The S$1.25 billion collective sale of Roxy Square ends without any bids

Despite the Federal Reserve's massive interest-rate cut, market observers predict that demand for en bloc sites won't increase anytime soon.

September 26, 2024

CONDOsingapore.com



After the freehold mixed-use development in Katong was put up for sale in July at a guide price of S$1.25 billion, Roxy Square's collective sale tender ended on Thursday, September 26, without any bids.

Tan Hong Boon, executive director of capital markets at JLL, stated: "No bids were received at the end of the tender today. Negotiations with a few interested parties will be conducted during the 10-week private treaty process that the collective sale is currently entering.

The guide price for Roxy Square includes land betterment charges at the base gross plot ratio of 3.86 and represents a land rate of roughly S$2,094 per square foot per plot ratio (psf ppr).

According to marketing agent JLL, if the land betterment charge is paid, the land rate would be about S$2,034 psf ppr, plus an extra 10% for the bonus gross floor area (GFA) for the residential component.

Constructed in three stages between the early 1980s and 2000, Roxy Square includes the 576-room Grand Mercure Singapore Roxy hotel as well as the Roxy Square Shopping Centre. The hotel and 56 of the 296 stores in Roxy Square Shopping Centre are owned by real estate developer Roxy-Pacific Holdings, according to their website.

Roxy Square's gross floor area is currently 668,000 square feet (sq ft). A developer might be able to use the permitted GFA to create a mixed-use project with more than 350 residential units and nearly 80,000 square feet of retail and food and beverage space, provided the Urban Redevelopment Authority gives its approval. About 172,000 square feet of the remaining GFA could be used for hotels, offices, or other suitable commercial purposes.

Two other significant en bloc attempts in Katong have occurred in recent months.

In May, the 41-year-old Katong Plaza was listed for a collective sale with a S$188 million asking price. With a land improvement fee of roughly S$6 million, this comes to a land rate of S$1,901 per square foot per year. The owners are negotiating a private treaty after the tender ended on July 25.

A fourth en-bloc attempt was made last July by the freehold Katong Shopping Centre, with a reserve price of S$638 million, or S$2,277 per square foot. The tender for the mixed-use development closed in August of last year with no bidders.

Roxy Square might be transformed into a mixed-use development with 350 residential units and 80,000 square feet of retail and food and beverage space, pending URA approval.

The sale of Delfi Orchard to City Developments Ltd (CDL) for S$439 million in May 2024 was the most recent successful en bloc. This was only marginally more than the S$438 million asking price when the website was first put up for sale.

In the midst of Orchard Road's revitalisation, CDL, which already owned more than 80% of the building's units, stated that the acquisition would enable the group to fully realise the potential of the premium freehold asset.

Despite the US Federal Reserve's massive interest-rate cut, market observers predict that demand for en bloc sites won't increase anytime soon.

Cushman & Wakefield's head of research for Singapore and South-east Asia, Wong Xian Yang, stated: "Since interest rates are declining, sentiment should improve and developers may feel more comfortable allocating capital.

However, since the beginning of 2024, Singapore's interest rates have begun to decline, and the current financing costs would have mainly taken the decline in US Fed interest rates into account. Developers refinancing debt would have to pay more for financing because the cost of capital is still much higher than it was before the pandemic.

Desmond Sim, CEO of Edmund Tie, stated that although a decline in interest rates is good for the market for collective sales, developers will still need to take other aspects into account, like the acquisition cost and the viability of their redevelopment plans.

"It's still difficult to close the gap between owners' expectations and what developers are willing to pay," he said.

Tricia Song, CBRE research head for South-east Asia, said: “We expect investment sentiment should continue to improve as more meaningful (rate) cuts materialise. We observe that investors are still selective and cautious, favouring well-performing industries in established areas, and are typically more involved in smaller commercial assets.