Government Land Sales (GLS)

Why URA adopts open tender system

MR XU BaoQiu asked why the Urban Redevelopment Authority (URA) rejected a recent low tender bid for its Paya Lebar site but accepted an apparently similar low bid, relative to another site nearby, in a 2007 land tender in Marina View ('Inconsistent land tender awards'; last Wednesday).

The circumstances behind the two tenders were dissimilar.

First, the tender parameters for the two Marina View tenders were different. One was essentially an office block while the other contained a hotel component.

The lower tender bid for the latter was assessed to be fair market value at that point in time.

Second, there was evidence of some competitive bidding for the Marina View tender, with the second bid being 6 per cent lower than the successful bid. The Paya Lebar tender attracted only one bid.

We adopt an open tender system for the Government Land Sales Programme. This ensures a rigorous evaluation process, taking into consideration not just the reserve price, but also broader development considerations, such as the prevailing market conditions and the attributes of the site.

There are separate tender evaluation and tender award committees to ensure objective assessment.

The reserve price is an important guide for the evaluation process, but it is not applied rigidly.

We do award tenders even below the reserve price, but not automatically.

As a practice, we do not reveal the reserve price as it may deter some developers from bidding and will not be in the public interest.
Marc Boey
Group Director
(Land Sales & Administration)
Urban Redevelopment Authority (URA)
ST Forum, 17 Nov 2011

So what is the 'right price'?

Conrad Raj, TODAY, 15 Nov 2011

The authorities appear to be in a dilemma: Get the best price from land sales to fill the government coffers, or bring the cost of business down.

The recent rejection of a bid by United Overseas Land (UOL) and sister company Singapore Land for a parcel of land in Paya Lebar (picture) leaves not only the lone bidder peeved but the public somewhat confused.

The Urban Redevelopment Authority (URA) rejected the bid because it felt that the offered price was "too low". But the URA had earlier reportedly told potential bidders that "selection of the successful tenderer will be based on the tendered land price only".

Why then the change of mind on the grounds that the bid was too low? "Too low" must be taken to mean that the offer by UOL and SingLand was lower than the reserve price which is never publicly disclosed. What then is the right price? Also, now the URA has come out to say that the reserve price is not the only factor in determining whether the Government awards a site and that "revealing it would colour developers' assessments - and bids".

The Straits Times quoted the URA as saying that "it would not be 'meaningful' to reveal the reserve price to influence developers' independent assessment and bid prices, which is dependent on many factors including their risk profile and their outlook of the market".

All sorts of information, including the "reserve price", would determine the final bid by the developer. Disclosing the reserve price would only ensure that the developer does not waste time, effort and money making an altogether fruitless bid.

The URA was also quoted as adding: "It would be more meaningful for the Government to make its own assessment of the developers' independent bid prices, taking into consideration the reserve price, in deciding whether to award the land parcel."

For a State that often talks about transparency and letting market forces decide prices, I find the arguments somewhat strange. Why are market forces not allowed to operate in the business of land sales?

In the first place, having a reserve price is contrary to letting market forces decide the outcome. Not disclosing it adds to the uncertainty of a bid which is not cheap to make, as developers have to hire architects and designers in coming up with something to please the URA. Furthermore, the URA had earlier said the outcome of the Paya Lebar bid would be determined by price only.

One letter writer to the media said last week: "While there are merits to the argument that it should always try to get a good price for state land, it should also consider the business and social impact of its high land price policy."

Having too many subjective elements in arriving at a decision can lead to all kinds of suspicion and allegations. Why should any government body be subject to that?

The UOL-SingLand consortium, in expressing its disappointment with the outcome, said: "The rejection came as a surprise to us, given that our bid price was a fair one in view of the site's technical challenges and resultant impact on layout as well as the recent global economic turbulences and enhanced market risks."

In view of the fact that UOL-SingLand was the only bidder, its offer under the circumstances must be deemed the "right price" in the present business climate. Why else were no other developers interested in participating?

Conrad Raj is editor-at-large at Today

'Not meaningful' to reveal reserve price
Doing so will colour developers' assessments and bids, says URA
Esther Teo, The Straits Times, 9 Nov 2011

THE reserve price is not the sole factor in determining whether the Government awards a site and revealing it would colour developers' assessments - and bids.

The Urban Redevelopment Authority (URA) laid out its policy for The Straits Times yesterday, noting that the reserve price serves only as a guide and is not a rigid formula in deciding a tender.

It had awarded sites in the past even when the top bid was below the reserve price, a URA spokesman said.

The URA's response comes after a joint bid by UOL Group and Singapore Land for a Paya Lebar mixed-use site was rejected for being 'too low' on Friday. The consortium issued a terse statement asking for the price to be made public for future tenders 'as much costs and efforts are put into submissions of such a scale'.

