Parkway Got The Medicine Right For Novena Deal?

Source : The Business Times, March 5, 2008

AS THE property investment chant goes, there are three factors that one needs to consider in a purchase: location, location, and location.

But for a hospital operator, does location count too?

In Parkway Holdings’ case, apparently it does.

Having been punished by the market recently for paying what is considered an exorbitant price for a piece of land in Novena, Parkway has been taking pains to explain the rationale for its bid.

A key reason was the group’s need for new capacity, given that its existing Mt Elizabeth, Gleneagles and East Shore hospitals are already facing expansion constraints. The group has had to move out some of its administrative functions from the hospital premises in recent years.

And the trend is not unique to Parkway. Also in close proximity to Novena, Thomson Medical Centre, too, has shifted its non-clinical functions across the road from its hospital building. And even in the public sector, administrative staff at Tan Tock Seng Hospital will soon have to operate from temporary offices in containers as a result of the space crunch.

Adding to the urgency is the long lead time required to build up a hospital from a green field before it becomes operational. That means development work has to start now to cope with the rising demand for hospitals in the coming years.

Considering that about 60 per cent of its patients today are foreigners, Parkway’s new venture is aimed at capturing this pool which is growing at double-digit pace a year. And as major projects like the integrated resorts take shape, more high net worth individuals and expatriates descending here could use the ‘hospital of the future’ and six-star services that Parkway plans to deliver.

Critics would argue that all these plans could still be delivered without such an aggressive bid. As Health Minister Khaw Boon Wan has announced previously, three other land parcels have been identified for the construction of private hospitals. One of them will be in Outram, another in Buona Vista, and the third in the northern part of the island. It is not known when the sites would be released.

Compared to the rest, the Novena location appears to be the most strategic one for Parkway. Being minutes away from the Orchard Road shopping belt, and easily accessible by MRT, it would be attractive to international patients looking to combine their healthcare needs with leisure.

It would also be easier for incoming overseas patients who come with their families to find temporary accommodation in close proximity to the Novena hospital. Apart from the Newton/Orchard Road area, foreign patients could also look towards upcoming commerce-hotel projects at nearby Sinaran Drive and Race Course Road.

Right next door, doctors taking up space at Far East Organisation’s Novena Medical Suites add another potential pool of users to Parkway’s Novena Hospital. It could provide that extra wing, like what Paragon Medical Centre is to Mt Elizabeth Hospital now.

Clearly, clinching the Novena site is paramount to its expansion. With a rising expatriate population and more than 400,000 foreign patients arriving in Singapore every year, getting a new hospital up and running in time is pivotal for it to maintain its lead in the private healthcare space.

Parkway itself has said its new venture will set a new benchmark in private healthcare here. It will have an emphasis on cardiovascular disease, oncology, and orthopedics, and healthcare delivery designed with a great deal of attention to individual patients.

At $1,600 psf per plot ratio, the bid works out to more than $1.2 billion just for the 99-year leasehold land. Add another $500 million to the development cost and the total bill comes closer to $2 billion.

When compared to the next highest bid of $694.50, the price is seen as excessive. But seen against the light of the location’s potential, Parkway may have the last laugh in the longer term.