SPECIAL INTERVIEW: Tracy Goh, Head of Investment and Collective Sales
Real estate deals tend to make news headlines in Singapore and those around collective sales in particular, appear to garner lots of interest. Many would recall the flurry of successful en bloc sales in 2017 and 2018, before another round of cooling measures in July 2018 virtually grounded the collective sale market momentum to a halt.
With the strong home sales and recovery in market sentiment recently, PropNex Picks speaks to Tracy Goh, Head of Investment and Collective Sales to find out about her thoughts on the collective sale market prospects and insights on what makes a development ripe for en bloc.
TRACY: I have been in the real estate business since 1990 and was a Key Executive Officer of a real estate agency for 20 years. Over the years, my passion in this business is driven by a simple mission, and that is: I have to add value to my clients to differentiate my service from the rest. To me, “Adding Value” is defined as educating my clients to invest in properties that have a good potential to appreciate in value in due time. I believe that if I can help them make millions, naturally I will stay relevant and stay in business and will have plenty of referrals.
In the 1990s, rental returns were a great investment strategy; one could get as high as 8% for gross rental income. Back then, interest rates were high, averaging at about 5% per annum. Though a high rental income was a fabulous strategy but it started to drop as we entered into a new decade from year 2002 onwards, where the interest rate averaged at around 3%. The high rental returns strategy was getting difficult to execute and from year 2009 onwards, I recommended my clients mostly to invest in “en bloc-able” properties, where they could realise a handsome profit should the development gets sold successfully via collective sale. And that is when my interest in collective sale intensified and it is still going strong today.
TRACY: This question is actually quite hard to answer; in my en bloc course which I used to conduct in year 2017 and 2018, it took me seven hours to answer that question in teaching my students on “what is considered as en bloc potential”. Those who went through the course started to understand the myths of en bloc such as if the property is very old, it definitely has en bloc potential – which is certainly untrue.
The first thing that we need to find out is the existing gross floor area (GFA) of a project. Surprisingly, some of the old projects’ GFA have been maximised, hence, there is no en bloc potential. And some other projects have been rezoned from apartments/condos to landed zoning which limits redevelopment.
In all our analysis, we are basically studying the current land prices and whether a particular project has collective sale potential at today’s land prices. Many sites have failed to en bloc because owners have high expectations of land prices and they do not understand that the site has to be attractively priced in order to interest developers. I believe many owners have the attitude of selling at future prices.
TRACY: I would say it is the attachment to their homes. For some of these owners, their home represents great sentimental value – perhaps it is their matrimonial home - and they are not motivated by en bloc proceeds at all; nothing you say will move them to agree to sell.
Price expectation is the other challenge. Some owners want a very high price and that will certainly make the en bloc project look unattractive.
TRACY: Developers spent more than $5.1 billion in acquiring 14 residential and residential and commercial at 1st storey sites since Sept 2018 to Nov 2020. This showed that they have appetite for land. Based on our interactions with developers, I would say they are looking around for sites but they remain prudent and are not likely to be keen on overpriced en bloc sites.
Indeed, new home sales were robust last year. The pandemic has not affected everyone equally. Although many Singaporeans have been retrenched and/or suffered a pay cut, there are also buyers who did financially well and they are likely the ones who snapped up new launch projects, which helped to support home prices last year. Another point to note is that the HDB upgraders have also helped to boost sales. Many sold their flat and upgraded to a residential resale or new launches and landed property. So, I would say that Singapore did amazingly well in this pandemic which was unseen in any other recessions previously. Previous crises had an impact on home prices, but last year home prices held up well.
The Singapore government’s response to the pandemic has also helped to steady the market. Various measures such as helping companies, protecting jobs, and deferring mortgage loans payment gave the market a lot of relief and therefore nobody panicked and sold cheap. In addition, the effective control of the pandemic and gradual recovery in the Singapore economy also give rise to optimism and people are confident to enter the property market.
I certainly believe that developers are no longer pessimistic about the real estate market but rather they are cautiously optimistic that their business will continue to do well as they navigate the way forward. Hence, I believe that collective sale projects that are rightly priced will find buyers. I would not be surprised that this year 2021 could see at least another $2 billion to be spent in acquiring land sites.
TRACY: The easiest way to invest is to follow the flow of the market. It is obvious that the real estate market is doing well in segments that are mostly mass market and affordable; meaning in all areas, especially Rest of Central Region (RCR) and Outside Central Region (OCR) where you see new projects launching at an affordable quantum and the psf price is digestible at less than $2,300 psf and $1,800 psf respectively. For the Core Central Region (CCR) projects, if they can launch at less than $2,800 psf, we should see good take up rates generally. From that perspective, collective sale sites that are asking for less than $1,200 psf per plot ratio (psf ppr) for RCR and under $1,000 psf ppr for OCR land sties should garner some interest.
For the high-end luxury market where the end selling prices are closer to $3,500 psf and above, I believe that the buying demand will return soon when the borders re-open and affluent buyers return to invest their money in Singapore (even if they have to pay a hefty 20% ABSD for residential property purchase). I foresee this high-end market will pick very soon.
There is a lot of liquidity looking for the right investment opportunities. Singapore’s ability to manage the pandemic and roll out timely measures to support the economy has impressed many investors. In addition, Singapore is safe, has a stable political environment, ease of doing business and transparent processes. Hence, a record number of family offices have been set up in Singapore last year and I believe the trend will continue into this year. Some of the capital inflows coming to Singapore could find their way into the real estate sector, be it the commercial or residential segment. Overall, I expect real estate will continue to do well in these coming years, further strengthened ironically by the pandemic as funds flow into Singapore.
The Singapore property market has a relatively positive outlook, and the slew of cooling measures will continue to ensure the market moves in a sustainable manner, avoiding a boom and bust scenario. So, in a way, you could say the cooling measures actually led to a more stable environment for developers. Looking ahead, I think developers are not afraid to buy land, they only need to manage costs well, launch the projects at an affordable quantum, and create a product that is super appealing to buyers - with good layout and functional space to give home owners a compelling reason to upgrade to a new home that can give them everything they need to work, live, play and entertain.