Tong Eng gives new life to ageing assets

Tong Eng gives new life to ageing assets

Tong Eng Group faced one of its most trying moments during the mid-1980s. Shortly after the group bought Serangoon Plaza and around the time it completed the development of Eminent Plaza in Lavender Street, Singapore slipped into a recession. "The property market tanked and we went through difficult times renting out the two buildings," recalls Teo Tong Lim, group managing director at Tong Eng Brothers.

"I have gone through a few recessions. The main thing is we have been able to survive because we do not overgear and so we have been able to weather the difficult times.

"Property is cyclical and we have to be ready."

One of Singapore's oldest developers, the group is now in the midst of rejuvenating the two commercial properties, which are more than 30 years old.

These days, Mr Teo and his colleagues are busy putting the final touches on plans for a redevelopment of Serangoon Plaza, a five-storey retail and office complex the most prominent tenant of which is Little India retailer Mustafa's first departmental store.

Redevelopment work is expected to start around September or October this year and the new 19-storey office, medical suite and retail complex is slated for completion in 2019.

Before construction starts, however, the plan is to launch for sale strata office units on six floors after Chinese New Year, Mr Teo told The Business Times during a recent interview.

Serangoon Plaza is owned by Feature Development, which in turn is 40 per cent held by Tong Eng Brothers and 33 per cent by Trend Developments; the latter is controlled by the families of Mr Teo and his late brother Tong Wah. The two are the sons of the late Teo Thye Chor, who together with his younger brother Thye Hong set up Tong Eng Brothers in the 1950s after World War II. Today, Tong Eng Brothers is controlled by the families of the two late founders. Mr Teo Thye Hong's sons Daniel and Teck Weng are also directors in the company.

Serangoon Plaza was built in the 1960s. Feature Development bought the property in 1985 and spruced it up before selling about 10 per cent of the strata area.

In late 2013, the group regained full ownership of the asset through a collective sale which priced the entire property at S$400 million. This translates to about S$1,945 per square foot of potential gross floor area.

Given the site's high development baseline, no development charge will be payable despite the significant jump in the gross floor area to about 205,560 sq ft for the new scheme from around 133,000 sq ft currently. The 68,521 sq ft freehold site boasts a prominent 120-metre long frontage along Serangoon Road, near the Kitchener Road junction.

Centrium Square, as the new development will be called, will be built to the Building and Construction Authority's Green Mark Gold status. It will have communal facilities including meeting rooms, a sky terrace and roof garden - in addition to lush landscaping throughout the project.

There will be about 3,500 sq metres net lettable area of retail space on the first two levels, with 70 per cent of this allocated to food and beverage use, and the rest to shops. In all, there will be 49 retail units ranging from 15 sq m (for a shop unit) to 530 sq m (for a foodcourt). Feature Development intends to retain all the retail space as an investment property (for rental income).

Levels 3 to 5 will house 124 carpark lots. The project will also have bicycle parking lots and shower facilities.

Levels 6 to 8 will have medical suites - all for lease. "It would be good if we can lease a chunk of space to one operator, either floor by floor, or two or three floors," says Mr Teo. "That way we can better control the mix and do not get too many repeats of the same medical specialists." Each medical floor will span 880 sq m.

Levels 9 to 19 will be offices - 900 sq m per floor. The top five floors will be retained for rental income, while the lower six office levels (levels 9 to 14) will be strata units for sale. Unit sizes for the offices will range from 53 to 93 sq m (570-1,001 sq ft). One could buy an entire floor comprising 13 units.

"All the office units in Centrium Square will have high floor-to-floor height of 4.9 metres and come with their own toilets/showers and air-con ledges - to allow office occupiers to install their own air-con unit for their overtime operation, supplementing the central air-conditioning system," says Mr Teo. These features will also apply to the medical suites. "We are anticipating to sell the office units at higher prices than our ARC 380 in Lavender Street," Mr Teo adds.

ARC 380 is a redevelopment of the former Eminent Plaza and Lavender Food Square sites by Trend Developments; 52 office units in this project were sold in early 2014 at an average price of S$2,450 psf. The other 92 office units will be held for rental income. The 16-storey freehold project, expected to be completed in 2017, will have 23 retail units; of these 19 have been set aside for sale, out of which eight have found buyers at an average price of S$5,900 psf. ARC 380's gross development value is S$370 million while that of Centrium Square is estimated at S$500 million.

The group's move to sell some space in the two projects while retaining the rest for rental income is in sync with its approach of maintaining a balance between development property and investment property.