UOL and Singapore Land were the sole bidders, offering $566 per sq ft per plot ratio for the site - 35 per cent less than what a nearby plot achieved just six months ago. The latest site, however, had certain technical constraints such as a canal running through it and a hotel component that limited the number of bidders.

But the URA said yesterday that it would not be 'meaningful' to reveal the reserve price to 'influence developers' independent assessment and bid prices, which is dependent on many factors including their risk profile and their outlook of the market'.

'It would be more meaningful for the Government to make its own assessment of the developers' independent bid prices, taking into consideration the reserve price, in deciding whether to award the land parcel,' the spokesman added.

The reserve price system has worked well and has not deterred sites from being sold under the government land sales (GLS) programme, the URA said.

Associate Professor Sing Tien Foo of the National University of Singapore's department of real estate said revealing reserve prices could mean an increased likelihood of bids clustering around the number, which is not ideal for competitive bidding and correspondingly the filling of the state's coffers. It might also hinder the best use of land as developers might work around the figure in conceptualising their finished product.

But some developers said they wanted a minimum price - or at least a guide price - set for GLS sites to give them a clearer indication of how much to bid. EL Development managing director Lim Yew Soon said he 'totally agrees' with having the reserve price public.

He added that the Government can be flexible and make qualifications that the price is indicative. If the market turns abruptly within the tender period, which can take about two months, bids below can still be accepted, Mr Lim noted.

Mr Herman Chang, managing director of Macly Group, said having a guide price instead of a minimum price would mean a more efficient way of bidding, one fair to all parties. 'Presently, some developers might think that land price might be too high and decide not to bid. But with a guide price, they know whether it's within their estimates or not and this might attract more bidders instead,' he said.

Industry watchers also weighed in further on the Government's decision to reject the Paya Lebar bid. They noted that a re-tender would not necessarily mean a higher bid. It is also unclear how the Government decides whether to award a site as there have been low and single bidders awarded land in the past.

In November 2007, the higher of two bids for a land parcel at Marina View was about half the price of a site next to it sold two months earlier. The site was eventually awarded.

But URA said that it is not fair to make a direct comparison on the tender evaluation results between the two sites.

'While both tenders for the Marina View ... and (Paya Lebar) sites were evaluated based on the same principles, the prevailing market conditions and other relevant factors such as the attributes of the sites were different for both sites.'

Paya Lebar site: Was bid really too low?
Colin Tan, TODAY, 11 Nov 2011

Two important questions have emerged following the Urban Redevelopment Authority's (URA) decision last week to reject the sole bid for a Paya Lebar commercial site. One is whether the bid was too low and the other is whether the reserve price should be revealed for future state tenders.

A consortium comprising UOL and Singapore Land was the sole bidder, offering S$566 per sq ft per plot ratio for the site. This was 35 per cent less than what was achieved for a nearby plot six months ago that attracted ten bids. The latest site, however, had certain technical constraints, such as a canal running through it and a hotel component.

Following the URA's rejection, the consortium - which put in the S$529.3 million bid - issued a terse statement asking for the reserve price to be made public for future tenders "as much costs and efforts are put into submissions of such a scale".

The authorities have responded that the reserve price is not the sole factor in determining whether the sites are awarded. They say it is simply a guide and revealing it would not be meaningful as it would colour developers' assessments - and bids.

Shedding more light on this, Associate Professor Sing Tien Foo of the National University of Singapore's Department of Real Estate said revealing reserve prices could mean an increased likelihood of bids clustering around the number, which would not be ideal for competitive bidding and correspondingly the filling of the state's coffers. It might also hinder the best use of land as developers might work around the figure in conceptualising their finished product.

The above argument sounds reasonable except that we tend to forget that developers do not submit offers of what they think is the fair market value. They submit bids to win, which is an entirely different matter.

In fact, recent evidence shows that the reverse may be more applicable. "Triggered" plots from the Government's Reserve List have been just as competitive, if not more intense, and the winning bids often about 50 per cent above the revealed reserve price.

Leaving reserve prices aside, the matter I was most interested in is whether the UOL-SingLand bid was too low. In terms of gross floor area allowed, the second plot is 40 per cent larger than the first. We know that - other things being equal - larger plots command a lower psf price than a smaller one.

The second plot also has a hotel component, which is a wild card for most developers. Not many have experience in developing hotels, let alone a good track record of doing so. Hotels are also more of a long-term investment property. You cannot strata-title the rooms and sell them individually to re-coup your investments.

Even assuming that the sites are strictly comparable, is the comparison with the winning bid for the first site fair? If I hold an open house for my apartment and receive a total ten offers, what is the fair market value for my apartment? Is it not the average or median price of the ten offers?

Using this method to compute the fair value of the first site, the UOL-Singland bid would only be 11.8 per cent lower when compared to the mean and 9.2 per cent lower when compared to the median price. On a psf basis, the consortium's bid would have ranked higher than four other bidders in the first tender - two of whom are listed entities.

