http://www.businesstimes.com.sg/arch...-wide-20140811
Published August 11, 2014
TOPLINE
Roxy sitting pretty as it casts its net wide
It is in no hurry to slash prices at Trilive and Sunnyvale Residences despite tepid sales, reports LYNETTE KHOO
ROXY-PACIFIC Holdings may be feeling the chill of the Singapore residential market but it is in no hurry to slash prices - the listed developer and hotel operator is sitting on pre-sale revenues of S$955.4 million, 2.6 times its record fiscal 2013 revenue and a sum that will be progressively recognised as profits until fiscal 2017.
In addition, the group has cast its net beyond its home market and its core development segment in sourcing for deals. Group executive chairman Teo Hong Lim tells The Business Times that Roxy is looking at office and residential projects in Australia, under-utilised hotels in Japan that can be optimised, and potential sites in Kuala Lumpur.
While it has had no luck yet with the bidding for hotel sites in government land tenders, the group is still keen to add hospitality assets to its portfolio to generate more recurring income. Roxy currently runs only one hotel in Singapore - Grand Mercure Roxy Hotel in the east which is managed by international hotel operator Accor Group.
"The constant challenge is how to keep looking for deals even when the market is challenging," Mr Teo says.
It became apparent last year that en bloc deals in Singapore were drying up, signalling a lack of available freehold sites to be acquired by Roxy, he recalls. Gross margins were also starting to decline from the highs of 30-40 per cent some two to three years ago to 20 per cent last year, in line with the broad industry trend.
This prompted a search for deals overseas, which culminated in the A$90.2 million (S$104.8 million) acquisition of an office property, with net lettable area of about 19,553 square metres, at 59 Goulburn Street in Sydney. It was soon followed by other overseas investments.
They include a parcel of 939.76 sq m of land and an existing hotel, Hotel Harvest Kyoto, in Japan which was bought for 2.26 billion yen (S$27.7 million) in July, as well as resort villas and adjacent vacant plots in Thailand's Phuket, bought this month for 397.2 million baht (S$15.5 million) via newly incorporated Thai subsidiary Roxy Chalong Resort.
Through its joint venture partner Macly Equity Pte Ltd, Roxy also secured a commercial-cum-residential site in Kuala Lumpur, Malaysia, in July last year. The joint venture, in which Roxy has a 47 per cent interest, owns a 70,000 sq ft land site in Kuala Lumpur near the upcoming Quill City mixed development.
Some 80-90 per cent of this project is set aside for residential use and the rest for retail. The SOHO (small office home office) units are slated for launch at the end of this year or early next year at RM1,100-1,200 (S$429-468) per square foot (psf) or higher, says Mr Teo.
"Every product needs demand from the locals. That's why we only focus on Kuala Lumpur," he adds. "Iskandar (in Johor) is not on our radar."
Singapore, however, remains Roxy's "market of expertise", so even though residential sales in the Republic have turned tepid, there may be opportunities to buy land at lower prices.
Roxy is targeting development yields of about 15 per cent in Singapore but new condo launches this year have seen gross margins hovering around 13-14 per cent.
So far, only four units at its 30-unit Sunnyvale Residences in Telok Kurau have been sold to invitees while its 220-unit Trilive in Kovan moved only 23 units since its launch in June.
"Trilive didn't get off to a good start," Mr Teo concedes, attributing this to a "lack of understanding of the product" - it being the first to have some 70-80 per cent of the units being dual-key units. This typically comprises two sub-units with two separate keys and was first used to promote multi-generational living in HDB flats. It has also been adopted by some private developers to enable investors to rent out the sub-units to separate parties or to rent out one sub-unit.
"This is a very focused angle and we may have to come back and educate the buyers about its merits," Mr Teo says. He feels that such units can also work for buyers who do not plan to rent out the sub-unit, which can be turned into a "glorified master-bedroom".
He reveals that Roxy may "refresh" the showflat for Trilive and re-look the pricing for stacks that did not move any units. "But realistically, we are not looking at slashing prices because major price reduction is not the key," Mr Teo stresses. "If that's the key, projects should have been 80-90 per cent sold already for those that run the price reduction strategy."
In fact, more than half of Trilive units already fall under S$1.2 million - what consultants consider to be an affordable quantum given the total debt servicing ratio framework, Mr Teo says. So far, the units have been sold at an average of above S$1,500 psf - similar to another freehold project in Kovan, The Tembusu, by Wing Tai.
Mr Teo likens the current market to a tug-of-war between developers and buyers. While buyers are hoping for lower prices, developers that have lately incurred higher land costs and construction costs are not inclined to sell at a loss.
As for Roxy, it is under no pressure to dispose of all the units yet, Mr Teo says. Under Singapore's qualifying certificate rules that require developers to pay extension fees for unsold units two years after the project's completion, such payments will likely kick in for Roxy only in 2019, starting with the Liv on Wilkie, a plush 81-unit condo where there are some 26 unsold units.
There are still many buyers sitting on the fence, waiting for better products and lower prices, Mr Teo says. But Roxy is not compelled to make "any hasty moves" just yet.
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