01 April 2010

Fools - and not just for April 1st ...

Let's commemorate April Fools' Day ... because throughout the past en bloc frenzies since 1999, owners have been outfoxed by corporate developers. In turn, corporate developers were outfoxed by Gahmen and that made them cry foul, as shown in the immediately preceding blog.

The best antidote to prescribe on April Fools' Day is a potent dosage of a famous quote from Sūn Zǐ’s ( 孫子 ) “The Art of War”:


If you know others and know yourself, you will not be imperiled in a hundred battles;
If you do not know others but know yourself, you win one and lose one;
If you do not know others and do not know yourself, you will be imperiled in every single battle.

1. Land supply. As part of the effort to “know others”, let’s understand a little about land supply.

In Singapore, there are two sources of land supply:

(a) From en bloc sales – Privately owned freehold land or remaining tenure for leasehold land, most of which are typically in prime, choice, popular, mature areas or districts. Condo owners – NEVER EVER FORGET THIS – Location, location, location. Without you, how can corporate developers ever get hold of such choice sites that are already built-up?

With a choice location, the developer’s risks are much lower because the project saleability is significantly improved (ie, quicker turnover, higher price), all other things being equal. But there is less certainty in securing the land plot through en bloc sale (eg, collective sale order may not be issued if the Minority Dissenters win the legal battle, the law has been breached, etc). Also, the process will take longer (eg, in collecting the requisite number of signatures to achieve majority consent, in awaiting the outcome of legal battles, etc).

Although the en bloc process could be lengthy, developers put in their stake only at the stage of bidding, or exercise of option or execution of Sale and Purchase Agreement, ranging from 1%-5%, subject to negotiation.

(b) From Government Land Sales programme – State land, most of which would be in less prime/choice areas or districts other than some exceptions of land pockets or as a consequence of new infrastructural/re-zoning enhancements. GLS process is faster and more certain compared to en bloc route.

2. Government Land Sales (“GLS”) Programme. Let’s delve a little into how GLS works. MND works closely with the following land sale agencies (viz, URA, HDB, JTC, SLA) to sell state land under the following two systems with GLS announcements usually made twice a year in Jun and Dec:

(a) “Confirmed List” system: Where sites are scheduled to be released by Gahmen for tender at a pre-determined date each year. The award of the sites will depend on the acceptability of the prices submitted at the closing of tender and the tender period is usually 16 weeks.

Upon close of tender, Gahmen (say, URA as the land sale agency) would be advised by IRAS Chief Valuer as to the Estimated Market Value (“EMV”) against which the submitted bids would be evaluated.

In other words, nobody (not even the appointed land sales agency) would know what would be Chief Valuer’s EMV valuation until the clock strikes High Noon on the day of tender close.

Perhaps, this was why REDAS was trying to get Gahmen to disclose the Reserve Price so that their members can gauge the EMV (likely to be 15% higher than Reserve Price) so that they wouldn’t overbid in their exuberance. So it would appear that – despite their cunning - foxes are not immune from occasional exuberance, eh? I have seen wild foxes during my hike in Patagonia – Hmmm ... I wonder what does a wild cunning exuberant fox look like? As the Greek historian, Polybius, taught us – learning from our own misfortunes is the “most unmistakable”. I reckon exuberant foxes also learned in such unmistakable manner. Yeow ... (human beings say “Ouch”; foxes say “Yeow") ... searing pain no doubt!

If the submitted bids are at/above Chief Valuer’s EMV, then highest bidder would usually win and the award would be announced shortly after due evaluation. If none of the bids are acceptable, that land plot would remain on Confirmed List unchanged or with amended parameters, be withdrawn or be relegated to Reserve List.

(b) “Reserve List” system: Where a site for public tender would be launched only if a developer commits to bid at a minimum price acceptable to Gahmen (except for a bypass introduced on 8 Mar 2010, as per Para 3 below). The Reserve List system was introduced in June 2001 to inject more flexibility into GLS as it would make available sites for GLS without pre-determined tender dates. If there is no accepted application from any developer, no tender would be called for such Reserve List sites and Gahmen would not incur tender expenses frivolously and wastefully.

