development. 

In the government’s eyes, the proposal on the table for JLD was clearly not a win-win proposition. A deal that is favourable to all parties can be hard to put together, given differences in objectives, views and time horizons. 

The recently announced deal by CapitaLand Integrated Commercial Trust (CICT) to acquire a 50 per cent interest in prime Orchard Road property Ion Orchard from its sponsor CapitaLand Investment is arguably a win-win deal, Leslie writes in The Level Ground.

Impending interest rate cuts could spur deal-making in real estate. But while Reit investors will cheer lower interest rates boosting unit prices of the trusts as well as their DPU via lower borrowing costs, they should be wary of Reit managers bingeing on acquisitions, Leslie argues. Raising equity capital for funding deals could dampen unit prices and dilute unitholders’ interests. A rush to take advantage of lower financing costs could raise the risk of bad deals.

Down and down

Developers’ sales data for August painted the same sobering picture we’ve been seeing so far this year. New home sales fell from July during the Hungry Ghost Month (no surprises there) but are also down 47 per cent year-on-year, Jessie Lim reports. Demand has slumped to the lowest August sales seen in 17 years. 

The latest numbers bring new project sales below what the market chalked up during the Global Financial Crisis of 2008. Sales also fell below the average monthly sales tallied during the pandemic lockdown year of 2020, when movement restrictions hampered project launches. Demand is expected to stay muted until interest rate cuts actually manifest in lower mortgage rates.

Developers have held back new launches - some since last year - in the face of still-weak buying sentiment. Several projects are about to be launched in the next few weeks, including UOL’s Meyer Blue and CDL’s Union Square Residences.

In other markets

China’s new home prices fell at the fastest pace in more than nine years in August. State support has yet to spur a meaningful recovery in the property sector, and new home prices were down 5.3 per cent from a year earlier. In monthly terms, new home prices fell for the 14th straight month, down 0.7 per cent, matching a dip in July.

The chairman of China Evergrande Group - the company at the centre of the country’s property crisis - has been moved to a special detention centre in Shenzhen, Bloomberg reported. Hui Ka Yan, 65, has not been seen in public since he was taken away by the authorities a year ago. Evergrande was ordered into liquidation in January. China’s securities regulator found Evergrande’s flagship unit had inflated earnings and committed securities fraud. Hui was also fined US$6.6 million in March.  

In Hong Kong, Chinese state companies are buying in and are snapping up malls and offices as investors both local and global pull back from the city’s battered commercial real estate market. While deals are smaller than during Hong Kong’s heyday six years ago, the acquisitions underscore the financial hub’s ever-increasing reliance on Chinese money. 

US landlords for offices, apartment complexes and other commercial real estate face a US$1.5 trillion wall of debt due by the end of next year, according to Jones Lang LaSalle. A gap of as much as US$400 billion between the amount owed and capital available for refinancing has opened up, and the number of lenders submitting quotes for debt refinancing has doubled on average this year, JLL said. Amid the gloom, Goldman Sachs Asset Management is zooming in on opportunities in commercial mortgage-backed securities where others have shied away. Goldman is picking out “very special properties that are super desirable”, and also sees value in the debt of logistics warehouses. 

India wealth is emerging in prime markets across the globe. Apparel tycoon Harish Ahuja paid £21 million (S$35.9 million) for a home in London’s Notting Hill, marking one of this year’s biggest UK residential deals and defying a wider slowdown in luxury sales. The share of prime central London homes purchased by Indians rose 3 per cent between 2019 and 2023, the most in that period for any single nationality, according to broker Hamptons International.

How should the Jurong Lake District development proceed? Let me know your thoughts at mich@sph.com.sg

• Win-win investment property deals exist, but lower interest rates raise risk of bad deals
• Jurong Lake District tender for mega site not awarded as S$640 psf ppr bid ‘too low’
• Developers’ new home sales shrink to lowest for the month of August in 17 years
• Green standards of office buildings a top priority for relocating companies
• Corporate stalwart Cecil Wong dies at 101