This (above) is the plot of land that the Urban Redevelopment Authority (URA) said half a billion dollars was way too cheap. Last week, they rejected the sole tender bid offered for it. Meanwhile, office rents in Singapore are now the sixth most expensive in the world, jumping about 50 percent over 2010, as you can see from this report in Economist magazine:
The plot of land in question (ivory-coloured in the map below) is close to Paya Lebar metro station. While that’s a huge advantage for commercial space, it brings its own complications construction-wise, because a tunnel runs underground along its western side, as you can see from this map:
You will have noticed immediately from the photo and the map that the site is also bisected by a concrete canal. Any sane developer would take seriously into consideration the difficulty of building on a site with tunnels and a canal running through it.
The URA in its advertisement 26 July 2011, ignored the tunnel and made a big deal about the ditch:
The 2.07 ha site, which can generate about 87,000 sqm of [Gross Floor Area], is envisioned to be good-quality mixed-use development comprising office, hotel and retail uses. At least 40% and 15% of the maximum permissible GFA of the proposed development on the subject site must be set aside for office and hotel use respectively. The remaining GFA can be for additional office, hotel, retail, entertainment or food & beverage uses.
A section of Geylang River flows through the sale site. This provides an excellent opportunity for the successful tenderer to integrate the water body into future development and bring life to the riverbanks. The developer is encouraged to transform the river into a clean, dynamic and aesthetically pleasing waterway . . .
I looked hard at that “river”. Even in a week with rain almost every day, it was nearly dry with dirty brown water stagnating at its lowest point. A scenic waterway it most certainly was not. But here’s the funny thing — even as the offer envisioned an aesthetically pleasing development, the same 26 July 2011 announcement by the URA said:
The tender will close at 12 noon on 18 October 2011. Selection of the successful tenderer will be based on the tendered land price only.
There you have it. The bottom line is price, price and price. You could design an ugly, brutalist stack of concrete boxes, and the URA really couldn’t care less.
In the end, there was only a single bid, a joint one by UOL Venture Investments Pte Ltd. and S.L. Development Pte Limited, for S$529.5 million, working out to S$6,086 per square metre of GFA (equivalent to S$566 per square foot of GFA), According to the Straits Times, this was 35 per cent less than the price of a nearby plot sold just six months ago (Straits Times, 5 November 2011, Govt rejects lone bid for Paya Lebar site, by Esther Teo). Especially as the world economy is looking sickly for the next five years — even the China engine is slowing down — it should hardly be a surprise that that was the case.
On the one hand, you could say, well, if the economy is softening, we don’t really need the extra commercial space, so it’s no great loss if the site is not developed. On the other hand, you might argue that precisely because the economy is softening, we should take this opportunity to take advantage of lower costs, develop the site in order to offer competitive rents, thus lowering Singapore’s office costs.
The problem is the reserve price, an unknown figure that bureaucrats use to judge whether or not to accept a tender bid.
This time round, the URA’s announcement has reignited a debate among industry players on whether the Government should leave pricing to market forces or reveal the reserve prices of sites.
The reserve prices of confirmed sites are not disclosed to bidders.
The bidding consortium said they were ‘very disappointed’ at not being awarded the site, adding that it was a setback to decentralisation plans.
‘We had planned to hold the asset as a long-term investment. The rejection came as a surprise to us, given that our bid price was fair in view of the site’s technical challenges… recent global economic turbulences and enhanced market risks,’ it said.
‘As price consideration was the only reason given for the rejection, it would be useful that, for future land tenders, the reserve price be made known to the public as much cost and effort are put into submissions of such a scale.’
Mr Colin Tan, Chesterton Suntec International’s research head, said he was disappointed that URA did not award the site.
Developers often bid at higher and higher prices in a bullish market, leading to property prices increasing in tandem.
He said this was a missed opportunity to highlight to them that bullish bidding is not without risks as the developer winning the next site at a much lower bid will be a strong competitor when it comes to selling prices or rentals.
The system now appears to ‘protect’ the investment of the over-the-top bidder, and so leads to an upward bias in land prices, Mr Tan said.
— Straits Times, 5 November 2011, Govt rejects lone bid for Paya Lebar site, by Esther Teo
As the report pointed out, our government land sales system contains a bias pushing up prices and serves to protect those who have bid foolishly high in previous rounds. In boosting average land values, it also increases property taxes. It’s a system that maximises revenue for the government and lays out a safety net beneath expensive developers, at the expense of Singapore’s long-term competitiveness. This example also undercuts the government’s claim that land values are left to market forces.
Moreover, although this site was zoned as commercial, it will no doubt have knock-on effects on land valuations of residential property, including land transferred to the Housing and Development Board (HDB) for public housing. Already, it is believed — and the government, in its refusal to disclose details, has not said otherwise — that more than half the selling price of a 99-year leasehold of an HDB flat actually consists of notional land value alone.
We really need a more transparent system. A good place to start is a Freedom of Information Act and a determined push to Open Data.