A bid of S$461 per square foot was too low to secure the Media Circle serviced apartment site: the URA

The one-north plot is the third site this year that has not been awarded, which observers say indicates a discrepancy between the government's plans and developers' opinions.

3 October 2024

CONDOsingapore.com

The government has rejected a bid for a state land site that it deemed to be too low and has not awarded the plot for the third time this year.

According to the Urban Redevelopment Authority (URA), the sole bid for the 60-year leasehold long-stay serviced apartment site in Media Circle was too low, so the tender was not awarded on Thursday, October 3.

A Frasers-led consortium's S$120 million bid, which came to S$460.80 per square foot per plot ratio (psf ppr), was significantly less than analysts' estimates, which had varied greatly between S$650 and S$1,100 psf ppr for the parcel.

Empire One North Property and Padawan MC were part of the consortium. Boustead Projects is associated with Padawan MC, while Sunray Group Holdings is associated with Empire One North Property.

The site is close to the one-north office hub and has a 60-year lease, which sets it apart from other state land sites that are designated for housing, which usually have 99-year leases. Last year, a new rental category called SA2 was introduced to help meet market demand, and this is the first state land plot devoted to long-term serviced apartments.

The group "acknowledges the recent decision regarding the bid for a SA2 site at Media Circle," a Frasers Property representative said in response to questions.

Our assessment of the 60-year tenure for this pure SA2 site—a new housing typology with a minimum stay duration of three months as opposed to the current minimum of seven days for our existing serviced apartments—formed the basis of our proposal. We will keep looking into new opportunities as they present themselves because we are still interested in investing in this emerging asset class.

With commercial space on the first floor, the Media Circle plot can accommodate 520 apartment units. Having a maximum gross floor area of 24,211 square meters, it occupies a land area of 5,764.3 square meters (sq m).

To date, there have been two additional SA2-eligible sites offered for sale, both of which combine residential and serviced apartments.

A partnership between City Developments Limited (CDL) and Mitsui Fudosan won the first plot offered at Zion Road in April after putting in the only bid of S$1.1 billion, or S$1,202 per square foot per year. It can accommodate up to 1,170 residential units, including 435 serviced apartments, on the site close to the desirable River Valley neighbourhood.

In June, the tender for the second SA2-type site in Upper Thomson, a residential suburb outside the city centre, was closed without any bidders.

The findings, according to market observers, showed a discrepancy between the government's plans and developers' opinions on this type of rental housing.

Since the latest SA2 site is a new product and the government wants to support this new type of rental housing, some developers believe the chief valuer should be more cautious about pricing, according to an experienced developer who asked not to be named.

The reserve price for government land sale sites is set at 85% of the estimated market value determined by the chief valuer, who takes into account pertinent sales transactions, site conditions, and proposed land use.

Associate director Edwin Loo of the real estate firm Cistri stated that the Media Circle site's location was inappropriate for its intended use. "The location lacks amenities and has restricted access to public transportation."

"To be honest, URA should take a chance and push out a long-stay serviced apartment site in a truly desirable and prime location, instead of testing the concept in fringe areas," he continued. The government might also be having trouble setting a fair price for this use.

According to him, "comparable sales for this specific use are few and far between, which makes this task quite difficult." Valuations are based on recent comparable transactions.

"To ensure that long-term land valuations and prices are upheld, the government has maintained its stance with reserve prices, preventing disruptive price fluctuations," said Eugene Lim, key executive officer at ERA. Some developers might have tried to acquire undervalued sites because the market is at a turning point.

Mogul.sg chief research officer Nicholas Mak stated: "The government has three options. First, choose more advantageous sites for SA2. Secondly, the SA2 projects could be built and run by it. The third option is to scrap or reduce the plan for a buffer stock of SA2 units.

The site's plans are being reviewed by the URA.

The results of Thursday increase the number of sites the government has not yet awarded this year to three. The URA turned down the only bid for Marina Gardens Crescent in February, which was close to S$770.5 million, or S$984 per square foot per year.

In comparison to the S$1,402 psf ppr that Kingsford Group paid for a nearby plot in Marina Gardens Lane in 2023, the bid made by a consortium led by GuocoLand was almost 30% lower.

A heavyweight group consisting of CapitaLand Development, CDL, Frasers Property, Mitsubishi Estate, and Mitsui Fudosan (Asia) then submitted a bid for a mega "white" site in Jurong Lake District (JLD) in September, but the URA rejected it for S$640 per square foot per person.

The JLD development is an ambitious project to create Singapore's second Central Business District in a suburban area, and while the bid was also deemed "too low," market observers said the bid value reflected the significant risk developers would be taking on.