DBS: Tulip Garden en bloc shows billion-dollar deals are back, but so are risks

A Singapore 10-dollar note Photo by Leslie Shaffer

The Tulip Garden development sold from nearly S$1 billion in a collective sale, but the redevelopment of the Holland Village property poses risks, DBS said in an note last week.

While the Tulip Garden is one of Holland Village’s larger en bloc sites, giving the developer more flexibility to design a project of up to 670 units, the pricing is at the higher end of recent ranges, DBS noted. A consortium of Yanlord and MCL Land won the bid for the Tulip Garden.

“While media and agents are abuzz with excitement about the potential play into the rejuvenation of Holland Village, we note that close to 2,400 units (across nine sites) will be launched in the Holland Village vicinity in 2019 (before accounting for more units from the integrated development at Holland Village itself),” DBS said. “Competition for buyers will continue to build up in the medium term.”

DBS noted that other former Holland Village area en bloc deals — the former Leedon Heights sold in May 2007 to Guocoland and the former Farrer Court sold in June 2007 to a CapitaLand consortium — ended up with a high number of unsold units as they approached their qualifying certificate deadline in 2017. When developers fail to sell units by the deadline, which is two years after obtaining the temporary occupation permit (TOP), they can be faced with harsh financial penalties, or extension charges, from the government.

While Guocoland had margins “north of 50 percent” for its project, allowing it a buffer to hold on to unsold units, CapitaLand faced extension charges, DBS noted.

Developers could face a tougher time if they can’t sell the units in time.

“With land prices now 70 percent to 100 percent higher but selling prices yet to really move significantly since 2007, operating margins are much thinner now at around 15 percent with little room for error,” DBS said.