Perennial Real Estate could spend $321m in Goodluck Gardens redevelopment

It will jointly develop the site with Qingjian Group and hold 40% of the project.

Perennial Real Estate Holdings Limited (PREH) may have had a lucky break after it entered a joint venture (JV) with Qingjian Group to jointly develop freehold residential site Goodluck Gardens, which was awarded to the latter for $610m on 8 March, DBS Equity Research said in a report.

DBS analyst Rachel Tan noted that the redeveloped site can yield up to 720 units with a gross development value (GDV) that ranges from $970m to $1.1b. “With no further development premium payable for the site, the acquisition price translates into a land rate of $1,100 psf; estimated breakeven to be close to $1,600 and launch prices from $1,750-$1,800 psf onwards,” she said.

PREH’s capital commitment for its 40% stake in the project is estimated to be $96.5m. “Assuming a 70% project debt financing for the project will imply a total commitment of $321m,” Tan added.

As the site is within a quiet neighbourhood, Tan also noted that there are not many newly completed properties, the latest being The Terrene (competed in 2014). Moreover, transaction quantum plays around $1.5m to $2m given the larger unit sizes, whilst secondary market asking prices for the development have risen to $1,500psf. “However, given the ageing estate, en-bloc activities in the vicinity have been active. SP Setia’s site won in February 2017 is reportedly ready for launch (Daintree Residences, land bid at $940psf) with launch prices starting from $1,600psf onwards,” she added.

PREH may able to play up to this condition as one of its strengths is its ability to pair up with partners with significant capital to co-develop and share development risk with the group, Tan noted. “Whilst we see Qingjian can be seen as sharing the project risk with PREH, we do note that the consortium (PREH-Qingjian) have placed in two bids for the Holland Village GLS site, and if awarded, will add significant exposure to the Singapore property market.”

Goodluck Garden, Qingjian has two sites in its staple, with Shunfu Ville being the other and have over 1,900 units to be launched in the coming quarters, worth over $2.5bn in GDV.