Revitalising Chip Eng Seng

CEL Development, the property development arm of listed construction group Chip Eng Seng Corp, will preview the 720-unit Grandeur Park Residences on Feb 18. The 99-year leasehold condominium is located next to the Tanah Merah MRT station at the corner of New Upper Changi Road and Bedok South Avenue 3. The units in Grandeur Park Residences will be priced at an average of $1,350 psf, says Raymond Chia, Chip Eng Seng’s executive chairman and group CEO.

The developer purchased the site a year ago with a bid of $419.38 million, or $761 psf per plot ratio (ppr). This translates into a break-even price of about $1,100 psf, according to Desmond Sim, CBRE head of research for Singapore and Southeast Asia. While the average selling price of $1,350 psf may not reflect a bullish profit margin, Chip Eng Seng, being a builder and developer, has better control over construction cost than most mainstream developers, he points out.

In the vicinity of the Tanah Merah MRT station, the latest project to be completed is the 726-unit The Glades, a 99-year leasehold condo by Keppel Land and China Vanke. Last month, 15 units were sold at a median price of $1,424 psf. As at end-January, 628 units (86.5%) had been sold, according to URA data. The project was launched in September 2013 and initial sales prices averaged $1,483 psf.

On the opposite site of New Upper Changi Road is the 582-unit Urban Vista, developed by Fragrance Group in a joint venture (JV) with World Class Land, the property development arm of Aspial Corp. Launched in March 2013 at an average of $1,481 psf, the project was fully sold and completed last year.

Adjacent to Grandeur Park Residences is eCO, a 748-unit development by Far East Organization, Frasers Centrepoint and Sekisui House. The condo was completed late last year and all except one unit, a townhouse, was still available as at end-January. “We have very little competition in the area, as most of the projects in the neighbourhood are already completed and either substantially or fully sold,” says Chia. “And there’s no new competition coming up in the near future.”

Although URA has indicated that there is a “future residential development site” adjacent to Grandeur Park Residences, it has not been released on the Government Land Sales (GLS) programme for 1H2017.

Sized and priced to sell

The developer is riding on the success of its last launch, the 1,390-unit High Park Residences on Fernvale Road in Sengkang. The project was launched in July 2015 and sold 1,100 units (79%) in the first weekend at an average price of $970 psf. As at end-January, 99% of the units were sold.

“Because of the size of [High Park Residences], we could achieve economies of scale, and therefore lower our construction cost and selling price,” says Chia. “Price is always a determining factor, but the project design and lifestyle facilities are also important.”

At least 55%, or 394 units, of Grandeur Park Residences in Tanah Merah are one- and two-bedroom units of 420 to 667 sq ft. Another
173 units (24%) are three-bedroom units of 882 to 979 sq ft. The remainder are four- and five-bedroom units of 1,130 to 1,453 sq ft, as well as penthouses.

“This project is similar to High Park Residences in that it has quite a high number of compact apartments,” says Nicholas Mak, exe­cu­tive director of SLP International. “Given its proximity to the Tanah Merah MRT station, there should be some investor interest.”

Return to the fold

It has been 12 months since Chia’s return to Chip Eng Seng. He left the company in April 2015 and founded a property development and investment company called LGB Corp with several investors a few months later. LGB acquired two mixed-use project sites in Adelaide, Australia. One of the sites is located in the heart of the financial hub; the other is on the city fringe, opposite a newly built public hospital.

Since Chia’s return to the fold, he has taken on the role of executive chairman and group CEO. His father-in-law and founder of Chip Eng Seng Group, Lim Tiam Seng, 79, was elevated to the role of honorary chairman and adviser last May. Lim’s brother, Tiang Chuan, is executive deputy chairman.

Last year, Chip Eng Seng also entered into a non-binding letter of intent with Chia on the proposed acquisition of all or part of LGB. The group is still “exploring” whether to purchase the sites in Adelaide or to allow Chia to complete the projects under LGB. In the meantime, other parties have also expressed interest in acquiring the sites, says Chia.