After this analysis, can anyone still describe the offer from the consortium as opportunistic? And the authorities should be reminded - if they do not already know it - that their main objective is not revenue maximisation but to meet business and housing needs.

Colin Tan is head of research and consultancy at Chesterton Suntec International.

Inconsistent land tender awards

THE Government must be more transparent, consistent and market-driven in its land sales regime ('Govt rejects lone bid for Paya Lebar site'; last Saturday).

While there are merits to the argument that it should always try to get a good price for state land, it should also consider the business and social impact of its high land price policy.

It remains unclear how the Government could award two sites at Marina View to the same foreign developer in 2007 at a price differential of a hefty 45 per cent in a matter of just two months.

If the argument is about the shortage of supply, the Government may want to be reminded that it takes some four to five years to construct and complete a project.

The awarding of land tenders in 2007 would have a direct impact on available office space, rents and prices only today.

If the current tender at Paya Lebar was not awarded because of the fear of oversupply, why then was the tender launched in the first place?

The office market and decentralised hubs like Paya Lebar would have changed again in four years when the economy comes out of the current doldrums and we may run into shortage again.

Second, it seems counter-intuitive for the Government to insist on selling land only at high prices while blaming speculators for spiking property prices, and at the same time, trying to put a cap on final selling prices of properties with strict controls to stem price increases.

As for land tenders and greater transparency, I recommend that the Government disclose the minimum price and let developers bid on the margin above it.
Xu BaoQiu,
ST Forum, 9 Nov 2011

Ensure adequate land supply; leave prices to market forces
THE Government should review its current land sale policy ('Govt rejects lone bid for Paya Lebar site'; last Saturday).

Property prices are primarily determined by the forces of demand and supply, but the reality is that land cost, being the single largest cost component, drives the price floor on which developers peg their selling price.

If the current policy artificially props up land value, then the real estate market could become dysfunctional since there would be an upward bias in the end product price.

Primary metals and other natural resources, such as oil and gas, are also subject to the forces of demand and supply, and their traded prices reflect the underlying derived demand for the final end products from which they are made.

The Government should ensure adequate and continual supply of land as and when there is demand at a price that attracts competitive bidding.

By rejecting bids based on price alone or withholding supply of land, the Government could be sending a signal that it is trying to sustain land price, and this would feed property speculation frenzy, which distorts the healthy development of our property market.

The Government should release land constantly based on demographic profile and economic development, but should leave prices to market forces.

To ensure a sustainable development of the property market and fulfil its social role, the Government could tighten the development period and implement targeted measures to weed out speculative property developers accumulating land bank and non-owner-occupied property buyers crowding out genuine buyers.
Ee Teck Siew,
ST Forum, 7 Nov 2011

Govt rejects lone bid for Paya Lebar site
URA says price offered too low; sale plan now being reviewed

Esther Teo, The Straits Times, 5 Nov 2011

THE lone bid by a developer for a mixed-use Paya Lebar site has been rejected by the Government for being too low - the first such rejection in three years.

The decision, announced by the Urban Redevelopment Authority (URA) yesterday, confirmed speculation that a rejection was on the cards after the tender closed on Oct 18, more than two weeks ago, with just one bid that was well short of expectations.

The price offered by joint-bidders UOL Group and Singapore Land for the office, retail and hotel site comes amid a sharp drop in sentiment over the office market here due to global uncertainty.

They offered $529.5 million for the 2.07ha site at the junction of Sims Avenue and Tanjong Katong Road.

The bid works out to $566 per sq ft per plot ratio - 35 per cent less than the price of a nearby plot sold just six months ago.

The last time the URA rejected a bid was in October 2008, during the global financial crisis, when the price offered for a transitional office site in Mohamed Sultan Road was too low.

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.

Cushman & Wakefield Singapore vice-chairman Donald Han said the bid was likely rejected as it would mean a systemic shock and too sudden a drop in land value in a short period of time.

A bright spot, however, is that developers now have a guide as to what a 'too low' price might be, he added.

SLP International research head Nicholas Mak said revenue from land sales goes towards the nation's reserves and, as custodian of the state's land holdings, the Government reserves the right to reject a bid if it is deemed too low.

But the large amount of new office space that is due to become available soon could also have lessened the urgency to award the site, he added.

A URA spokesman said that it will review what to do next with regard to the sale of this site. It added that the Government is committed to sustaining the development momentum of transforming Paya Lebar Central into an attractive and vibrant hub for business and leisure.

Several private and public projects have already been initiated in the area, such as the office development on the first sale site sold and the redevelopment of the former Lion City Hotel, the spokesman added. UOL won the tender for the Lion City Hotel site.

'Several government agencies are also studying the feasibility of relocating their offices to Paya Lebar Central,' he said.

Office rents inched up 0.9 per cent in the three months to Sept 30, while prices gained 3.7 per cent.