EL Development’s rising star

Source : The Edge – 13 Jun 2009

Evan Lim & Co’s property development arm has scored a few successes and now plans to acquire more residential development sites

THE PROPERTY MARKET stirred when Illuminaire on Devonshire, the first launch in a prime district (District 9) for the year, saw all its units snapped up within three days of previews. Also noteworthy was the average price per sq ft (psf) achieved at $1,700 psf, which was not exactly low.

Who would have thought that the property’s developer EL Development (managed by 34-year-old Lim Yew Soon, the youngest of four sons running the family owned and privately held construction company, Evan Lim & Co) would see success barely three years after leaping into the property development business.

Evan Lim & Co was started by Lim’s father in 1962, and when he joined the company in 2005, he was tasked with the ubiquitous role of “business development”, which he says involves “looking at possible overseas ventures and tie-ups”.

“It was also coincidental that I felt that the property market was starting to move then,” he explains. “And since we’re in the construction business, rather than waiting for jobs to be given to us, I thought, ‘Why couldn’t we do our own projects instead?’”

The successful launch of the 72-unit Illuminaire further boosted sentiment in the property market, and is proof that the run-up had filtered up from mass-market projects in 1Q2009 to the mid-tier and even high-end developments. “I guess we just managed to hit a sweet spot where people were still willing to pay despite the higher psf,” acknowledges Lim, the managing director of EL Development. For Lim, Illuminaire represents more than just a development project: He was the first buyer in the project, purchasing a two-bedroom unit, and it is also his first property investment.

Lim reckons most of the buyers of Illuminaire are investors looking at future rental aincome. “It’s really quite difficult to find a freehold property that’s so near Orchard Road and yet costs less than $1 million,” he says. Based on the current market rental rate and the pricing of Illuminaire, investors are looking at rental yields of 4% a year.

The idea of one- and two-bedroom units for Illuminaire was sparked by a conversation with a friend who had asked Lim: “As a developer, what would you invest in?” Accordimg to Lim, his reply was: “Something freehold, centrally located in the prime districts or near an MRT station, and priced under $1 million.”

That got him thinking — perhaps he could develop something like that with his Devonshire site, an en bloc purchase of the former Devonshire Lodge on Devonshire Road for $37.2 million in 2007. Driving around the Devonshire Road and St Thomas Walk neighbourhood, Lim noticed that most of the high-end condominiums featured large units. For example, in the immediate neighbourhood of his site on Devonshire Road is Keppel Land and Chip Eng Seng’s joint venture project, the recently completed 157-unit The Suites at Central. Unit sizes here range from 635 sq ft for studio apartments to penthouses of up to 3,730 sq ft.

Down the road is The Metz — the 27-storey, 169-unit high-end condominium by MCL Land, which was completed in 2007. Studio units here are from 581 to 818 sq ft, two-bedroom apartments are from 1,066 to 1,184 sq ft, three bedrooms start from 1,496 sq ft and penthouses range from 3,197 to 3,229 sq ft.

UNTAPPED POTENTIAL

It then dawned on Lim that there was untapped potential for a project with small one- and two-bedroom units in the prime Orchard Road districts, where there is a surfeit of large luxury apartments. Last June, Lim and his architect went back to the drawing board and reconfigured plans for what would have been two- and three-bedroom apartments of 1,100 to 1,300 sq ft, into a new development with exclusively one-bedroom apartments of 441 and 463 sq ft as well as two-bedroom apartments of 635 and 721 sq ft. Thus, the two-bedroom apartments are about the size of studio apartments at The Suites at Central and The Metz.

Lim also priced the units in such a way that the quantum price for one-bedroom apartments was under $800,000 while two-bedroom apartments were tagged at below $1.25 million. He confessed he was initially worried that the market might not accept the average selling price of $1,700 psf, deeming it as being a tad on the high side given the fragile economic environment. But the three-day sell-out had proved that his initial concerns were unfounded.

Illuminaire has also set a new price benchmark for the neighbourhood at $1,700 psf — both for existing projects as well as upcoming launches. Around the corner on Devonshire Road, the showflat of Allgreen Properties’ One Devonshire project is buzzing with activity as private previews are expected to start on June 16. According to market sources, the indicative price is pegged at $1,700 psf. Knight Frank is the marketing agent for the development.

The Suites at Central, which started previews in 2006, saw transaction prices ranging from $1,300 to $1,400 psf back then, according to caveats lodged with URA Realis. Prices subsequently ran up to $1,800 psf in July 2007, although some units changed hands at above $2,000 psf in the sub-sale market. However, when property market sentiment turned south, prices in the sub-sale market followed suit and went back to the $1,400 psf level in 1Q2009. But since April, resale prices have crept up again with caveats lodged in the $1,463 to $1,750 psf range in April to May.

The prices at The Metz basically followed the property cycle from 2004 to 2009. Units were first sold in the $1,200 to $1,300 psf range in late 2004. In the sub-sale market, prices went from $1,400 psf in early 2007 to the $2,000 to $2,500 psf range by early 2008. This year, according to just two caveats lodged in May, a two-bedroom unit went for $1,601 psf and a studio apartment changed hands for $1,755 psf.

EL Development acquired four sites from 2006 to 2007 including the Devonshire Lodge purchase. The first acquisition was the Esquire at Mount Elizabeth, a prime condominium site just off Orchard Road, for $32 million (or $791 psf per plot ratio) in 2006, and the other was Curzon Lodge in Kampong Java Road, for $30 million the following year. In November 2007, it picked up a 1.6ha condominium development site at Woodlands Avenue 2 and Rosewood Drive for $56 million, and was the highest of eight bidders for the Singapore Land Authority (SLA) site in a tender.

