Good year to buy GCBs

/ The Edge Property |

March 4, 2016 11:00 AM SGT

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Transactions in the Good Class Bungalow market picked up towards the latter part of last year, and signs are that the trend could continue this year. Nine GCBs were sold in 3Q2015 and another nine in 4Q2015, bringing the tally for 2H2015 to 18. This figure is higher than the 15 sold in 1H2015 and 13 sold in 2H2014.

“On the whole, sellers have lowered their expectations and they are more prepared to negotiate with potential buyers,” says Douglas Wong, head of luxury homes, CBRE Realty Associates. “There is still a healthy level of interest in this class of property.”

Wong sees the softening prices of GCBs as a window of opportunity for high-net-worth individuals — “particularly younger end-users in their late-30s” — to own their first bungalow.

For this group of GCB buyers, the wait for sellers to lower their price expectations has paid off in this property downturn, he adds.

This year, the GCB market is likely to remain measured because of weaker economic conditions and rising interest rates, reckons Wong. He expects that 25 to 35 GCBs will be sold this year, as the price gap between sellers and buyers narrows further. Last year, a total of 33 GCBs were sold for $714.8 million, compared with 28 in 2014 for $626 million, and 29 in 2013 for $682 million. Average GCB prices fell 5.3% y-o-y from 2014 to 2015, and the expectation is that it could ease another 5% in 2016, according to CBRE data.

More motivated sellers Mary Sai, executive director of investment and capital markets at Knight Frank, says: “The higher number of transactions in 2H2015 compared with 1H2015 was probably because some owners who had been hoping that the ABSD [additional buyer’s stamp duty] would be lifted [realised] that it wasn’t going to happen anytime soon. Because of weakening economic conditions, they lowered their price expectations. These are the pragmatic sellers who believe it is better to achieve a sale and cash out now than to hold on.”

Some GCB transactions that took place towards the end of last year reflected sales by such motivated sellers. For instance, the GCB on Cable Road was sold for $22 million ($1,293 psf) last November, whereas the asking price was $30 million three years ago. In addition, a GCB on Yarwood Avenue was sold for $15.7 million ($971 psf), versus an earlier indicative price of $20 million; and a GCB on Peel Road that was sold for $19.5 million ($1,258 psf) was said to have had a price tag of $28 million a year ago, according to property agents.

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“There’s still this tug-of-war going on between buyers and sellers,” says Samuel Eyo, managing director of Singapore Christie’s Homes. “Even as sellers have adjusted their asking prices, buyers are marking down prices even faster.”

Interest has clearly returned, judging from the number of enquiries since the end of last year. “The uptick in transaction volume in GCBs mirrors that of luxury condos in the prime districts,” says Eyo. “Having seen prices come off, these high-net-worth investors believe it’s a good opportunity to enter at this point.”

Unlike condos, GCBs are limited in supply, with only 2,400 to 2,500 units out of a total stock of 10,738 detached houses as at end-4Q2015. “Every GCB is unique in terms of location, land size and contour,” says Eyo. “Buyers are realising that they cannot wait for the lowest price. If they see a GCB they like and they don’t buy now, they may not have the opportunity to buy that same GCB till five to 10 years down the road.” Eyo brokered the sale of a GCB on Dalvey Road for $26 million ($1,724 psf) last November.

Prices are at an attractive level today, with GCBs in good locations such as Holland and Tanglin areas now in the $20 million to $25 million range, and those outside the prime districts priced below $20 million, says William Wong, managing director of Realstar Premier. “At $20 million, prospective buyers can find a boutique GCB in a reasonably good location. Gone are the days when GCBs were sold for at least $30 million.” Wong brokered the sale of a GCB in Bukit Sedap for $20 million ($1,004 psf) last December.

Recent significant transactions include the sale of a relatively new GCB in King Albert Park for $25 million ($1,493 psf) in January by SC Global Developments, and another on Peirce Road for $24 million ($1,479 psf) with a caveat lodged in February. “The transactions have been at fair market price, in the $1,400-to-$1,500- psf range,” says K H Tan, managing director of Newsman Realty. Tan is believed to have brokered the recent sale of the GCB at Peirce Road and the one on Peel Road last November.

