As a private company, FEO has more options for Chancery Court
Tue, Nov 05, 2019
KALPANA RASHIWALA
IT'S been more than a year since Far East Organization (FEO) bought Chancery Court in Dunearn Road en bloc - yet there's still no sign of the project being torn down for redevelopment.
Typically, one would expect redevelopment work to have begun by now and hoarding bearing the main contractor's name to be up around the site.
What is also not there is the usual information board listing the name of the developer and key information on the proposed development.
According to the grapevine, FEO has decided not to redevelop the plum District 11 site soon. Instead it is looking to renovate the existing development and rent out the units.
This is a highly unusual route for a Singapore residential developer.
Most developers would want to start developing a residential site as soon as possible after its purchase, because of deadlines stipulated by the authorities on completing the new project and selling all its units.
Moreover, most developers - especially if they are listed - would face pressure from shareholders to generate profits, every quarter. Generally, returns from leasing residential units are low compared with property development.
FEO, however, is not listed. It is helmed by Philip Ng, younger son of the business' founder, the late Ng Teng Fong.
Being privately held, the group has more leeway to take a longer-term approach.
If it were to launch a new project on the site today, it may face intense competition given the substantial pipeline arising from developers' residential land-buying spree in 2017 and the first-half of 2018.
That sales boom ended abruptly in July 2018, with the announcement of the latest cooling measures.
By holding off on redeveloping the Chancery Court site, FEO is eyeing a more opportune development window. More on this later.
There was an important hurdle the group had to clear in deciding to postpone redevelopment.
Since late 2011, all developers, listed or not, are liable for payment of additional buyer's stamp duty (ABSD) on any residential development site purchase.
However they may qualify for upfront remission of ABSDincluding giving an undertaking to complete developing the residential project on the site and selling all units within five years of purchase.
BT understands that FEO, however, paid ABSD on the S$401.78 million purchase price for Chancery Court, and is thus not subject to any deadlines on completion or sales.
Based on the prevailing rate when it was awarded Chancery Court in May last year, FEO would have paid ABSD of 15 per cent.
That would seem a hefty sum, but the consolation for FEO is that two months later, starting from July 6, 2018, the government hiked the ABSD rate for residential development site purchases to 25 per cent and introduced a 5 per cent non-remissible ABSD.
Chancery Court, a privatised HUDC estate, has 136 residential units and eight commercial units. The development's 16-storey tower block comprises 52 apartments with eight strata commercial units. There are also seven blocks of four storeys each housing 84 maisonette units.
Market watchers expect leasing demand to be good.
It would be attractive to parents with very young children who currently do not reside in the area but would like to boost their chance of securing a place for their child in one of the popular primary schools nearby.
Next door is Anglo-Chinese School (Primary). Farther up the road is Singapore Chinese Girls' Primary School.
Expats and others wanting to be near Orchard Road, but avoid the congestion, may also find the location desirable.
Of course, FEO will have to pay to the state a differential premium and lease upgrading premium before redeveloping.
Chancery Court is on a site with 99-year leasehold tenure starting from March 1981, leaving about 60 years on the lease.
The land area of 259,134 sq ft is zoned for residential use with 1.4 plot ratio under Master Plan 2014.
FEO could divide the project into a few parts. One part could be residential units for sale, while the rest could be held for lease or as serviced apartments.
The residences-for-sale component could help partially fund the development, while the group can enjoy a recurring income stream from the lease/serviced apartment component.
In short it could get the best of both worlds.