PROVING SCEPTICS WRONG

When the newly minted boutique developer softlaunched Rhapsody on Mount Elizabeth (the former Esquire site) in early 2007, the luxury boutique development with 32 units was sold out in six weeks at an average price of $1,725 psf. There was a kerfuffle at the showflat when a buyer refused to sign the option-to-purchase agreement issued by Lim until he had proof of Lim’s age and assurance that he was authorised to issue the options. The buyer insisted on seeing Lim’s identity card. “It was quite a joke, but I thought it was okay to let him see it, so I did,” he says. “I was 31 then.”

That was the company’s “first real venture as a property developer”, recalls Lim. “Naturally, we encountered people [who] were sceptical as they thought that being a building contractor, we did not have much experience in property development.” Rhapsody on Mount Elizabeth will also be the first project in EL Development’s portfolio to be completed, with the Temporary Occupation Permit (TOP) expected by year-end.

EL Development was set up as a separate subsidiary focusing on property development in 2007. The success of Rhapsody on Mount Elizabeth “got us seriously thinking about putting more emphasis on property development and, besides residential, we also do industrial developments. So, we grouped all the property development businesses under EL Development,” he says.

As for the SLA site at Woodlands Avenue 2/ Rosewood Drive, EL Development soft-launched the first phase of 100 units of the new condominium Rosewood Suites last November. It priced the project at an average of $600 psf. “It was actually not a very good time because the whole market was slowing down,” admits Lim. It was just two months after the collapse of Lehman Brothers, which froze credit markets and most developers’ launches. “But we did not pull back, and decided that, since we couldn’t wait for the market to improve, we might as well go ahead and launch the first phase since there weren’t many other new developments in the area.”

So far, all 100 units have been sold, and Lim plans to release the second phase of 100 units for sale “in a month’s time”. He declines to comtive ment on pricing except to say, “I won’t say it’s much higher across the board because some of the units are larger. We will revise the prices but still keep it affordable”.

The company, whose FY ends on May 31, generally sees revenue of around $120 million a year based on the construction business alone. Including the property development business, Lim reckons that revenue next financial year, could top $200 million. “We have not recognised revenue from the last few projects because we recognise revenue only upon TOP,” he explains. “In future, contribution from property development could hit as much as 40% to 50% of total revenue, as most of our projects are substantially sold.”

BALANCE OF RESIDENTIAL AND INDUSTRIAL PROJECTS

Lim’s development projects are strategically diversified across market segments within the residential sector — from mass-market to high-end projects — and he is comfortable with condominium developments of 50 to 200 units. He also balances his development portfolio by diversifying into industrial projects, something the company understands well. Evan Lim & Co was the builder of The Synergy in International Business Park and the Jurong Logistics Hub for JTC Corp.

In mid-2006, EL Development had tendered for and won a 1.5ha URA industrial land parcel at Woodlands Industrial Park, its maiden industrial development project called Nordix. It launched 38 units of terraced factories for sale in March 2007, and all units were taken up within two months. “It’s a terraced factory where the first floor is the production area, the second floor can be part-office and part-quality control room, while the third floor can be used as workers’ dormitories. So, it’s a selfcontained building,” says Lim.

The group also has a project called Jurong Food Hub, a ramp-up factory building that is under construction. The site, which EL Development had won from a JTC land sales, is 2.2ha and there will be 142 units for sale. TOP for the project is expected next June. “[The industrial sector is] a bit slow because of the uncertain economic outlook,” concedes Lim. “Unlike sentiment in the residential sector, which has picked up significantly, [the] industrial [sector] is still lagging behind. We feel that most of the factory units will probably be taken up when it obtains TOP.”

BROTHERS WORKING TOGETHER

While Lim now heads the property development business, his eldest brother, Yew Ghee, is in charge of overseas projects, mainly developments in third-tier cities in China. Second brother, Edward, is managing director of Evan Lim & Co, the construction company, while third brother, Ken, manages Aik Chuan Construction, a developer of workers’ dormitories. It is one of the dominant players with four workers’ dormitory sites and a total of 20,000 beds.

“We each have our own area of focus,” says Lim. “We help each other out too. We hold monthly board meetings whereby we sit down and raise the problems we face, and work together to resolve them.” The boardroom at the Evan Lim & Co building in Mandai Estate is a favourite meeting place for the brothers, who only consult their father, the chairman, on major decisions.

Incidentally, the company also has another industrial plot at Mandai Estate, near their headquarters, Evan Lim Building. “I think we should wait for the economy and the industrial sector to pick up before deciding what to do,” says Lim.

Prior to EL Development and Lim’s forays, Evan Lim & Co had stints as a developer only when the company redeveloped its former office building at Jalan Jurong Kechil into the 36- unit condominium block Charisma View, which was completed in 2002, and when it built a 102-unit condominium in Geylang called The Alcove that obtained its TOP in 2004.

Until 2005, the company had been largely an HDB contractor, having built the massive Bukit Merah redevelopment of HDB blocks involving 1,196 flats, completed in 2005, as well as the 655-unit HDB housing development of high-rise flats in Ang Mo Kio. It’s recognised by the Building and Construction Authority as an A1 general builder, the highest category among builders, which means it is allowed to tender for public building projects of unlimited contract value. Other notable projects include Nanyang Technological University’s School of Biological Science, the refurbishment of the old Hill Street Police Station into the Ministry of Information, Communication and the Arts headquarters in 2000, and the building of the Parliament Complex on the corner of High Street and North Bridge Road, completed in 1999.

For now, the bright spot is residential, and the group is looking to acquire more land. “We have more or less exhausted our landbank,” says Lim. “We are actually open to looking at any deals that are worth doing at the moment.”