SENTOSA COVE was like Treasure Island for developer Ho Bee, which surfed on the wave of demand for high-end property at the enclave to make a mint. Then the tide went out.
The financial crisis and the crash in prime real estate suddenly gave the exclusive seafront estate a forlorn air and Ho Bee the look of a firm that had overplayed its hand.
The developer dismissed such concerns back then and it continues to maintain that the enclave will be a winner.
Ho Bee got in early on Sentosa Island, bought aggressively and made piles of money selling the developed units.
But when the downturn hit, that close association with Sentosa meant it quickly fell out of favour with investors.
Ho Bee shares dived to a 52-week low of 27.5 cents each at one point in March last year, but shares have since climbed as high as $1.90 in January.
There seemed cause for concern. Ho Bee, with IOI Properties, bought The Pinnacle Collection, the last condo plot on Sentosa Cove for $1.097 billion or a whopping price of $1,822 per sq ft (psf) of potential gross floor area just before the crisis set in.
Ho Bee chairman and chief executive Chua Thian Poh told The Straits Times he remained confident of the prospects of Sentosa Cove properties throughout the crisis because they are scarce.
But the market and analysts did not share that view. By early last year, Sentosa Cove values had plunged and there was talk of defaults. An agent reportedly said the enclave had lost its appeal.
Data from Colliers International then showed that some non-landed Sentosa Cove properties were sold at an average of $1,318 psf, or 46 per cent below the average of $2,431 psf at the peak in early 2008.
There were also fears of deferred payment scheme (DPS) defaults. Ho Bee completed four projects last year – The Coast, Vertis, Quinterra, Orange Grove Residences – that exposed it to risks from DPS defaults.
‘At the beginning of last year, many people were looking at whether those who bought under the deferred payment scheme could fulfil their obligations to complete their purchases,’ said Mr Chua.
‘Our board was very cautious. We went through a lot of simulations on what was the worst scenario.
‘We talked about a 10 per cent default, 20 per cent default on DPS and even up to 50 per cent default. But we were still very comfortable with it.’
Concerns lingered for a while as consumers had trouble getting financing at one point, said Mr Chua. But the situation turned the corner sooner than expected and DPS concerns evaporated.
Ho Bee said it has had just one default for The Coast in Sentosa Cove and one for Orange Grove Residences.
‘We hope to have more people default so we can then take (the property) back and resell it straightaway at a higher price,’ said Mr Chua with a laugh.
‘Most developers should be quite comfortable during the last six to eight months of 2009.’
While the financial crisis has not flattened Ho Bee as some have feared, it has given it an opportunity to reflect.
‘You focus on… your next step. You have time to think,’ said Mr Chua.
Ho Bee started to explore overseas opportunities at the start of last year, a strategy it used before. It moved to London during the 1996 property peak here to avoid a property bubble that it was convinced would burst.
The bubble did burst and Ho Bee found that its British move was a godsend: Its main income until 2000 came from London.
Things are not that desperate now. Prices have risen. Take Ho Bee’s The Coast condo: Sub-sale deals went for as low as $1,195 psf early last year but has since bounced back to above $2,000 psf, though deals are few.
Its gamble on Sentosa Cove has paid off, although the market has changed much in the past five years, making life harder for developers.
‘Previously, when you bid for land, your margin may be low, but you still have a margin,’ said Mr Chua.
But developers are now bidding for land at forward prices, he said.
‘You look at the Singapore market. Almost every project is an ad hoc project as you can’t have a big land bank.’
Ho Bee had the first mover advantage in Sentosa Cove, ‘but when you build up the market, you have to compete with other developers for the land in Sentosa.
‘Now, you are getting more and more competition in the bidding of land… less margins and more competition… so our next push will be to venture overseas,’ said Mr Chua.
Over the next one to two years, Ho Bee hopes to deploy 30 to 40 per cent of its capital overseas, focusing on residential and mixed development projects.
China is under intense scrutiny. The company is in the midst of a study on jointly developing a residential project in Tangshan Nanhu Eco-City with Yanlord Land Group. It also just acquired a residential development site in Shanghai with the same partner.
‘In China, you can have a big land bank. Land cost is only about 20 per cent to 30 per cent of project cost,’ said Mr Chua. ‘In Singapore, it is about 50 per cent to 70 per cent, so you can’t afford a big land bank here.
‘Hopefully, China will become our Sentosa Cove in two to three years.’
Source: Straits Times, 20 Feb 2010
No comments:
Post a Comment