A ride through Singapore's property market

EVIA Real Estate is probably best known as a homegrown developer of executive condo (EC) projects, but co-founders Vincent Ong and Leslie Lim describe themselves as "accidental developers".

They had, at first, trained their firepower on bidding for industrial sites in government tenders, including Biopolis Phase 3 and Fusionopolis phases 3 and 5. Some of these were concept and price tenders, in which Evia made it through the concept stage of the competition - only to lose out on pricing, often to the big guns.

Mr Lim said: "So we lost and we decided to stay away from industrial land in Singapore."

Evia Real Estate, the outfit the duo set up in 2010, turned its attention to the Singapore residential sector. In a recent interview with The Business Times, Mr Ong said that in early 2011, the group triggered the release of two sites from the reserve list of the Government Land Sales Programme - sites in Bishan Street 14 and Lorong How Sun/Bartley Road. They failed to clinch the sites, the tenders for which were awarded to the highest bidders, CapitaLand and Hong Leong Group respectively.

Mr Lim said: "The strategy then was to trigger as many residential sites as we could afford, so that after the bigger developers had had their fill, we would get something."

Then, in late 2011, Evia bagged its first Singapore residential development site - a land parcel in Pasir Ris designated for executive condo (EC) development. The following year, it bagged another EC site in Upper Serangoon View, followed by a third EC site in Jurong in 2013.

Evia has also looked outwards, to South Korea, where it has bought a number of completed logistics assets. Today, it has a portfolio of about 2.6 million sq ft gross floor area (GFA) of industrial and commercial space in seven buildings in South Korea.

The company has two business segments - fund management and property development - with offices in Singapore and Seoul.

Fund management supports property development by providing the capital. To date, the group has raised five funds, including one each to take a stake in three EC projects - the completed Watercolours in Pasir Ris, Heron Bay in Upper Serangoon View and Lake Life in Jurong. The Evia funds' stakes in the consortiums behind the three EC developments are, respectively, 34 per cent, 35 per cent and 30 per cent.

A fourth Evia fund holds a 20 per cent stake in a consortium that put in the winning bid in June for a 99-year private housing site in Toa Payoh.

The fifth Evia fund owns the portfolio of seven buildings in Korea. These include two commercial buildings - a mall and an adjacent office block in Bundang, an affluent district on the edge of Seoul. The two buildings, making up Apple Plaza, have 1.18 million sq ft of GFA.

Since acquiring this asset in 2013, the Evia fund has undertaken asset enhancement and tenant repositioning for the mall; major tenants include Homeplus (Tesco) and multiplex cinema chain CJ CGV, and Samsung SDS has taken a master lease for the entire office block.

The companies' five logistics assets include AMB Incheon Warehouse (in the airport logistics park near Incheon Airport), AMB Incheon DC1 Warehouse, IASS Warehouse in Suwon City and JK Logis in Incheon. The first phase of JK Logis is up and running; the second is slated for completion in the first quarter of next year.

The original plan of spinning off an industrial real estate investment trust (Reit) for the logistics properties has been abandoned because of the currently high yield expectations for Reit initial public offerings (IPOs).

Having optimised its properties, Evia Real Estate (3) or ERE(3), the fund that owns the Korea assets, is in discussions to divest them in two tranches - Apple Plaza in one lot, and all the logistics assets in another lot. "We shall return proceeds from the sale to the original equity investors in the fund," said Mr Lim.

Set up in 2013 with an eight-year fund life, ERE(3) raised S$224 million equity, of which S$100 million came from Mr Ong, Mr Lim and the Ho Lee Group; the other investors in the fund include insurance companies and pension funds.

As at Dec 31, 2014, the seven Korean buildings held by the fund were valued at a total of about S$400 million. Mr Lim said: "We still have dry powder for more deals within this fund. So while we are looking at divesting, we are also looking to invest."

ERE(3) is mandated to buy commercial and industrial properties in Korea and in Singapore, although it has so far confined its acquisitions to Korea. "We are planning to be more active in the commercial space in Singapore," said Mr Lim, adding that the group is open to buying operating assets as well as development and redevelopment opportunities.

