Some en bloc projects running into technical road blocks

When it comes to en bloc sales, the deal’s not all sewn up when the site is awarded to a property developer.

The long-drawn collective sale process at Tampines Court shows that even after a buyer is found, the transaction can still be plagued with technical issues.

The Business Times understands that the sale process has been delayed as Sim Lian Group, the developer awarded the plot of land, awaits its Planning Permission (PP) approval from the Urban Redevelopment Authority (URA).

At the same time, Sim Lian is also engaged with the Land Transport Authority (LTA) over its road works proposal to upgrade two existing road junctions, and build a new link to the existing slip road leading to the Pan-Island Expressway.

These are mandated works that the developer has been advised by the LTA to undertake, in order for it to increase the number of units built on the site from the current 560 to 2,000, as the existing road infrastructure has limited carrying capacity.

To do so, Sim Lian will have to sacrifice about 6-7 per cent of the 702,164 sq ft of land to construct the slip road.

Sim Lian was awarded the site last August, and spent the subsequent months in consultations with agencies. It submitted its application for PP last December.

According to the URA website, it usually takes 20 working days to assess a development application. BT understands that the evaluation process could take longer depending on the complexity of the development proposal and the site constraints.

Meanwhile, residents, worried at the lack of updates about the en bloc process, have been demanding on a Facebook page set up by the collective sales committee to know if the sale is still on, and whether they will still be able to collect their sales proceeds in April this year.

The technical issues have arisen because the market is now driven, in the latest cycle of collective sales, to intensify the number of dwelling units rather than the plot ratio.

Usually when the plot ratio is increased, a development charge is paid, which is a betterment levy paid to the state for it to improve the infrastructure to cope with the increased density.

But now, the market is not driven by an increase in plot ratio, but predominantly by an increase in number of units; some developers do not even increase their gross floor area. That is why the government needs the traffic study, because more units means more cars per development, and that is going to put a lot of pressure on road infrastructure.

The current en-bloc cycle also involves many former HUDC developments, where apartments average 1,700 to 1,800 sq ft in size. Some developers are looking to triple, even quadruple, the number of units, by downsizing units to about 750 sq ft on average.

The government last November mandated that potential buyers, developers and real estate agencies have to submit a Pre-Application Feasibility Study (PAFS) to LTA assessing the traffic impact of any redevelopment on the neighbourhood and proposing measures to manage traffic demand. Developers need to do this before they submit their development application to the URA.

This ruling affected the tender process of Pearlbank Apartments, a four-decades-old condominium in Outram. It has an iconic horseshoe-shaped architecture that residents hope to preserve by garnering the requisite 100 per cent consensus so that the tower can be granted conservation status.

Yet at the same time, the residents also hope that a developer can come in to intensify the land use of the plot by building a new tower atop the existing carpark podium, add new communal facilities while improving existing ones, as well as top up the lease (which has about 50 years remaining) and restore the building’s facade.

The tender, which ended in mid-December, failed to secure any firm bids, although the marketing agent remains in talks with interested developers.

Conservation was one of the concerns flagged by parties interested in the Pearlbank Apartments. However, it was not the main issue. The primary concern had to do with the PAFS that was announced.

Developers who were keen on the site needed more time to understand the new requirements and to assess their implications. For example, developers had to reconsider the number of new units that can be built on the plot and how that might impact pricing.

While some in the industry believe the onus is on the sellers to conduct the PAFS to make the land more saleable, residents have been reluctant to spend the sum required – estimated at between S$20,000 and S$50,000 – to conduct the study.

In most of the recent en bloc cases, it has rather been the developers that conduct and submit the PAFS to LTA after they have clinched the sites.

In most cases, the marketing agent is not the best party to conduct a PAFS because developers would have different requirements and it may not be very meaningful to undertake such a study at this stage without detailed redevelopment plans, including the number of units, optimal unit-mix and design concept.

Occasionally, there are also one-off, site-specific hurdles that developers encounter in the sites they acquire.

For example, in Clementi, SingHaiyi Group, the new owner of the Park West plot, will have to work with the authorities on an above-ground substation located on-site that supplies electricity to not just the condominium but also the neighbouring landed estate.

Asked about its plans for the substation, SingHaiyi said: “The purchase of Park West was only transacted recently in January 2018. Hence, it is preliminary to talk about PAFS requirements at this stage. We are still in the midst of drawing up the redevelopment plans. However, we do not foresee the substation to be an issue at all.”

Market watchers say that SingHaiyi would likely have to build a new substation to ensure continuous supply of electricity to the estate before demolishing the existing one.

Amid uncertainties that have resulted from the new PAFS requirement, lawyers representing developers have been adding clauses to their contracts to give clients an exit option should the feasibility study turn up less-than-favourable results.

Real estate lawyer and partner at Rajah & Tann, Norman Ho, said: “As the recent PAFS does affect en bloc sites and the developers may end up building fewer units, which thus affects their financial returns, we will provide that if a certain number of units cannot be built, the developers may abort the purchase.”

But not everything can be buffered against in contractual clauses, he said. “For the building of roads, this is the directive of the authorities to serve the new development, and it may be difficult for the purchasers to agree to have the qualification.”

It is therefore “not usual” for lawyers to include clauses that allow developers to abort the deal should ancillary infrastructure works prove too extensive.

“But this is commercial and it is up to the developers to provide that in the event that they are required to incur expenditure of more than a certain sum, they will have the option to abort the purchase,” Mr Ho said. But “in the event that there are a few favourable bids, the sellers may not accept such conditions”.

To be sure, not every en bloc developer faces these technical problems. For some, the approval process has been smooth-sailing so far.

Days after URA announced the PAFS requirement, Oxley Holdings said that its redevelopment proposals of 1,472 units for Rio Casa and 1,052 units for Serangoon Ville, both acquired through collective purchases, had received in-principle approvals from LTA.

Oxley chief executive Ching Chiat Kwong said: “So far, we haven’t had issues with the authorities.”

On the delay that some developers may be facing, he said: “There are probably many submissions to these departments, so their replies and approvals may take a little longer. Hence, we need to exhibit more understanding and be patient as well on our part as a developer.”

Adapted from: The Business Times, 5 February 2018

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