"During a downturn, when houses don't sell or your office space does not sell, you have no regular income - whereas if you have a mix, during the slow cycle for sales, you can rely on cashflow from the tenancy of the investment properties," says Mr Teo. "We have found this to be a prudent business model."

Another of the group's investment properties is the eponymous Tong Eng Building in Cecil Street. The 26-storey block was completed in 1980 by Tong Eng Brothers, which continues to own some office space in the building in addition to all 200 carpark lots.

Besides developing and investing in commercial properties, Tong Eng Group is a seasoned residential property developer. In the early 1970s, one of its associates, Fairview Developments - an equal joint venture between Tong Eng Brothers and Yeap Holdings - acquired a tract of freehold land in Ang Mo Kio Avenue 5. So far, Fairview has carved out and completed three landed housing projects from this massive 1.8 million sq ft site - Stratton Park, Belgravia Park and Stratton Green. A fourth project - the 118-unit cluster housing project Belgravia Villas - is under development.

"There is still about 40,000 sq m (430,556 sq ft) of undeveloped land on this site," Mr Teo lets on. "The next phase will be a cluster landed housing project, for which we have already obtained written permission from URA, and beyond that, there will be two more phases for which we have not decided whether to do cluster or conventional landed homes."

A cluster or strata landed housing project, though it contains landed houses, is akin to a condo development in that the houses do not come with their own land titles; instead they have strata titles in the project and the houses have common facilities such as a swimming pool. In a conventional landed housing project, on the other hand, each house comes with its own land title and the houses do not share any facilities.

Yeap Holdings is controlled by some Singaporean members of the Yeap family that used to own the former Ban Hin Lee Bank in Malaysia.

Belgravia Villas is about 35 per cent sold.

Other Tong Eng Group residential developments on the market include two projects along Balmoral Road. Both are expected to receive their Temporary Occupation Permits this year.

Three Balmoral, a 12-storey project with 40 units, is a 50:50 joint venture between Feature Development and the Ng family behind Pan-United Corporation.

Goodwood Grand, comprising 65 apartments and eight strata bungalows, is being developed by a three-way partnership involving Feature Development (50 per cent), the Ng family (20 per cent) and a unit of listed Tiong Seng Holdings (30 per cent).

"We want to do quality buildings and do them well, with good finishes and spatial design so there is enduring value to the buyer. And in a way, we want to build a brand name arising from that," says Mr Teo when asked to describe the group's philosophy.

The group has garnered several awards for its projects - including a Singapore Property Award from FIABCI-Singapore for Poets Villas along Tagore Avenue in the residential (low-rise) category in November 2015. Completed in 2014, the project has 40 strata semi-detached houses in a verdant estate.

While the group has been able to hold its own as a privately-held property group in Singapore, it has not been spared the impact of Singapore's property cooling measures. This has spurred it to head overseas.

Over the past 12 months, Tong Eng Group has made two acquisitions in Australia. The first, in January 2015, was a A$38 million (S$39.2 million) purchase of a site at 111 A'Beckett Street in Melbourne, near the famous Queen Victoria Market. "We intend to do a 50 to 60-storey tower with around 500-600 apartments, with shops on the first two levels," says Mr Teo.

While market watchers warn that Australia home prices are toppish, Mr Teo points out that recent sales of new residential projects in the Melbourne CBD are still strong - supported by buyers from Asia.

Last month, Trend and Feature took a combined 50 per cent stake in a joint venture with Roxy-Pacific Holdings to buy 117 Clarence Street, a 14-storey office building in Sydney's CBD with about 12,570 sq m net lettable area, to be held as an investment property. The A$81 million purchase price translates to 6.2 per cent net yield, based on the current occupancy; on a fully-let basis, the net yield would be at least 7.5 per cent.

"We believe in Sydney and Melbourne as growth cities where we will continue to pursue opportunities to invest in completed commercial properties generating a good yield," says Mr Teo. Moreover, the Australian dollar is now trading almost at parity to the Singapore dollar - down from a high of A$1 to S$1.35 in February 2012. "This is an attractive time to invest in Australia," he adds.

Trained as a mechanical engineer - he holds a bachelor's degree from Queen Mary College of University of London - the 65-year-old has been working at Tong Eng Group for four decades.

What has given Mr Teo much satisfaction on the job is "seeing your development grow from a piece of land, going into design phase and finally seeing it built up and put to good use".

"After a good number of years, when the building becomes obsolete or if the site enjoys an enhancement in plot ratio or zoning, you can have another round of redevelopment to give it a new lease of life. That's even more satisfying."


This article was first published on Jan 4, 2016.
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