At the close of the tender for the Marina View government land sales (GLS) site on Sept 21, there was only one bid, and that was made by developer IOI Properties.
IOI Properties was also the developer that triggered the site for tender on June 28, where it committed to a minimum bid of at least $1.508 billion.
The lone bid came as a surprise to DBS Group Research analysts Derek Tan, Rachel Tan, Dale Lai and Geraldine Wong, as the site is located within the central business district (CBD) and is supposedly a highly anticipated site.
The developer’s final bid of $1.508 billion is just $101 above the minimum bid, which the analysts took to mean as symbolic, considering its similarity to IOI Properties’ name.
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The price, which translates to a land rate of $1,379 psf for the 1.09 million sq ft gross floor area (GFA) development, was considered “decent” for the site’s prime location, according to the DBS team.
“This is especially when tender prices in most recent tenders, especially in the suburban space have been inching up towards the S$1,100 psf per plot ratio (ppr) to S$1,200 psf ppr range,” they write in a report dated Sept 22.
According to the tender documents, the 99-LH Marina View White site is expected to be developed into a mixed-use development consisting up to 905 residential units and 540 hotel rooms.
Given the ongoing Covid-19 pandemic, the commitment to build a hotel on the site may have been a dampener for prospective developers who may prefer a “quick-turn” strategy instead, notes the team.
In addition, the expected high quantum per residential unit could mean that the market for the development is likely to be the well-heeled, as well as foreigners.
The analysts add that luxury developments in the CBD such as Marina One Residences and Wallich Residences also took time to clear, with unsold units remaining after achieving their temporary occupation permit (TOP).
“In today’s market, where developers have to incur additional buyer stamp duties (ABSD) by completion, and in this case seven years, will also be a hurdle to achieve given the sheer number of units for sale,” they say.
That said, the land has ample buffers to make good returns.
Assuming that the land is awarded to IOI, the gross development value (GDV) is estimated to be at $3.0 billion to $3.2 billion, based on a 70% residential, 28% hotel, and a 2% commercial development mix.
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On this, the analysts have estimated the breakeven for the residential development to be at $2,400 psf to $2,500 psf, and a potential return of 25% for the project.
“Given the location and views, we believe that IOI will likely want to position this as a luxury project, with residential units in the vicinity already trading at $3,200psf - $3,500 psf (Wallich Residence) while Marina One Residences is currently trading at $2,500 – $2,700 psf,” they write.
“While there is certainty viability on the hotel component, we believe that with completion five years away, it is well timed to capture normalised travel demand, in our view. With room rates rates of up to $400 per night, yield on cost is expected to be around 5.2%-5.5%.”
Photo: Samuel Isaac Chua/EdgeProp Singapore