Tuesday, 5 June 2007

The Question of Reserve Price

It all boils down to this - the Reserve Price. What is the value of our home, and by this, we don't just mean the individual unit prices, but the land value. Taking advice from Dr Minority, I looked through the URA caveats lodged website (from his blog) and found that in the past year, only 2 units in BGV were sold.

The interesting thing was the price difference:-
Mar 2007 - $848psf
Apr 2007 - $1252psf

This represents a 47% increase in a month alone. Now some may say this is because the buyer in Apr 2007 was anticipating enbloc potential, so paid a premium for it (ie artificially inflated). So I looked at the various properties within 500m from BGV, a fair enough assumption given that land value will be pegged approximately to the prevailing market rates for units around the area. So that includes, Botanic Gardens Mansion, Grange Residences, Nassim Jade, Nassim Mansion, Nassim Park, St Martin Residences, Tanglin Residences, The Loft. The URA site gives prices for units sold from June 2006 to May 2007. Here are some numbers :-

  • The average psf for the proximity is $1649 (across the year, across all units)
  • Average for BG Mansion is $850 or $200 less than the average for BGV.
  • Most expensive estate is Grange Residences = Average of $1979psf
  • The average psf in the proximity has been increasing steadily from June 06 to May 07, about $70 per mth, from $1161 in 06/06 to $1998 in 05/07.
  • Eng Lok Mansion, the closest enbloc, was sold at $1218 psf ppr (Mar 2006). Next nearest are Leedon Heights ($1062 psf ppr), Beverly Mai ($1184 psf ppr). If you look further towards Grange Road, you'll get reserve prices at about $1700 psf (Grange Heights).
This is not counting the unique site of BGV being close to Botanic Gardens, which will attract a significant premium for any developer hoping to sell units redeveloped in BGV. And since we're talking about land value here, and not estate or unit value, the average pricing for these other nearby developments have to be taken into account, including new estates like Grange Residences.

What does all these mean?

  • To buy a replacement new unit in the same area would cost at least $1979psf (based on Grange Residences (GR) average) or ranging from $2091-$2237 psf from Apr 07 prices of GR alone. Given that GR is a few years old now, any developer can easily build and sell new units in BGV for more than $2300 psf. In other words, if we wish to stay in the same place again, near BGV, we're looking at about at least $2000-$2300 psf to buy a new condo unit.
  • In Nov 2006, Napier Properties said it plans to redevelop Eng Lok Mansion into a 10 storey, 46 unit high end condo, priced "at the top end of the Singapore luxury residential market and possibly a new benchmark". The price cited in Nov 2006 was high $2000 but given the bullish market, one can easily expect it to go up to $3000-$3500. That'll be our new luxury neighbour. We can expect that any developer that buys our estate will be using "Napier 8" (as it will be called) as a benchmark and will almost certainly develop high end luxury condos in BGV. Considering that nowadays developers are touting $4000 psf as the high end pricing for luxury condos, this is not unrealistic.
  • Will we be able to get an exchange unit in the new development? Not very likely, given the price difference between a new high end condo of about $3000-$3500 and the average of about $2300psf for the area. I think a major top up will be required, unless the developer decides not to build luxury condos (highly unlikely). It means we'll be hard pressed to get a similar unit in the same area, unless you move further westwards (towards Farrer/Holland) or towards River Valley or Bukit Timah.
  • So what should the reserve price be? If we work backwards from the figure of $3000-$3500 as a target price for developers to sell new units, and considering that developers typically factor in about 40-50% for costs and profit, a conservative reserve price would be about $2000-$2500 psf.
Are you happy with this RP? Almost certainly you won't be able to buy anything in the new BGV or Napier 8. You might be able to get something in Grange Residences with some topping up, but I've heard complaints about the structural quality of GR (you can hear neighbours from the thin walls).

Agents say you may not be able to afford new properties but there are plenty of slightly older properties nearby that are within reach. True, but how many years before those go enbloc?

I urge you to think carefully, before the agents do the song and dance and try to persuade you to sign the CSA...!

(Thanks to Dr Minority for helping with the numbers)

1 comment:

Dr Minority said...

The Reserve Price (RP) is the lynchpin in any enbloc sale, especially for the fence sitters. The question any owner has to ask is not simply "how much will I get for my property", but (a) "will the enbloc sale offer the maximum potential profit for my property" and for some, (b) "will the proceeds allow me to buy a replacement home in the same area".

Be wary when there are clauses in the CSA that allows the sale committee (SC) to revise the RP upwards (typically without the consent of owners). This simply means they MAY revise it upwards, not they WILL revise it upwards if market improves. Some SC/agents are high risk takers, which mean they might be daring enough to go for a high RP and see if developers bite; others are low risk-takers - they are afraid that a high RP may cause developers not to bid, and hence the sale will fail. Which is your SC, only you know (or you may not).

There are other factors as well related to RP - timing is one. Look at Waterfall Gardens, sold at $550 in Feb 06. If they had waited just a year or so later, after Leedon Heights was sold at $1062, they would almost certainly have doubled their profits. In a year.

You need to ask - is now the right time to sell? What is it about our estate that makes it unique and hence a prime location for development? Is this uniqueness enough to fetch a premium, on top of what the current market rate is for land value around the area?

These are not easy questions, and just as important - the answers should not come from the SC or agents alone. It should come from you, on what you feel is the best value you can obtain for your home, before you'd give it up.

If you decide to give it up.

Dr Minority