DID Keppel Land overpay for the 99-year leasehold condo plot next to Lakeside MRT Station which it bought last week at an Urban Redevelopment Authority tender?
KepLand's top bid of nearly $500 per sq ft per plot ratio surprised many market players. The winning bid for the Jurong site was 15 per cent above the second highest offer and 1.8 times the lowest bid of $273 psf ppr, which came from CapitaLand.
KepLand has been trying its hand at several state tenders over the past nine months and its win for the Lakeside Drive site marks the first time in about six years that the developer is buying a pure residential development site in Singapore.
It has also been more than a decade since the developer has picked up a 99-year leasehold suburban housing site at a state tender.
However, KepLand is not new to the area. Over 10 years ago, the group developed a few residential projects in Jurong and Choa Chu Kang, which is also in the western part of Singapore, on land bought at government tenders.
The projects include Villa Verde, a landed housing development, and Palm Gardens condo, both in Choa Chu Kang, and The Mayfair condo in Jurong East.
It bought sites for these projects in 1996, the peak year of the property bull market then, and saw chequered results. It launched the Villa Verde terrace houses in March 1998 at record low prices at the time. The homes quickly found takers and sparked a price war for 99-year leasehold landed housing developments.
KepLand launched the 452-unit Mayfair and the 694-unit Palm Gardens in 1997 at respective average prices of about $620 psf and $580 psf. It had paid about $230 per square foot per plot ratio for each of the two condo sites. However sales were pretty slow until KepLand finally chopped the average price of Mayfair to $410 psf and that of Palm Gardens to $400 psf in the fourth quarter of 1998. Both projects were soon snapped up, creating a revival in sales activity which also helped to mark the bottom of the property slump during the Asian Crisis.
This time round, though, KepLand looks poised for greater success with its Lakeside Drive site. It should be able to ride the current strong demand for suburban homes. The developer has said its project will be launch-ready by year-end; hopefully it will be able to net buyers while the market is still hot.
Based on KepLand's bid, analysts estimate its breakeven cost at $800-870 psf. The group is probably eyeing an average selling price of about $1,000 psf. While this is above current selling prices in the area for projects that have been on the market for a while, it may not be such a tall order for KepLand to achieve prices of around $1,000 psf or even higher by the time it is ready to begin sales.
The market has already seen several suburban 99-year condos with this sort of pricing by now, and price appreciation is expected to continue in the mass market segment this year, albeit at a slower pace than last year.
KepLand has also said that its 550-unit project at Lakeside Drive will have one- bedders besides two, three and four-bedroom apartments and penthouses. Smaller units can be sold for a higher per square foot price so long as the overall quantum is affordable. Such smallish units particularly appeal to specuvestors.
And the Jurong Lake District, where the Lakeside Drive plot is located, is envisioned to become a major commercial hub and leisure destination. The Ministry of National Development and the Ministry of the Environment and Water Resources together with some of their agencies will be setting up new headquarters at Jurong Gateway, located in this district, in the near future. Other key amenities near the site are schools including the Canadian International School expected to open in 2011 and retail or commercial developments such as Jurong Point, KepLand has pointed out.
Another project generating much anticipation in the vicinity is a proposed development on a 'white' site next to Jurong East MRT Station which is on the market now. The plot can be developed into a project with up to 1.15 million sq ft of gross floor area, with a mandatory office component as well as possibly retail/entertainment space, a hotel and homes. That tender closes next month. KepLand, a major office landlord and given its familiarity with the Jurong area, can be expected to bid at that tender.
Hopefully, it will be able to taste sweet success this time round in Jurong.
Source: Business Times, 14 May 2010