Upon receiving a developer’s application stating the Minimum Price at which such developer would be prepared to bid for Reserve List site, Gahmen would check with IRAS Chief Valuer. If such Minimum Price is within 85% of EMV, Gahmen would accept offer and require that developer to (i) sign an Agreement for Tender, committing to tender at such Minimum Price and (ii) make a deposit.
Consequently, similar to Confirmed List procedures, a tender would then be called EXCEPT that in a tender triggered from Reserve List, the “Minimum Price” would be disclosed. All bids submitted must be at/above such Minimum Price (including that from the developer who signed Agreement for Tender).
Upon close of tender, then highest bidder would usually win and the award would be announced shortly after due evaluation.
If no tenders are triggered, that land plot would remain on the Reserve List unchanged or with amended parameters or be withdrawn or be moved to the Confirmed List.
GLS are no fire sales nor are they at basement bargain prices. No need to die-die-must-sell! Flow-chart of revised Reserve List system (source: MND press release dated 8 Mar 2010 entitled "Enhancing the responsiveness of the Reserve List System"):

3. What the Dickens – More, more and more! As shown in previous blog entries, Progressive Corporatism pervades on this little island, whether wittingly or unwittingly. Gahmen under advice of the Economic Strategies Committee are already very accommodating towards corporations but REDAS are still grunty-grumpy! As you read on, you may be reminded of Charles Dickens’ Oliver Twist where, in the adapted Broadway musical, Oliver holds out a bowl in his tiny thin hands and asks for “more” gruel ... except that many of REDAS’ shining lights are on Forbes’ List of Top 40 Singapore Billionaires – certainly they are no Olivers!

Here are some recent “goodies” from MND and REDAS is still asking for “more, more and more”:

(a) In Oct 2008, the Confirmed List was suspended in the aftermath of unprecedented meltdown and credit freeze globally. However, on 14 Sep 2009 (ie, in less than a fortnight from an initial ministerial hint), MND swiftly announced that they would reinstate the Confirmed List for 1H2010 GLS programme.

(b) On 6 Nov 2009, Gahmen made an early announcement of land sales programme for 1H2010, thus deviating from the traditional norm of announcements in Dec. Based on Business Times (7 Nov 2009) report: “According to Urban Redevelopment Authority (URA) land sales and administration senior group director Choy Chan Pong, the market has been waiting for updates since National Development Minister Mah Bow Tan said in September that the confirmed list would be reinstated. 'Since people say there is some anxiety about housing supply, it's better to tell people now,' he explained.”

Note URA’s choice of words: “people”. Who are these “people”?

Q: Who would be directly impacted by Confirmed/Reserve Lists?
A: Corporations that are land developers.

Since when did “companies” become “people”?
Ahhhh ... but can we blame URA when they work and play together with developer corporations every other day? Remember the preceding blog entry where it was mentioned that URA and REDAS even play with their food during Chinese New Year “Lo Hei” festive dinner, eh? Isn’t it a travesty? On the one hand, Gahmen humanize corporations. On the other hand, Gahmen demonize us human being citizens as “lesser mortals”! Tsk, tsk … shameless or shameful - any difference???

In any case, this points to yet another instance of Gahmen being so understanding towards REDAS and yet it doesn’t send them to Seventh Heaven, eh?

(c) 6 Nov 2009 was also a Bonanza Day for developers as the 26 sites from Confirmed and Reserve Lists could generate 10,550 private residential units – the HIGHEST from any GLS programme since the Reserve List system started in 2H2001! No doubt, such bonanza would ultimately cascade down to end-buyers but only if the tenders are successful.

(d) On 8 Mar 2010, MND issued a press release: "To ensure that the Reserve List system remains responsive to dynamic market conditions and business needs, the Economic Strategies Committee (ESC) has earlier recommended that the Government review and make improvements to the system to make it less onerous for developers to trigger sites on the Reserve List. This will enable supply to be more easily activated when needed. ... The Government will consider launching a Reserve List site for sale once it has received sufficient market interest for the site. A site is deemed to have received sufficient market interest if more than one unrelated party submit minimum prices that are close to the Government’s Reserve Price for the site within a reasonable period."

CNA report (9 Mar 2010) elaborated: “Analysts said the change will make the Reserve List System more dynamic, especially in down cycles where reserve prices may not be in sync with market conditions. And it could also help developers obtain sites at less favourable locations at lower prices.”

Uh-oh, has IRAS Chief Valuer been defamed in public ... are these “analysts” insinuating that IRAS Chief Valuer is frequently out-of-sync in making such EMV valuations??? Maybe that’s why no names are attributed to such analysts ... wink, wink, blink, blink!

But evaluating the above change FROM ANOTHER ANGLE, it amounts to foreplay with no commitment to go all the way!!! Man, this is no rough horseplay! Rather, it is a slow dance called the foxtrot where G ("G" for "Gentleman" or "Gahmen"?) holds F ("F" for "Foxy lady" or "Fox"?) up close and personal – slow-slow, quick-quick, slow-slow, quick-quick.

