Paya Lebar site tender surprises with just one bid

Business Times: Wed, Oct 19
(SINGAPORE) In a surprise outcome, the widely watched state tender for the second commercial site at Paya Lebar drew just one bid and that, too, was 35 per cent lower than the nearby first site awarded in April this year. The sole bid at yesterday’…
(SINGAPORE) In a surprise outcome, the widely watched state tender for the second commercial site at Paya Lebar drew just one bid and that, too, was 35 per cent lower than the nearby first site awarded in April this year.

The sole bid at yesterday’s tender, from a UOL Group-Singapore Land equal joint venture, was for $529.3 million or $565.74 per square foot of potential gross floor area. They plan to pump in a total $1 billion including land price for a retail, office and hotel project.

The first site, also on 99-year leasehold tenure, drew 10 bids and was sold to a consortium comprising Low Keng Huat, Guthrie and Sun Venture Commercial for $872.16 psf per plot ratio. The group is planning an 80:20 office:retail project.

As market watchers broke into a discussion yesterday evening on whether Chief Valuer will award the latest plot to UOL-Sing- Land, analysts highlighted some key differences between the two plots. Developing the latest plot will be technically more challenging as the site is split into two triangular portions by a section of Geylang River. While Urban Redevelopment Authority stipulated that at least 80 per cent of gross floor area (GFA) for the earlier plot has to be set aside for office use, the latest plot has a minimum 15 per cent hotel component in addition to a minimum 40 per cent of GFA for offices.

In addition, all the retail space and activity-generating uses in the project on the latest plot must be held under a single strata lot to ensure it continues to be well managed. Hence, the avenue of subdividing the retail area into smaller strata units for individual sale to make a quicker return on investment will not be open to the developer. There is no such restriction for the first plot.

For the office component in the latest plot, URA has specified that it encourages a minimum strata unit size of 100 sq metres (1,076.39 sq ft), which may reduce the appeal to some smaller investors. The outlook for the office market today is also weaker than in April, note analysts.

Credo Real Estate executive director Ong Teck Hui said: ‘The development of the second site will be challenging due to technical requirements, which will separate the development into two triangular portions that make it difficult to achieve a good design and layout. The inefficiency will ultimately impact on leasing and rental returns. Consequently not many parties would be keen on such a site and any bidder would adjust its offer to reflect these factors.’

Alternatively, the developer could realign the canal. UOL’s scheme envisages pushing the canal closer to the perimeter of the site, parallel to Tanjong Katong and Geylang roads, in reverse L-shape. This will chalk up costs.

‘We can deck the realigned canal with a pedestrian mall which will be landscaped and lined with eateries – though we’re not allowed to build any structure over the canal,’ said UOL president Liam Wee Sin.

The basement of the mall will be linked to the adjacent Paya Lebar MRT Station on the Circle Line and possibly to the group’s proposed retail and residential project on the freehold Lion City Hotel site diagonally opposite which UOL clinched earlier this year.

If it wins the latest plot from URA, UOL will be able to enlarge its foothold in the location, similar to what it has done near Novena MRT Station, where it has a 60 per cent stake in Novena Square and fully owns United Square.

Giving details of UOL’s proposal if it is awarded the Paya Lebar plot, Mr Liam said: ‘Our scheme is for a 14-storey development, comprising a retail podium and two towers above it – one for a hotel and the other, offices. The offices are likely to have a large floor plate of over 20,000 sq ft. The office, hotel and retail mix will be 40, 15 and 45 per cent of GFA.’

Some property consultants polled yesterday evening predict the site will be awarded. ‘The land price is still within the fair-value range, although on the lower side of the scale,’ says Cushman & Wakefield Singapore vice-chairman Donald Han.

Knight Frank group managing director Danny Yeo said UOL and SingLand offered ‘a reasonable price’ taking into account the site’s technical constraint, substantial office pipeline in Singapore and turmoil in the global economy which will be a dampener on office demand. ‘UOL is not known to strata title its commercial properties into individual units for sale. It’s a long-term holder of office buildings, and if it is awarded this plot, this will augur well for the development of the Paya Lebar area into a commercial hub outside the CBD catering to MNCs.

‘UOL is also likely to provide a stronger differentiation in positioning of the retail components on this site and the Lion City Hotel site.’

Usually the state will award a site if at least 85 per cent of its estimated market value determined by Chief Valuer is met. However, bids below this level may also be accepted if there is ample evidence from recent property transactions of a market downturn. The government also looks at the number of bids.

Source: Business Times © Singapore Press Holdings Ltd.

About Propertyguru Expert

Website contend is hand picked and high demand. Marketing Manager at Huttons Asia Pte Ltd. Indonesian Focusing in Private Residential Singapore. *Service Quality Assured. *Top 300 producer in 2011.