There was a shock this week when the government announced the demolition of 68 to 74 Thomson Road. Although this is an older building, it is also freehold property; and due to its good location (it’s right across from United Square) it could be a devastating loss for the owners.
This property was noted for its bulk potential, given its prime location and proximity to United Square Mall. What happened here presents important lessons for homeowners and investors:
What happened at 68 – 74 Thomson Road?
68 – 74 Thomson Road is a mixed-use building, completed in 1964. It is a small development (8,352 square feet in total), located approximately six meters from where the new North-South Corridor Tunnel ( NSC) will be dug through Thomson.
Proximity could impact the old building, but studies had already taken place in 2013. At the time, it was deemed suitable to take charge of the construction.
However, in 2020, engineers from the Land Transport Authority (LTA) who conducted their impact assessment came to a somewhat different conclusion – they said the building’s foundation needed strengthening.
Owners and tenants were asked to move out temporarily, which happened in February of this year. From what we understand, some homeowners and tenants have even left most of the existing furniture intact, hoping to return.
Last Friday (April 16), however, the owners were notified that the entire development would be demolished. They would be compensated according to the Land Acquisition Act, although the exact amount has not yet been disclosed.
(The law states that it must be based on the market value of the land, but this may open some disputes).
What is the probable value of the land?
There is no existing price data for 68-74 Thomson Road. However, we were able to locate some properties nearby, to get an idea of the price.
The closest point of comparison would be Lion Towers and Derbyshire Heights, which are adjacent. Although transaction volumes are low, these surrounding developments are also both fully owned:
1. Lion Towers
Location: Essex Road (District 11)
Number of units: 52 units
The last transaction in 2018 was $ 1,343 psf.
2. The heights of Derbyshire
Location: Derbyshire Road (district 11)
Number of units: 24 units
The last transaction in 2020 was $ 1,339 psf.
It is possible that, if the valuation approaches this, it will be roughly in the same range (around $ 1,400 psf). If so, that would only amount to around $ 12 million for the whole development. A bit gross, considering it has a prime location near a mall / office.
(This is only a guess, so we could of course be wrong, and the authorities can be much more generous).
How much would a new replacement house cost?
Let’s say homeowners want to buy a new condo in roughly the same area. That would be Fyve Derbyshire, which is located about 150 yards (it’s also a freehold condo). Here’s how much it would cost them:
3. Fyve Derbyshire
Location: Derbyshire Road (district 11)
Completion: Est. 2022
Number of units: 71 units
The median developer price was $ 2,346 psf, with the lowest price at $ 2,295 psf and the highest at $ 2,397 psf.
|APRIL 4, 2021||657||2390||$ 1,569,000|
|APRIL 3, 2021||592||2,372||$ 1,404,000|
|MARCH 24, 2021||657||2 295||$ 1,506,925|
|MARCH 14, 2021||797||2397||$ 1,909,000|
|FEBRUARY 25, 2021||936||2 301||$ 2,155,000|
|February 5, 2021||592||2350||$ 1,391,000|
Latest transactions at Fyve Derbyshire
As you can see the price disparity would be huge, if 68-74 Thomson is really struggling with a value of around $ 1,400 psf.
Some key lessons we can learn from this:
- Freehold doesn’t always mean forever
- Look beyond unit maintenance to older properties
- Never assume you can get out via a bulk sale
- Keep abreast of changes in the neighborhood
1. Freehold doesn’t always mean forever
The Land Acquisition Act applies whether your property is freehold or only during the first few years of a 99-year lease. If the government needs your land, it can take it with fair compensation (that is, regardless of the value of the licensed expert).
So if you have the impression that freehold ownership will be passed down from generation to generation, chances are you are wrong.
Even if a bulk sale does not happen at some point (few condos go 40 years without a collective sale), keep in mind that an increasingly crowded Singapore may prompt the authorities to buy it back.
By the way, not all forms of “freehold” are created equal.
This is why some investors are willing to pay a premium for freehold properties that are conserved or in conservation areas (at present these include Boat Quay, Chinatown, Kampong Glam and Little India). It’s not just for the added prestige.
These investors are simply aware that due to conservation efforts, it is less likely than a freeway, MRT lane, etc. be built across their neighborhood or property.
2. Look beyond unit maintenance to older properties
68 – 74 Thomson Road was built on a shallow foundation. These are foundations that transfer the load of the building only to the surface of the ground, rather than to a deeper layer.
According to our surveys, this type of foundation is more common among older properties, which predate newer condos (the first condos did not appear until around the 1970s). As such, it’s more likely to be found among older walk-up style apartments, as opposed to a full-fledged condo.
In any case, there was an early warning for 64-78 Thomson Road. This dates back to 1994, when parts of the building had to be supported by piles; this followed the demolition of a neighboring building.
Singapore’s real estate market is used to a high level of building security, so we rarely question such issues when they arise; it is possible that the following buyers were not even made aware.
The 2013 study, which gave the building the green light, likely led to even greater confidence.
But as this recent example shows, you should take note of these details when purchasing older buildings. If work has been done to strengthen the structure, always find out why; these may reflect issues that cannot be resolved.
3. Never assume you can get out through a bulk sale
Some owners of 64 – 78 Thomson Road had found the property to be an ideal prospect for a bulk sale. They’re absolutely right – without this turn of events, their property is ideally located for a redevelopment: it’s across the street from the mall and in one of Singapore’s top locations.
The development was also small, with few actual owners (we understand there were only 16 units (commercial and residential), 14 were leased.
This composition suggests that it would have been easier to achieve consensus in any attempt at collective selling.
However, even with all the proverbial stars lined up, all hope of a bulk sale is now lost with the acquisition of the land; and it is likely that simply the market value will be much lower than what a block would earn.
It’s a good reminder that there are many things that can stop a collective sale; and that you shouldn’t bet too much from your wallet.
4. Stay on top of changes in the neighborhood
Most people don’t go beyond surface level checks like knowing what new malls are popping up nearby, when the MRT station will be finished, etc.
It is important to go beyond that, such as knowing that Orchard Road is being redeveloped or that Woodlands is becoming a regional hub. It’s not just about spotting investment potential; this is because it highlights issues such as new roads or new MRT tracks.
It is important to note where these improvements will take place and if your property will be affected. Even if it does not result in the acquisition of your property, the change can bring new inconveniences.
For example, having an MRT station built near your condo could improve profitability; but it can also mean having an elevated track nearby, which vibrates all the windows on a given floor and siding.
So when looking for future improvements in the neighborhood, don’t just focus on the positives. Also consider the negative aspects, for example if you will be facing increased traffic congestion or if construction nearby would impact your property.
In defense of 64 – 78 Thomson Road, the owners were informed in 2013 that the building was fit to stay; but now you know how to take such news as a skeptic.
This article first appeared in Stacked houses.