The Singapore real estate developing market received a setback recently with two unfinished projects getting declared as indefinitely stalled. One of the projects is a freehold condo comprising of 70 apartments located at Laurel Tree which is in the Hillview Terrace estate. The other, a mixed development project which includes 96 apartment units and 17 commercial units in Joo Chiat, is known as the Sycamore Tree.
Both projects were being developed under Tan Hock Keng and were to receive temporary occupation permits by December 2016. However, construction has not moved ahead since the end of 2018 leading the controller of Housing at the Urban Redevelopment Authority (URA) to examine the funds of the said projects.
Under normal circumstances, project accounts use instalment payments received from buyers to cover construction costs. The accounts have been found to be lacking in funds highlighting why the projects haven’t moved into the next phase of construction yet.
The URA is currently investigating whether funds were misused or simply not adequate. They are examining all possible loopholes and regulatory breaches. Meanwhile, the said projects have been placed under receivership with three partners of KPMG led by Bob Yap acting as receivers.
This is the first known case of a developer in Singapore going bankrupt ever since the 1997 Asian Financial Crisis. Mr Tan Hock Keng, who was affected by the Crisis was previously known in the real estate market as a “Geylang King”. He also served as chairman and chief executive officer of Malaysia-listed Pilecon Engineering Bhd. The company was delisted following the Asian Financial Crisis.
Prior to the crisis. Mr Tan had a net worth of at least S$200 million. He owned several properties including the 170-room Katong Park Hotel in Meyer Road and the Asia Radio Hotel in Bencoolen Street. Besides he also had some lands in Delta Road, Zion Close and Upper Serangoon. This was property owned in addition to several shophouses in Geylang. With the crisis, Mr Tan faced a steep downfall and had most of his properties seized by banks. They were subsequently sold off to cover his debts.
The current projects were expected to be Mr Tan’s comeback into the property market. However, the present scenario of funds indicates otherwise.
The news has stirred commotion in Singapore’s property market. It is feared that these projects might not be the only one stalled. Though cases of projects getting abandoned are rare owing to Singapore’s stringent regulatory policies on real estate development, if the market is indeed showing repercussions of a financial crisis, the smaller developers will be the first ones to be affected gravely.
It must be mentioned that the last known case of a project being stalled due to lack of funds was that of the project, Springleaf Tower. The developers, Ban Hin Leong Group too were hit in the Asian Financial Crisis and were unable to make timely payments to the contractors. The group soon became defunct and the thirty-seven storeyed building was foreclosed by UOB which took over as the project’s mortgagee. This happened in the late 1990s.
The current projects of Laurel Tree and Sycamore Tree had investments from individuals who were waiting for their HDB homes to be upgraded.The said group of buyers have been temporarily renting flats with the hope of stepping into their new homes soon.
The UOB recently conducted a town hall meeting for the investors of both projects with the receivers. In the meeting, the buyers were informed that they currently had an option of paying a high premium top-up so that contractors could be paid to resume construction or they could sell out their investments and transfer the money to the banks. The buyers also had the option of suing the developer for damages and loss.
The meeting did not go down well with the buyers and they have sought the help of Members of Parliament and the URA. This led to a second meeting wherein the receivers announced that the bank was willing to reduce the premium top-up rates provided the buyers waived their legal rights to claim liquidation damage which currently stands at 10 per cent per annum of buyer investments.
Most buyers want the project completed rather than getting entangled in legal charges. However, many have already put in huge investments and cannot afford the top-up premiums let alone fight legal battles. They find themselves receiving the short end of the stick either way.
It has been observed that the current property market of Singapore, in general, has also flatlined recently as buyers and sellers are both waiting for a price change in their favour. This might suggest that Singapore’s property market has some grey days ahead. It is predicted that buyers will most likely return but market trends indicate this could take as long as two years.
Such a long waiting period is most likely to affect smaller developers who will have to bear the burden of increased costs to complete constructions already underway even if the projects do not manage to get a full booking.
The unfinished projects of Laurel Tree and Sycamore Tree stand as reminders to all potential buyers to be alert prior to making any investment. A developer’s track record must always be cross-examined before any property investment is made to minimise such catastrophes. Property buying is, after all, a very cautious business.
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