In recent years, several property veterans have joined Chip Eng Seng. One is Chng Chee Beow, who joined Chip Eng Seng as executive director of CEL Development in 2012. Chng has more than 30 years’ experience in real estate and is the former property director of Wing Tai Holdings.

Most recently, Michael Ng, 53, joined Chip Eng Seng as executive director of CEL Development in early January and will oversee the regional business. Previously group general manager of listed property group United Industrial Corp, which he joined in October 2010, Ng was managing director of Savills Singapore from December 2004 to September 2010.

Overseas expansion

Chip Eng Seng is interested in expanding its footprint in Australia. It has been active Down Under since 2002, when it went into Ade­laide and purchased a commercial building followed by a development project a year later.

The property group’s property development arm, CEL Development Australia, entered Melbourne seven years ago when it acquired a 20,000 sq ft land parcel at 33 Mackenzie Street, in the eastern part of Melbourne’s CBD, for A$20.2 million in 2010. CEL Development Australia developed 33M, a 33-storey tower with about 350 apartments and other amenities such as shops. The developer is currently building the 71-storey landmark Tower Melbourne on the corner of Bourke and Queen Streets. One of its others developments in Melbourne is the Williamsons Estate in Doncaster.

In March 2015, Chip Eng Seng sold a 31,506 sq ft site on Victoria Street in Melbourne for A$64.8 million to Hengyi, an affiliate of mainland Chinese developer Shandong HYI Group. The site was purchased in 2013 for A$32 million and had already secured approval from the former Victoria government for the development of a 72-storey residential tower prior to the sale.

Immediately after the sale of the Victoria Street site, Chip Eng Seng purchased a 64,412 sq ft site at 15-87 Gladstone Street in South Melbourne for A$52 million. The site has received planning permit for the development of three towers with a total of 746 residences. Chip Eng Seng announced in November that it would be launching the project at South Melbourne for sale in 1H2017.

In November 2015, Chip Eng Seng paid A$27 million for two properties with a combined land area of 192,213 sq ft in the Northcote suburb of Melbourne. The site can be redeveloped into a project with 300 apartments and 15 townhouses.

The group is also interested in looking at opportunities in Perth, Sydney and Adelaide.

Besides Australia, the group is also looking to grow its presence in Maldives, Vietnam and Singapore. Other markets that it intends to explore include China, Indonesia, New Zealand and Malaysia, specifically Johor Bahru, Melaka and Kuala Lumpur, says CEL Development’s Ng.

Meanwhile, in Vietnam, the group is looking at Ho Chi Minh City. It purchased a 127,013 sq ft residential development land parcel in Nha Be, Ho Chi Minh City in October 2015 in a JV with other listed construction and property development groups such as Keong Hong Holdings, KSH Holdings, Lian Beng Group and Chia’s investment vehicle, LGB. Chia is also looking at even more substantial development and investment opportunities in the city.

Hotel development and investment

Last October, Chip Eng Seng entered into a 70:30 JV with Park Hotel Group to purchase Grand Park Kodhipparu, a 120-villa resort in Maldives, for US$65 million ($92.4 million). It is scheduled to open in 2Q2017 and will be managed by Park Hotel Group. Chip Eng Seng is open to exploring more development opportunities in Maldives, specifically villa development and hotels, says Chia.

The Maldives resort is the second collaboration between Chip Eng Seng and Park Hotel Group. The first was the 442-room Park Hotel Alexandra in Singapore, which opened in 2015 and was Chip Eng Seng’s first foray into hotel development and investment. CEL Development won the 99-year leasehold hotel site at the junction of Jalan Bukit Merah and Alexandra Road in December 2011 in a GLS land tender with a bid of $189 million ($789 psf based on gross floor area).

