Reimburse developer for tricky components

Business Times: Thu, Nov 10
(SINGAPORE) Guthrie GTS executive director Michael Leong has weighed in on the discussion about URA’s decision last week not to award a commercial site in Paya Lebar to the sole bidder as the price was ‘too low’.  ‘If you have some tricky component…

(SINGAPORE) Guthrie GTS executive director Michael Leong has weighed in on the discussion about URA’s decision last week not to award a commercial site in Paya Lebar to the sole bidder as the price was ‘too low’.

‘If you have some tricky component within a development site which adds to complexity (such as some public infrastructure component), the authorities should reimburse the successful bidder for the cost of works related to the public infrastructure,’ the industry player told BT yesterday.

This is not a new solution, as government land sales agencies have in the past reimbursed private sector developers for the cost of building a bus interchange when this was required to be integrated as part of their development on sites sold at state land tenders.

‘In such cases, the government has stipulated that the developer will be reimbursed the cost of building the bus interchange or there may be some cap indicated on the amount that the government will reimburse the developer,’ said Mr Leong.

‘Directly or indirectly, the government has to pay for the cost of the infrastructure as the developer will factor the cost into its bid for the site. If there’s more uncertainty about the costing of the infrastructure, the developer may be very conservative on pricing for the site.’

Reimbursing the developer allows the uncertainty about the cost of the infrastructure to be taken out of the equation.

‘Then the bid amount you get would be truly reflective of the intrinsic value of the land,’ he said.

Guthrie has a 10 per cent stake in a consortium, which includes Low Keng Huat and Sun Venture group, that clinched the first commercial site in Paya Lebar in April this year.

They plan to develop it into an 80:20 office-retail project. For the office component, strata units are expected to be released for sale by year-end at prices starting from $1,650 per square foot.

The consortium’s winning bid was $872.16 per square foot per plot ratio (psf ppr). The tender drew 10 bids.

The most recent Paya Lebar site that URA has decided not to award fetched just one bid, from a UOL Group-Singapore Land tie-up at $565.74 psf ppr.

The site has a minimum hotel component in addition to a minimum office component. Market watchers also blamed the dearth of bids to a weaker outlook for the office market.

Also, the site is deemed technically challenging as it is split into two triangular portions by a section of Geylang River.

Property consultants said that that would make it difficult to achieve a good design and layout for the proposed project on the site, and the inefficiency will ultimately impact on leasing and rental returns. This may have put off some potential bidders and any bidder would adjust its offer to reflect these factors.

Alternatively, the developer could realign the canal. UOL-SingLand’s proposed scheme envisaged pushing the canal closer to the perimeter of the site, parallel to Tanjong Katong and Geylang roads, in reverse L-shape. But this will add to the project’s development cost.

The idea was to deck the realigned canal with a pedestrian mall which will be landscaped and lined with eateries – though no structure is allowed to be built over the canal, UOL officials had said when the tender closed on Oct 18.

URA’s decision not to award the site because the sole bid was ‘too low’ has also reignited debate in some circles that the state should make known its reserve price.

To this, Mr Leong’s suggestion is that an auction could be an option for selling complex sites as bidders will know when the reserve price has been met.

Property market watchers say that the big winner from URA’s decision not to award the latest site to UOL-SingLand is the Low Keng Huat-Guthrie-Sun Venture consortium which clinched the first Paya Lebar site.

Had URA awarded the latest site at a much lower price than the earlier plot, it could have clipped the pricing and rental power of the winner of the first site, note market watchers.

Mr Leong yesterday confirmed that no member of his consortium had urged or suggested to URA that it should not award the second site to UOL-SingLand.

‘We’re not so influential,’ he quipped.
Source: Business Times © Singapore Press Holdings Ltd

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