A potential Singapore commercial property purchase can be funded with some of the dry powder in ERE(3). Another option would be to buy it through a follow-on fund that may be raised next year.

Expected to have about S$500 million equity, this fund will focus on commercial and industrial properties in Korea, Singapore and possibly a third country.

As for the Singapore housing sector, Mr Ong said the group is done with developing ECs for now - unless land price goes down to a sufficiently attractive level.

The December 2013 rule change which allows buyers of new EC units to walk away from a purchase with just a 5 per cent forfeiture of the purchase price is tough to stomach from a developer's viewpoint, given that Evia is "down to single-digit profit margins'' for EC projects, said Mr Ong.

"The forfeit fee we collect is not even enough to cover the bank interest; moreover, there is a potential risk of downward price pressure," he added.

While the recent increase in household income ceiling for EC buyers will raise demand for this public-private hybrid form of housing, it will take some time for the supply overhang to normalise to more acceptable levels, said Mr Ong.

R'ST Research estimates that as at the end of last month, there were nearly 3,360 launched-but-unsold EC units; another 4,900 such units are yet to be launched.

Evia's recent successful bid for the Toa Payoh site marks the group's first foray into the Singapore private housing arena.

Mr Ong said: "We want to continue to do development in Singapore. We think there's a space and we think that the playing field is level. We are new in the market - we are accidental developers - but government policy is a very good leveller of the playing field. You may be big, you may be established, you may be small. But everybody gets affected similarly.

"And because we are small, we would like to see ourselves as being a lot more nimble, with the ability to change our plans swiftly; we have a lot less hierarchy, for instance."

By way of example, he refers to the 2012 launch of the Heron Bay EC in Upper Serangoon View, which faced stiff price competition from Riversails, a private condo across the road. Evia differentiated Heron Bay by adding a jacuzzi for some of the ground-floor units, a move which was a hit with buyers who liked the luxe touch.

For the Lake Life EC development in Jurong, which came to the market last year, the emphasis was on lifestyle and creating a community. There, Evia has made arrangements for yoga, cooking, tennis and other classes to be held, to create opportunities for residents to mingle. The initial scheme envisaged four stacks of five-bedroom apartments, but after the December 2013 introduction of a 30 per cent mortgage servicing ratio (MSR) cap shrank potential buyers' budgets, Evia cut back the five-bedders to just one stack. To be sure, it also trimmed its average price to S$857 psf from the earlier planned S$880 psf, so that a vast majority of the units cost no more than S$1.1 million.

Mr Ong said: "We did make money from this project, but it was a single-digit profit margin. Lake Life was about velocity. We did almost S$600 million sales for the project over the first weekend."

The 54-year-old describes his background as a "soft drinks salesman" who understands the market and consumers. He prides himself on offering homes his buyers would want to live in.

Mr Ong spent his early years with Malayan Breweries (now Asia-Pacific Breweries), and then moved on to head Pepsi-Cola International's business in Indochina and South-east Asia. He was Asia president for Masterfoods, a division of chocolate giant Mars, and chief executive for Auric Pacific Foods before deciding in 2006 that his favourite occupation was being a stay-at-home dad to his newborn son, Ryan.

In 2010, he came out of retirement to co-found Evia with Mr Lim.

A lawyer by training, Mr Lim was formerly a specialist in bank litigation at Khattar Wong; he next moved to ST Engineering, where he handled mergers and acquisitions. At age 34, he took a year's break from work when his son and eldest child was born.

He later joined Great Eastern Life, where he helped to set up the global private-equity programme.

An avid tennis player, the 43-year-old is a co-founder of Winchester Tennis Arena in Kent Ridge, which plugs the need for a sheltered, no-membership-fee tennis facility for the man in the street.

Both men are alumni of St Joseph's Institution.

Said Mr Ong: "Leslie and I are very different in character. Totally different: Day and night. The logic, administration, head matters come from Leslie's side.

"I deal with matters of the heart, the emotion. Neither of us were developers. We went to the market with a totally new, fresh pair of eyes."

PROPERTY LAUNCHES & INVESTMENTS

Property Launches & Investments

A ride through Singapore's property market

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