RLV ATTEMPT

This post was first put up sometime in 2012 - and changed a few times ... not sure when it was last modeified

The Reserve Price is a calculation, arrived at by computing the Residual Land Value of the site after deducting all the various components.

First let me go to 2 examples of RLV's - they are not the originals from Round 1, but a spreadsheet based on reverse calculations from data given.  One RLV was more detailed than the other. Both over-estimated the DP/DC by between $22 - 32 million. The actual DP/DC payable was $107m (unless of course, that did not include the lease top-up, but just the DP component ...... which gives me pause for thought.....). Another point to ponder is the fact that TC is actually not 99yr leasehold , but rather 101 yrs 6 mths from 1 Dec 1985. Every detail translates into $millions here and there. The new lease will be to 99yrs.

Anyway, have a gander

SINCE THE RESERVE PRICE IS NOW over 1 YEAR OLD - THE SALE COMMITTEE REALLY OUGHT TO GET A VALUATION DONE TO DETERMINE A NEW RP. IT IS NOT CORRECT TO PROPOSE A RP IN 2011 AND SIT ON IT UNTIL THE JOB IS DONE.

The below table  is already OUT OF DATE

I have plugged in the selling price of a new unit at $1200psf

If I plugged in $1150psf:-

I have given a high ballpark figure of $300m for the DP and Lease Top-up, much higher than even the present MA's estimate. 

I have used the higher end values for construction costs ; a generous $323 psf

The land financing is a total guess, but $25m higher than the current MA's to be on the safe side.

'Efficiency' is very important and at the STB round 1, the 2 formal valuations showed 100 and 110% efficiency, and the 'experts' on the panel didn't bat en eyelid. . This is quite the norm in mass market developments as my tracking  here seems to indicate.  The formal valuations added in the bonus GFA when computing the RLV. The present MA's calculation is only 95% GFA (incl balcony bonus) out of a possible 110%;    10 -15% less than in round 1.

I have not done a comparative sales method as this method is almost totally subjective and therefore quite useless. Developers use the RLV method, so we should, too.

The word you hear most often is that the RP has to be REASONABLE.  Now, reasonable means different things to different people.

The MA's 'Reasonable'

Reasonable here means the developer gets far in excess of the 10% profit,  and the MA a guaranteed sale for their commission.

The Owners 'Reasonable'

Many owners still look at their units and can't quite believe they are worth $1.7 to $1.9 million. They are right, their individual units are not worth $1.7 to $1.9 million, the developed LAND is. Their notion of what is reasonable is dictated  by their state of indebtedness, their needs and their bank account balance . Emotion and non-objectivity play havoc with 'reasonable'.

What owners must realise is that 'Reasonable' has to be a calculation. First you must establish the TRUE value of the site through a proper, independent valuer and then collectively decide on the 'reasonableness' of any discount (the carrot).

After that, the SC has to keep an eye on the mass market/DC changes every 6 months  and adjust the RP (upwards only) when required. This is their job, basically, if they do nothing bit sit on the agreed RP and issue platitudes instead of action, then they are completely useless as a SC.

Anonymous said:

There were two URA land sales in year 2010 in Tampines/Simei area which provide good benchmark for the land value of TC. 

The data will prevent SC from underselling TC.  

1. WaterView Site: 8 bids, Result - $421 psf/ppr. $421 psf/ppr will translated TC's land value to $827,702,419 = $1.47m per unit(702,157sf * 2.8 * $421 psf/ppr)  

2. Simei plot (My Manhatten) - 18 bids, Result - $523 psf/ppr. $523 psf/ppr will translated TC's land value to $1,028,238,710 = $1.83m per unit (702,157sf * 2.8 * $523 psf/ppr)  

Hence, $1.47m to $1.83m (may include DC/DP) is a fair estimation of TC land value in year 2010. URA's Release of 4th quarter 2010 real estate statistics on 28 Jan 2011 revealed that prices of private residential properties increased by 2.7% in the 4th Quarter 2010 and 17.6% for the whole of 2010.  

With the latest round of Government measures in Jan 2011, the prices increases may be slower in year 2011 and 2012 but the increases should be projected into land value.  

With the above data, $1.7m is a fair minimum RP for TC tender in year 2011.  

Please note that there were 8 bids and 18 bids received for Tampines and Simei sites respectively in year 2010 URA tender. 

Please recalled the PA (Round 1) said in the STB Hearing about TC tender result with only 1 bid received in year 2008: -  

"we launched a tender, okay, we launched a tender to gather feedback ..." - 

"The market speak for itself..."  

(Note: In the same year 2008, WaterView site also received 1 bid in URA tender.)  

The same PA started to advertise all positive points about TC when they were selling individual unit after Round 1.  

This is a good reference for us to access the commitment and marketing skills of PA selected for Round 2.  

When PA starts to talk bad about TC, we should know they are trying to sell low and get their commission. 

 Regards