At the outset, Park Hotel Alexandra had an occupancy rate of more than 80% and generated a healthy cash flow for the group, says Chia. He sees Chip Eng Seng’s entry into the hospitality sector as a way to grow its investment portfolio with assets that provide recurring income.

Mixed-use developments

The Park Hotel Alexandra development includes a three-storey retail podium called Alexandra Central, adjacent to the hotel. It was carved into 115 strata retail units for sale. Launched in mid-January 2013, all but one of the units were snapped up in one day at $3,500 to $7,804 psf.

On the back of the successful launch of Alexandra Central, CEL Development bid for and won another mixed-use development site on Yishun Ring Road with a top bid of $212.1 million ($794 psf ppr) in 2013. The 99-year leasehold development comprises Junction Nine, a two-storey retail podium; and Nine Residences, consisting of twin 11-storey residential towers and six townhouses with condo facilities.

The Junction Nine/Nine Residences project was launched in October 2013, with residential units sold at an average price of $1,050 psf, and strata retail units sold at an average price of $3,606 psf. The project was fully sold and completed in December 2015. The latest resales at Nine Residences were done at prices above $1,200 psf, whereas a 140 sq ft shop on the second level of Junction Nine changed hands for $6,289 psf last October.

Privatisation not on the cards

Chip Eng Seng was founded in the 1960s as a construction group. It entered the property development and investment business in 1991 when it acquired Chip Eng Leong Enterprise. Chip Eng Seng was listed on the Singapore Exchange in November 1999. Currently, Lim and his family members hold a 74.89% stake in the company.

In the first nine months of 2016 ended September, the group announced that revenue from property development declined 3.2% y-o-y and construction revenue was down 12.6% y-o-y. Meanwhile, property investment income was up 14.1%. Earnings were down 60.9% over the same period.

At market close on Feb 15, the group’s share price was 70.5 cents; it had a market capitalisation of $437.8 million. Its net asset value as at end-September 2016 was $1.20 a share. With its price-to-book ratio now at 0.59, some investors are speculating about whether a privatisation is on the cards for Chip Eng Seng. Last year, Sim Lian Group, another construction and property development company, was delisted.

“The intention to list in 1999 was to raise capital for future expansion,” says Chia. “The Lim family has not indicated that they are moving in the direction of [privatisation].”

One of the few projects in which Chip Eng Seng still has available units upon completion is 128-unit Fulcrum, a private condo on Fort Road. The freehold project was completed in January 2016 and is subject to the conditions of the Qualifying Certificate. Therefore, all units have to be sold by January 2018 to avoid incurring extension charges.

When Fulcrum was launched in April 2012, units were sold at an average of $1,960 psf. The project obtained its Temporary Occupation Permit in January 2016, and was relaunched last April, with ave­rage prices of units sold at $1,830 psf. The project is about half sold.

As the developer has no other local launches after Grandeur Park Residences, it is actively seeking development sites in both GLS tenders and collective sale sites in the private market. Chia says, however, that CEL Development participates in GLS tenders on a selective basis.

It was not among the nine bidders at the close of the tender for a residential development site on West Coast Vale, which saw China Construction (South Pacific) Development submit the highest bid of $291.99 million ($591.5 psf ppr).

Chia makes it a point to visit a site, sometimes multiple times, before putting in a bid. For instance, when it came to the tender for the site of its MyManhattan condo project seven years ago, he spent days sitting at the MRT station or the bus stop just to watch the people passing by, and to try and envision the kind of development he could build there. “It’s important to understand the behaviour of the people in that particular locale,” he says.

At the close of the tender in May 2010, Chip Eng Seng emerged the winner of the site at Simei Street 3 with a bid of $152.69 million ($523 psf ppr). The site was hotly contested with 18 bids, as it is located across from East Point Mall and the Simei MRT station on the East-West Line.

This article first appeared in The Edge Property Singapore, a pullout of The Edge Singapore, on Feb 20, 2017.

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