Paya Lebar site - Damn if you award, damn if you don't

economics of land & building

Situation - Urban Redevelopment Authority (URA) rejected the only bid from a UOL Group-Singapore Land consortium for a commercial plot in Paya Lebar. Reason given -price being 'too low' at $565.74 psf per plot ratio (psf ppr). Compared to the last awarded site in that area in April, it is actually 35% lower than the $872.16 psf ppr top bid in April.


Arguments for and against the award of the tender as follows:-

• The rejection would delay the government's long-term plans to decentralise commercial activity outside the CBD and help ease business costs and reduce congestion.

• URA has to uphold the interest of the nation ie. the secure the maximum disposal value for nation's assets.

• URA has just wasted the bidders' resources in producing a bid without the reserve price being made public prior to the start of tender assuming that price is the sole criteria in deciding an award or otherwise.

• The UOL-SingLand consortium defended their bid price after taking into consideration the prevailing volatile market, unfavourable economic outlook, site's mixed use configuration and the site being technically more challenging as the plot is split into two triangular portions by a section of Geylang River.

• URA may think that there is less urgency NOW for the development of new office space on the island given the ample pipeline supply of over eight million sq ft net lettable area. (But doesn't URA know the stats on office supply and "economic feel" before it put the land up for tender?) 

• Price is not the sole criteria for URA. In late 2007, URA had actually awarded a plot at Marina View at 45% below the price for the next-door plot awarded a few months earlier against a backdrop of escalating office rents then. (So may we know exactly why you have rejected the bid?)

• Had URA awarded the second Paya Lebar plot to UOL-SingLand at a much lower price than the earlier plot, it would put a downward pressure on the rental rate in the area as it can make do with a much lower rental or pricing level. Tenants could also benefit from the lower rental rates.

• Had URA awarded the second Paya Lebar plot to UOL-SingLand, the earlier consortium comprising of Low Keng Huat, Guthrie and Sun Venture Commercial who had paid the higher price in April, would definitely not be happy. (But on willing buyer, willing seller basis, who could they blame?)

• Had URA awarded the second Paya Lebar plot to UOL-SingLand at a much lower price than the earlier plot, it would induce a systemic shock. URA is artificially seen to have helped prop up the market. Good and bad to this, depending from whose point of view you are looking at this.

• But what is/are the criteria of assessing a tender of a site in the "confirmed" list? There are two lists where URA lists sites available for sale. The "confirmed" list consist of sites with no reserve price. The "reserve" list consists of sites with the respective minimum price acceptable to the state being made public. A site on the "reserve" list may send a signal to the market that there is less urgency for its development as compared to those on "confirmed" list. So is it urgent or not urgent for URA to develop the Paya Lebar site or is it just money not enough?

Source - Business Times and Straits Times - Nov 5, 2011.