‘Tea & Info’ Session on Feb 10 .. Reflections by some of the SPs who attended.

It was a full house of SPs on Saturday afternoon of Feb 10 in Teresa Ville function room, who responded to the invitation to “Tea & Info” session organized by fellow owners. It indeed was very informative and insightful. We are fortunate to have few subject matter experts among us, who have deep knowledge of process and factors related to En-bloc sales of properties in Singapore. Research and preparation done by these experts and organizers of the session was thorough, relevant and very educational.

After listening to the presenters, studying the material presented and sitting through the Q&A part, it emerged very clearly that a quite a few important inputs were either not considered by CSC and the agents or, were just not shared with SPs.

Few key takeaways from the session:

Potential Value of Teresa Ville Land:

1.       En-bloc sale is about the Land of Teresa Ville, not about selling our building structure or apartment. Hence we should mainly focus on current and future value of this 266,513 Sq. Ft. Freehold land.

2.       Unlike 99 years lease properties, value of Freehold land of Teresa Ville doesn’t have the risk of depreciation which 99-year leasehold land has. In fact its value has been steadily appreciating and shall continue to do so in land scarce Singapore; more so for centrally located Freehold residential properties like Teresa Ville, which are relatively limited in supply.

·       In their own estimation of value of Teresa Ville land, Huttons had proposed $590M to last CSC in 2008. During the 2^nd EOGM in 2017, they mentioned that last year (2016) they had estimated value of Teresa Ville as $800M. Now they are proposing $990M.  It was misleading on their part, when Huttons conveniently omitted mention of appreciating land value and instead used fear tactics of focusing on fluctuating prices of individual apartments due to market cycles.

3.       In the EOGM held on 21 January 2018, it was revealed that the development baseline of the Teresa Ville site is higher than the current Master Plan plot ratio of 2.5. A high development baseline is a valuable asset that belongs to every owner of Teresa Ville. However, the right opportunity must come along in order for us to monetarise this asset. The best way to monetarise the high development baseline is when the plot ratio of the Teresa Ville site is increased with the revision of the Master Plan.

4.       According to the Master Plan 2014 shown on the URA website, the plot ratios of most residential land around Teresa Ville ranges from 2.8 to 3.5. The plot ratios of residential land around the Redhill MRT Station is even higher, ranging from 2.8 to 4.9. There is good reason to presume that Teresa Ville’s current relatively low plot ratio of 2.5 will eventually increase to at least 2.8 or 3.0. The next revision of the URA Master Plan is due in 2018/2019. From the figures shared, the land value of Teresa Ville could increase by an additional $100 Million or more if the plot ratio is increased to 2.8. This incremental value belongs to all the owners of Teresa Ville. Whoever ignores this potential upside is under-pricing the land of Teresa Ville.

·       The owners wondered as to why CSC or Huttons did not share this possibility, instead again used the fear tactics and gave contrary message that value of the land shall fall if the owners delay to sign the CSA with low reserve price of $990M

5.       Real estate developers are allowed to build 10% bonus GFA for balconies on top of the GFA based on the Master Plan plot ratio. Usually the developer must pay a developmeneft charge, which is a form of tax, to the government to build the bonus GFA. However, with the high development baseline of Teresa Ville, the developer does not need to pay any development charge to build the bonus GFA. Based on the present DC rate of $5,950 per square metre (psm), the developer would save $36.83 million. This amount belongs to all the owners of Teresa Ville and must be priced into the Reserve price if Teresa Ville is launched for enbloc sale.

GFA = Land area x Plot ratio

·       Why did CSC and Huttons did not consider this factor in increasing the Reserve Price? Reserve Price can be increased by further 10% minimum with this factored in.

·       SPs recalled that Huttons had given a higher pricing of ~$1500 psf for the Reserve Price in last EOGM, when it should be $1350 psf after factoring in the bonus 10% GFA.

