Keppel Land Limited: Edging out the competition at Sengkang

Top bid only 4.5% higher. On Tuesday, HDB announced that Keppel Land (KepLand) put in the highest bid for the land parcel at Sengkang Square at $287m or $502 per sq ft per plot ratio. The site area is 17,700 sqm and has an allowable GFA of 53,100 sqm (plot ratio of 3.0). The 99-year leasehold project will consist of a condominium development with an estimated 530 units. KepLand edged out the next highest bidder by only 4.5%. We note that, unlike the results at the recent Bishan GLS site, the sizes of all nine bids at this tender came in within a relatively tight range, i.e. within 20% of the median $240m bid by MCL Land Limited.

Smack in the middle of Sengkang. The site is situated at Compassvale Drive within walking distance to the Sengkang Polyclinic, Compass Point shopping mall and Nan Chiau Primary School. In terms of accessibility, it is close to the Sengkang MRT station and expressways such as the Tampines Expressway (TPE) and Kallang-Paya Lebar Expressway (KPE).

Demand from HDB upgraders is key. Judging from the recent URA data for Feb 11, we see signs that buyer sentiment is softening due to the latest government curbs. However, we think this project will likely be profitable due to its location near the MRT and, more importantly, captive demand from HDB upgraders in the nearby Sengkang, Hougang and Punggol estates. We calculate this project to break even at $913 psf. CDL recently sold over 75% of 200 units launched at the nearby H2O project at an "early bird price" of $920 psf, and we think that prices there will eventually settle between $950-$1,000 psf. If KepLand is able to launch expediently, its Sengkang project can likely sell at $1,000 psf. This translates to an NPV (net present value) of $37m, or an IRR (internal rate of return) of 5.8%, assuming four years to TOP.

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