Business Times - 28 Jun 2011


Historic land deal may shift the landscape

Big supply of offices and homes on its way on plum sites with $11b development value

By LEE U-WEN AND JAMIE LEE

(SINGAPORE) The historic land deal between Singapore and Malaysia, whose details were released yesterday, could have huge implications for the property sector and even the financial world.

The six parcels of prime Singapore land that Malaysia is getting as part of a massive swap deal have a gross development value of S$11 billion. These plots will be commercialised, with plans firmed up to build offices, residences, hotels and retail premises on them.

The land, which has a total permitted gross floor area of up to 501,020 square metres, covers four parcels in Marina South and two others in the Ophir-Rochor area.

This was revealed in a joint statement yesterday by Singapore's Temasek Holdings and Malaysian state investment firm Khazanah Nasional.

Both sovereign wealth funds have set up a new company called M+S Pte Ltd - 60 per cent held by Khazanah and the rest by Temasek - to develop these parcels located in the heart of Singapore's financial district.

Property experts whom BT spoke to said that the developments have wide-ranging implications for Singapore's property market and financial sector.

One analyst, Cushman & Wakefield Singapore vice-chairman Donald Han, highlighted the fact that at least 60 per cent of the 341,000-sq-m Marina South land was meant for office space, which is equal to almost 90 per cent of the total office space supply available this year alone.

He also noted how the residential component would be a 'huge big-ticket item' that the developers would need to generate funds to finance the construction of the integrated developments.

Another market watcher pointed to the possibility of syndicated loans which could get banks interested.

The developments come at a time when the market has been buoyant and some have started worrying about a future oversupply.

The joint statement also said that UEM Land Holdings, a real estate company within Khazanah's portfolio, and Mapletree Investments - a Temasek portfolio firm - have been appointed to oversee the marketing and development of the Marina South project.

UEM Land and CapitaLand, also a Temasek portfolio company, will do the honours for the Ophir-Rochor site.

The land swap deal is part of the long-standing Points of Agreement (POA) between Singapore and Malaysia which was finally sealed yesterday in Putrajaya after being stalled for the last 20 years.

In return, Singapore will take control of several plots of Malayan Railway (KTM) land - three parcels in Tanjong Pagar, Kranji and Woodlands, and another three in Bukit Timah.

In their statement, Temasek and Khazanah said that the Marina South and Ophir-Rochor land parcels will be vested in M+S once Singapore takes over the existing Tanjong Pagar Railway Station this Friday.

The Marina South site is situated between a proposed central linear park and a major public open space just above the Marina Bay MRT Station.

The Ophir-Rochor site, meanwhile, is located between the Kampong Glam historic district and the Beach Road conservation area. It has been zoned for a minimum of 40 per cent for office space and 15 per cent for hotel and other hotel-related purposes.

Mr Han reckoned that the residential properties would be well-received because of the central location and the sale of these units would enable M+S to pay for the land costs as well as the construction.

'Residential prices are still high, especially in Marina Bay, higher than compared to office use,' he said. 'Residential (prices) are in excess of $3,000 per square foot on potential gross floor area. The office component is probably about $2,500 or $2,600 (per square foot).'

He added that it was likely that a large portion of the Ophir-Rochor parcel would be set aside for residential use, with demand expected to be high from foreign investors in particular.

But considering that 60 per cent of the Marina South project - almost 2.7 million square feet - was being set aside for office development, he pointed to the dangers of oversupply. To counter this, he expected the project to be developed in phases.

Alan Cheong, associate director of research and consultancy at Savills Singapore, said that the $11 billion valuation would likely result in M+S syndicating out their loans.

This, he said, would mean that financial institutions in the region 'will probably have to take a more serious look' at Singapore in the coming years, with greater attention coming from Chinese banks.

'If you start borrowing to fund this, perhaps the Chinese banks . . . may be more creative in the financing structure. That would draw new players into the market,' he said. 'Demand chases supply. The more supply you have, you create a multiplier effect.'

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