It is pretty seductive. If you recall the procedures in Para 2 above, if the site stays on Reserve List, a tender would not be launched unless there is a commitment by a developer to bid at Minimum Price. But under this new "improvement", it offers a bypass because a Reserve List site would be released for tender if more than one unrelated party submits a Minimum Price that is close to Gahmen’s Reserve Price within a reasonable period. A bypass - How??? By this trigger, it would lift the commitment burden off the developer’s back (no need for deposit and no need to bid at indicated Minimum Price at the very least) and yet it would launch a tender. Whilst EMV continues to be secret until High Noon, the triggered release would be noted within the industry, bearing in mind that the developer community is relatively small in teeny Singapore (REDAS have only 128 ordinary members as of Mar 2010). The trigger is set off by the Minimum Prices submitted by more than one unrelated party that are close to the Reserve Price which "is set at 85% of the Chief Valuer's EMV" - kinda like flying a kite to check the wind direction, ain’t it?

Also, it would appear that the playing field under the "bypass" route is not as level as the "normal" way. The "bypass" route would narrow the bidding range for the parties whose interest in the site triggered the tender launch. These "interested parties" would likely bid around their trigger Minimum Prices, thus improving their chances of success whilst capping their risks of over-exuberance. In contrast, other tenderers not in the know suffer a higher probability of under-/over-bidding (whereas under the "normal" way, the Minimum Price is disclosed to ALL tenderers and that sets the base level). Although these bumps and humps on the playing field would work to the advantage of "interested parties", they do NOT ensure tender win because other tenderers may over-bid. But should the playing field even have little bumps, not to mention humps??? Should Gahmen limit the potential incidence of over-bids by creating such kite-flying "bypass" route as it could be to the detriment of public coffers? Surely "caveat emptor" should be given free rein in the Jungle where foxes roam, eh?

Gahmen should take heed that they are mere "custodians", and NOT "owners" of public coffers!!! What is already in there and what could potentially go in there belongs to Singapore citizens! At the expense of potentially compromising our public coffers, the one REDEEMING FACTOR of the "bypass" route is that the tender would NOT be awarded if the Reserve Price (ie, 85% of EMV) is not hit. Whew ... that's a close shave! Even then, as things stand, it could potentially be a 15% haircut! When you are talking about hundreds of millions or tens of billions of dollars, that 15% haircut is more expensive than the Guinness World Records' most expensive haircut by London's Stuart Phillips for Beverley Lateo in 2007 at £8,000 (perhaps records set by royalty don't count as the latest highest is chalked up the Sultan of Brunei)! [Incidentally, Ms Lateo is a retired Italian property developer! See, things just add-up, eh? Vixens (female foxes) enjoying expensive hair cuts ... at our expense, no doubt!]

Nonetheless, the industry is also highly competitive as land is precious in Singapore. Hence, there should be natural checks-and-balances as foxes try to outfox each other in a Dog-eat-Dog world. Although this is far from being a foxhunt, there is still a foxhound master on a horse (IRAS/MND) with several foxhounds padding around out there (viz, URA, HDB, JTC, SLA). Overarching these is the Competition Act (Cap 50B) and an oversight body called the Competition Commission of Singapore to ensure good order and deter bid rigging or other forms of misconduct. No doubt, the authorities would have procedures in place to cross-check and sniff-out any form of anti-competition.

In connection with the above, it was interesting to note the following views of a Mr Philip Ng Lin Ai, Director, OCSC Global, who wrote in Business Times (22 Nov 2009): "I have written to URA a few times about the need to review the policy of putting sites in the reserve list as I strongly felt that the policy is seriously flawed. URA maintained that the reserve list policy is market-driven. The property market is dominated by a few big players with large land banks. The motivation of the major developers is to maximise profit and value of their land bank and not to maintain price stability. Does it make sense to increase supply and thus lower the value of their land bank by making a bid for the sites in the reserve list? The way the property game is played is intriguing. Developers play with their cards close to their chests. URA not only plays with its cards on the table but also shows its next card. ... URA should consider the impact of its policy on those who buy properties for their own use, particularly Singaporeans. Sharp hikes in prices result in massive transfer of wealth from buyers to banks and developers. It has also serious social ramifications - on population growth, savings for retirement, and leads to discontentment." [Bold emphasis is by The Pariah.]

Such foreplay under the "bypass" route is also free. If the tender had been triggered in the "normal" way from the Reserve List, there would be a deposit of 3% of Minimum Price subject to a cap of $5mn. If developer failed to bid at Minimum Price (or higher), that deposit would be forfeited. Incidentally, this deposit was reduced from 5% previously – see, everything goes up in price but this goes down! Still not enough for REDAS?

