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Standoff in Florence Regency en bloc sale amid risk of oversupply in area

Marketing agent JLL reaching out to other developers to at least match valuer's figure of S$629m

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The Singapore-incorporated subsidiary of the Hong Kong-listed Chinese developer has picked up the 336-unit development at Hougang Avenue 2 for S$629 million through a collective sale.

Singapore

THREE bidders for Florence Regency, a privatised HUDC estate in Hougang, are refusing to raise their bid prices to match the S$629 million valuation for the development, signalling that - even amid en bloc euphoria - developers are still keeping in view the risk of oversupply in the area.

JLL, the marketing agent for the collective sale, is courting other developers in the hope of closing a deal under private treaty within 10 weeks of the close of the public tender.

But sources told The Business Times that developers are more concerned about the incoming supply in the vicinity than the land price.

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The public tender for a collective sale of Florence Regency follows the collective sales of two other former HUDC estates in the area - Rio Casa in Hougang Avenue 7 and Serangoon Ville in Serangoon North Avenue 1; there is also the government's sale of a site in Serangoon North Avenue 1. These three sites alone can generate more than 3,000 units.

One of the three bidders for Florence Regency is said to be Kingsford Development, which secured the Normanton Park collective sale site at S$830.1 million on Thursday.

Florence Regency's tender had closed on Sept 27, but the collective sales committee (CSC) was unable to award the tender although the top bid was above the reserve price of S$600 million, as it was below Colliers International Singapore's valuation of S$629 million.

Under the terms of the collective sales agreement drafted by law firm Lee & Lee, the sale price cannot be lower than the valuation.

In a letter to the owners of the 336-unit estate on Friday, JLL regional director for capital markets Tan Hong Boon said: "We have gone back to the parties which made the submissions, requesting that they increase their bids and re-consider their terms and conditions. However, they have declined.

"We are in discussions with several developers right now and hope to be able to secure offers at or above S$629 million for Florence Regency and present the best offer to the CSC and owners for consideration and acceptance."

If no buyer is found during this private treaty period till Dec 5, the owners of Florence Regency would have to plan another public tender exercise in January 2018.

With the new minimum price for the site being S$629 million, the estimated differential premiums for the lease top-up and increased built-up area of the site would be about S$288.5 million. This would translate to a total land cost of S$842 per square foot per plot ratio (psf ppr) for the developer. Some market watchers believe this could cross S$900 psf ppr if the government raises development charges further.

In comparison, an Oxley Holdings-led consortium is estimated to be paying S$860 psf ppr for Serangoon Ville, and S$706 psf ppr for Rio Casa or S$669 psf ppr if a 10 per cent balcony bonus gross floor area is included. Keppel Land and Wing Tai paid S$965 psf ppr for the government land sale (GLS) site in Serangoon North Avenue 1; that site is higher in psf pricing, but will be launch-ready before the Florence Regency site.

Edmund Tie & Company head of research Lee Nai Jia said that the land rate for Florence Regency reflects the market conditions and that bidders may be mindful of the number of nearby projects that will be launched at around the same time. "In other words, they have to account for the risks associated with extension charges and additional buyer's stamp duty (ABSD)."

The qualifying certificate conditions, which affect developers with even a single non-Singaporean shareholder and/or director, require them to complete their projects within five years of acquiring the site, and to sell all the units within two years of completion. If they fail to do this, they incur extension charges for the unsold units. Since late 2011, developers have also had to sell out a project within five years to qualify for ABSD remission.

The Florence Regency site is expected to generate 1,100 to 1,300 apartment units. ZACD Group executive director Nicholas Mak noted that potential competition in the Hougang/Sengkang region is seen as a deterrence, with the Rio Casa site seen as having much pricing flexibility.

"Developers will also enjoy more options from en bloc sales in the coming months, so there is no need for them to pay a high premium," he added.

Meanwhile, public tenders for two 12-unit freehold developments - Dunearn Court in the prime District 11 and Villa D'Este in prime District 10 - closed on Sept 6 and Aug 25 respectively. Their respective marketing agents Knight Frank and CBRE said that they are working with some developers to conclude a deal.

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