Big plots for sale Testing the market today are two GCB plots that can be sub-divided. One is a 1960s cottage- style GCB in Brizay Park, located just off Old Holland Road. The GCB sits on a triangular freehold plot of 29,787 sq ft with a sloping terrain. The property, which has two entrances, has received URA outline planning approval for sub-division into two smaller GCB plots of about 15,000 sq ft each.

Located on East Sussex Lane, in the Holland Road neighbourhood, is another GCB with similar attributes. It is a 1970s-style bungalow sitting on a freehold land area of 34,631 sq ft, with a sprawling garden, garage and swimming pool. The house also has two entrances and is leased to an expatriate family who has lived there for the past decade. The GCB site can be carved up into two smaller land parcels of about 17,000 sq ft each.

The sole marketing agent for both GCBs in Brizay Park and on East Sussex Lane is Knight Frank’s Sai. The GCB redevelopment sites in Brizay Park and on East Sussex Lane are being offered for sale by expression of interest, which will close on March 14 and 17 respectively.

The guide price for the GCB on East Sussex Lane is $1,100 psf, or $38 million. The other GCB at Brizay Park is being sold on a view-tooffer basis. Market indication for Brizay Park is in the $1,200-to-$1,300-psf range, which translates to absolute prices of $35.7 million to $38.7 million. “The asking price for both GCB parcels is realistic and pegged close to valuation,” says Sai.

She foresees interested buyers being mainly end-users, families who want to buy to redevelop into two GCBs for themselves and their children, or siblings who want to live next to each other. The GCB could also interest investors who may consider building two new GCBs — keeping one for their own use and selling the other. “Developers buying today are also concerned about ABSD,” says Sai. “As the site will have fewer than four houses, they will have to develop and sell the two GCBs within three years to be eligible for the remission on the 15% ABSD.”

Using the guide price for the GCB on East Sussex Lane as an example, assuming construction cost of $4.5 million to $5 million for a new GCB today and land cost of $19 million after sub-division into two smaller GCB sites, the total development cost is likely to be $24 million each. Assuming a 10% profit margin, the selling price of each new GCB on the site will be $26 million, estimates Sai. “If the market improves two to three years from now, however, the developer could sell the new GCBs at completion for a higher price of $28 million apiece.”

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Another GCB that is quietly on the market and also on a big plot with potential for sub-division is on Yarwood Avenue. It sits on a freehold land area of 69,546 sq ft, which can be carved up into four GCB plots. The owner purchased it for $59.5 million ($856 psf) in 2011, and did minor renovations before moving in.

A 1960s cottage-style GCB in Brizay Park is on the market for sale by expression of interest.

Click here for more bungalows at Brizay Park.

The GCB on East Sussex Lane sits on a land area of 34,631 sq ft and can be carved into two smaller plots of about 17,000 sq ft each

Mortgagee sales not a trend in GCB segment, say consultants Last year, there was a sole mortgagee sale of a GCB — a semi-completed one on Binjai Rise that sits on a land area of 17,035 sq ft. The house was put up for auction twice before being sold via tender by Colliers International. The GCB was sold for $13 million ($763 psf), according to a caveat lodged last August. When it was first put up for auction in April, the opening price was $19.5 million but drew no bids. This was the only distressed sale in the GCB market last year.

The buyer is niche developer Link-THM, which is controlled by entrepreneur Kenny Tan, according to a property ownership search. “The mortgagee sale at Binjai Rise does not signal the start of a trend,” says Grace Ng, deputy managing director of Colliers International. “There may be more mortgagee sales emerging in the large semi-detached and detached houses segment this year as the TDSR [total debt servicing ratio] and ABSD have made it difficult for vendors who are in financial distress to sell the properties on their own.” Ng does not foresee GCB prices falling significantly as well.

GCB prices have corrected 10% to 15% over the past two years, and Realstar’s Wong projects that they could correct 2% to 3% from now until mid-year before stabilising. “This is a good year to buy a GCB,” he says.

This article appeared in the City & Country of Issue 718 (March 7, 2016) of The Edge Singapore.

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