Also, note that this change was given immediate effect - nothing wrong with swift implementation as it is a hallmark of confidence and efficiency. But it is all the more PERTURBING when applied INCONSISTENTLY AND UNEVENLY ("suka-suka", as they say in Malay - "at whim and fancy") -Contrast with my previous blog about how URA issued a circular in Jul 2008 to change GFA calculations for planters/bay windows and – despite giving six months’ notice period to developers – new projects launched in Mar 2010 continue to be under the old rules ... from 2008-2010 – Sheesh! Ditto for pro-speculation measures of Deferred Payment Scheme which was withdrawn in Oct 2007 (ie, more than 2.5 years ago) but developers could continue to offer them for projects launched in Mar 2010. Yet REDAS don’t count their blessings, eh?

For all the above (in addition to the goodies under 2009 and 2010 Budgets), REDAS still wanna gripe??? When push comes to shove, ... when accountabilities have to be answered, ... perhaps even foxes would have to be neutered as soon as they emerge from their foxholes, you think?

4. En bloc sales. Let’s understand en bloc at SOURCE, ie, this piece of legislation called Land Titles (Strata) Act (“LTSA”). A brief synopsis of how the law is skewed at the outset and continues to be skewed even after the Oct 2007 legislative amendments can be found in the blog entry made way back in Aug 2008 entitled “Greek mythology: The SOURCE and Themis” at: http://singaporeenbloc.blogspot.com/2008/08/greek-mythology-themis-and-source.html

All points made in the above Aug 2008 blog entry continue to apply today except Point 8 about “qualified privilege”. That point about "qualified privilege" has since been settled in favour of Minority Dissenters by courtesy of the Horizon Towers en bloc fiasco. Yeh!!! Through five rounds of battles (two at Strata Titles Board, two at High Court and the finale at Appellate Court), the Horizon Towers Minority Dissenters fought all the way to sweet (but expensive) victory at the end. This mega-battle paved the road for all future en bloc sales in establishing this legal point of “qualified privilege” as a landmark case law precedent! Once again, I would like to place on public record my heartfelt appreciation for the courage and determination of the Horizon Towers Minority Dissenters.

However, as they say, “Change is the only constant”. Therefore, it is no surprise that new behavioural en bloc patterns are already evolving to undermine LTSA and render it irrelevant through reverse engineering tactics whilst invoking all-powerful majoritianism. Essentially, en bloc sales would likely evolve to be legalized scams – Way to go, eh, for a country that prides herself for “rule of law”???

5. Sauce for the Gander is NOT sauce for the Goose. Just to rub it in – Office buildings owned by corporate developers are being re-modelled and converted for residential use at huge costs whilst suffering loss of rental income during conversion period. Example: 76 Shenton Way is already being redeveloped by the City Development group. Ditto for Starhub Centre on Cuppage Road and UIC Building along Shenton Way. As a Chinese folk saying goes: "Man has two hearts – no more, no less”. When the building is theirs, they will think thrice before “wasting” it. It is not a bad thing – it makes sense for building sustainability, environmental friendliness, etc.

But, on the other hand, residential gems (eg, The Futura at Leonie Hill, The Habitat at Ardmore Park, etc) face the wrecker’s ball. For these condos above 20 storeys that went en bloc, how much extra Strata Title Area was harvested through redevelopment? Did URA/BCA even bother to track and assess? In terms of Net Saleable Area, a lot more (no doubt) but that would be more a function of clever marketing and exploitative selling tactics (as opposed to effective usable space), eh?

To conclude: Picture this scene of Sun Tzu, Clint Eastwood and The Pariah gathered round a table, discussing this serious phenomenon of en bloc sales in Singapore on April Fools’ Day:

Sun Tzu stroked his beard and said: Using the yardsticks in my book of “The Art of War”, I think Gahmen and developers are in Category 2: “If you do not know others but know yourself, you win one and lose one”. What is your opinion of en bloc owners – how would you categorize them?

The Pariah snapped: Category 3: “If you do not know others and do not know yourself, you will be imperiled in every single battle“.

Clint Eastwood in “Dirty Harry” with a menacing glint in his eyes as he barely squints: “Opinions are like assholes. Everybody has one”.

The Pariah quipped: “Yeh, but some are bigger than others”.

Size matters … at times. To see who is the biggest of them all, please click on the bird cartoon at this blog-link: http://singaporeenbloc.blogspot.com/2010/03/trilogy-part-c-pm-said-i-am-saying.html

If you wanna hear a fox howl from its fox-hole, please click on this: