Big sites, bigger problems: The dilemma of Mandarin Gardens

 The reserve price for the 1,006-unit Mandarin Gardens was raised from $2.478 billion to $2.788 billion on Nov 11 (Credit: The Edge Singapore)

In light of the dampened market sentiment that lingered months after property cooling measures were imposed on July 6, Mandarin Gardens residents have made a contrarian move, with its initial reserve price for a collective sale of $2.478 billion to $2.788 billion. The land cost is also reduced from $1,236 psf per plot ratio (ppr) to $1,191 psf ppr.

The 12.47% increase happened on Nov 11, after the Mandarin Gardens Collective Sale Committee (CSC), together with its marketing agent C&H Properties, submitted an enquiry on URA’s Development Baseline Record. They then realised that the land which the 1.07 million sq ft development sits on was undervalued. Development baseline is the value of the development based on the approved use and intensity of the site.

“We were able to calculate that the developer who built Mandarin Gardens 34 years ago, has already paid for the plot ratio for up to about 2.5,” says Vincent Teo, CSC chairman. The 1,006-unit Mandarin Gardens is a 99-year leasehold project along Siglap Road, and has a current plot ratio of 1.42, according to Teo.

“The drastically increased baseline we received resulted in a corresponding reduction of the differential premium which enables us to increase the reserve price, and at the same time reduce the psf ppr [per plot ratio] for the developers,” Teo says in a bulletin addressed to residents on Nov 11.

While the Mandarin Gardens CSC has so far obtained approval from about 63% of the residents, 17% more is needed to reach the 80% level required to trigger an en bloc sale.

If a sale does go through, owners of the units can expect to pocket between $1.78 million and $5.68 million each, depending on the size of their unit.

In addition to the asking price, the lease top-up premium to a fresh 99-year lease is estimated to be about $412 million. The differential premium payable is said to be at the region of $380 million, which is lower than the initial $1.28 billion, after the confirmation of the baseline data.

Teo reckons that the new development will be able to launch at $2,200 psf.

Challenges ahead

While a higher profit margin with a launch price of $2,200 psf may seem possible, Nicholas Mak, executive director of ZACD Group, sees the cost and the sheer size of Mandarin Gardens as a challenge in itself.

For a developer to make this purchase, they will not just be paying for the reserve price, but also a number of charges to the government, which includes the lease top-up and differential premium, which adds up to about $3.58 billion. On top of that, the developer has to pay a 5% non-remittable stamp duty, which comes to $179 million. All these do not include construction costs, Mak notes.

Based on the latest URA guideline to curb excessive shoebox units, developers can still build 2,790 new units with an average minimum size of 100 sq m (1,076 sq ft), says Mak.

However, “whether your development is 200 units or 2,790 units, you're all given the same 5-year ABSD remission period to sell off all the units. For developers, this is another risk”, says Mak.

Sharing the same sentiment is Ong Choon Fah, CEO of property consultancy Edmund Tie & Co (ET&Co). Ong agrees that “large sites are a challenge given the capital outlay and the need to sell within the time frame”. But she also recognises the advantage, “in that it enables the developer to incorporate a full range of facilities and to be creative in the [design concept]”.

Contentious issue

With a tough road ahead, Mak suggests that perhaps owners of such large developments can “write in to the government to see if anything can be done to mitigate the issues of such sites”.

“This will involve changing part of Land Titles (Strata) Act, but another way is perhaps for the government to raise the ABSD remission period. Instead of 5 years they can maybe provide up to 10 years,” Mak says.

This, some analysts believe, is a contentious issue.

“How do you draw the line, to decide if a project is big enough for the policy to take place? How can a formula be created? Will it be based on the gross floor area, or the number of units?” asks Tan Kok Keong, chief operating officer of real estate investment platform, FundPlaces.

ET&Co’s Ong says that “policies are made for the medium to long term so stakeholders can better plan and manage the risks”.

“I don’t think policies should be changed just to help developers and owners as policies should address wider implications,” she says. Instead, “developers and owners will have to figure out what will work for them, given the environment”.

Mak says with the cooling measures including the 5-year ABSD remission period, “the government is stacking up the odds against the successful en bloc sales of very large developments such as Mandarin Gardens”.

But he adds: “In the case that they launch an en bloc, at least there's still hope.”

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