6.       There is a fairly substantial piece of State land next to Teresa Ville. It is located between Teresa Ville and the Ayer Rajah Expressway (AYE). It has been vacant for decades and there does not appear to be any plan to have it developed into a park or any type of real estate. It is very common for developers to acquire State land next to the land parcel that they just bought to join the two sites together for development. Based on the formula that the government uses to compute the price of State land, the price of the State land is typically lower than that of the adjacent private land. If the developer amalgamates this State land with Teresa Ville, the basic calculations showed that developer can make additional profit of over $400 million, even at the current Master Plan plot ratio of 2.5.

·       It is up to the SPs of Teresa Ville to demand that such bonus profit be shared among all the SPs by pricing it into our enbloc Reserve Price. Its only fair that SPs must share a reasonable part of such additional profit with the developers. Even if its 50:50 sharing, Reserve Price should be raised by another $200M+ 
·       Why such calculations and possibility of upside in value of Teresa Ville land was not shared with SPs? It is concerning indeed, given the fiduciary duties of CSC and the Marketing Agent, that they owe to Teresa Ville owners.

Options and Challenges in finding Replacement Property in case En-Bloc sale materialized:

1.       Location: It was unanimously agreed that Teresa Ville has excellent and very convenient location with quick proximity to key landmarks in Central/ South Singapore. Good data was shared, which indicated that from proximity comparison to CBD and Orchard milestones, Teresa Ville should be valued in the range of $1600 – $1900 psf ppr.

2.       Scarcity of Freehold Property: Figures shared clearly showed that in recent years, the number of 99 years lease apartments transacted is rising, while that of freehold properties is declining. That means, the supply of freehold property is increasingly scarce. For us the SPs, who own shares of Freehold Teresa Ville land, shall have fewer options to find a replacement Freehold property.

3.       Rising Property Prices: Indications from multiple respectable research agency sources indicate that property prices are on the rise. Also given that it shall take well over a year before SPs can get the proceed of sales, SPs should factor the future rise in property prices for their replacement options in 2019. Accordingly see if currently proposed Reserve Price is enough to afford replacement property 1-2 years later.

4.       Newer Developments have a significant portion of non-GFA strata area: Developers include 10-25% area in the strata area which cannot be used with full flexibility like real GFA. For example, this includes large balcony areas, planter boxers, AC ledges and bay windows.. Hence SPs need to look for 10-25% bigger apartments than their current size, without compromising on the size of their living space. In Teresa Ville we can use 100% GFA as living area, so for a SP owning a 2000 sf unit to not downgrade, he/she will need to buy a minimum 2400 sf unit in the market. That means SPs should again look at the proposed apportionment if it is enough to buy a 10-25% bigger apartment in a comparable location.

·       SPs recalled that during last EOGM, Huttons and CSA did not touch upon these important inputs which were closely connected to the Reserve Price. Instead they brushed off SPs questions by mentioning that Huttons shall help SPs (and earn additional commission), in finding a replacement apartment for them.

Building Structure:

Following screenshot of slide presented in the session on Building Structure says all. SPs should be assured of integrity of this solid structure and not succumb to yet another fear tactics of Huttons that Teresa Ville structure is old and shall need higher maintenance fee.

·       An example was cited that the maintenance fees for nearby Skyline apartments for 1200 Sq ft was quoted as  $468 per month plus paid car parking. Maintenance fee for Corals at Keppel Bay ranges $665-$693 pm for apartment size 1389-1593 sq ft.

Overall it was an excellent information sharing and networking session among SPs who would like to make more informed decision with regard to selling their most valuable asset. There was visible and overall agreement that in absence of transparency and lack of efforts in maximizing proposed value of Teresa Ville, there was very low motivation to sign the currently proposed CSA, unless CSC considers all the factors which can maximize the Reserve Price and shares relevant insights on options and challenges SPs must know if en-bloc sales succeeds.

Thank you dear organizers for being community minded in organising such an enlightening session. We learnt a lot that we otherwise wouldn’t have known.

The afternoon tea provided was great too!   :-)