A Study of City-Fringe Investment

For those looking to enter the city fringe real estate market, the next six months are likely to present an interesting array of launches to choose from. Queens Peak by MCC Land is rumoured to be launching by the end of the year, while Paya Lebar Quarter, a massive mixed development right next to Paya Lebar MRT, is set to launch in February 2017. In the north of the RCR, Qingjian Realty is looking to launch an as yet unnamed project on the Shunfu Ville site, which it purchased from the current residents at a collective price of $638 million.

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Queens Peak Summary (I)

Queens Peak can be found in the District 03 of Singapore, in the heart of central Singapore Besides an excellent connectivity via expressways like AYE and CTE, Bus Stop and Queenstown MRT, the region has the utilities in close vicinity all amenities. There are lots of parks, waterfronts, recreational and sports centres around Queens Peak Condo. Furthermore, many great schools are in close vicinity around Queens Peak such as Crescent Girls School, Gan Eng Seng Primary and Secondary School, CHIJ Theresa Convert. One rare advantage is the closeness to several heritage sites like the Princess House and the Church of the Blessed Sacrament, which contributes to the value of the property at Queens Peak. Moreover, being one of the top HDB transaction around Singapore, there is a government initiative to transform Queenstown Estate to a more modern estate, further rising the property value of Queenstown.

As for developer, MCC Land is a Singapore developer that is a well reputed developer who have several high quality projects all over Singapore. They will have many subsidiaries and they all together are currently crafting more than half a dozen suave projects in Singapore. HY Realty, their subsidiary, is in charge of bringing out a brand new launching condo called Queens Peak in Queenstown. The MCC New Launch Condominium is located at Commonwealth Avenue, facing Dundee Road Postal Code 149454.

Inside the premises, the developers aims to make every unit affordable and yet a well design and utilised layout with the best interiors fittings for its 736 home units. Designed along contemporary and global designs, these dwellings could have intelligent layouts that focus on intelligent and privacy use of space that is precious and well utilised. 36% or 266 of the units are 1 bedrooms with study and 26% or 190 of the units are 2 bedrooms. Located on the 22th floor onwards to the 44th floor, the tallest in Queenstown, the 3-5 bedrooms and penthouses are located higher up the 1 and 2 bedrooms

The premises boast of the greatest of instructional and recreational centers approximately. Well recognized colleges fine eateries, and also medical centres are located at near hand. For diversion, there are numerous things to do like in door fitness center, pool, kids’ play area, walks, green verdant landscape to sit and relax etc., within the campus But if one does decide to stage place, there are alternatives to indulge into. These generally include the idyllic and naturally affluent Hortpark, Alexandra Canal Linear Park and Singapore Botanic Gardens, the latter supplying a skating zone also. Fitness and Sports lovers can appreciate the facilities at simply jog and cycle, Queenstown Stadium or Delta Sports Complex nearby.

What happens to prices of old leasehold condos?

Since the Singapore government has ceased to offer freehold land parcels under its Government Land Sales (GLS) Programme, and with most residential properties occupying 99-year leasehold sites, it would be interesting to observe the price performance of leasehold properties as their tenures run out.

Lessees may apply to top up the lease to a fresh 99 years. However, a lease extension will typically be granted only if it involves land use intensification or urban renewal, such as in an en-bloc sale for redevelopment. Meanwhile, the recent hike in development charge rates and the continued enforcement of the Qualifying Certificates Rule have further diminished chances of a successful en-bloc sale for leasehold sites.

For new developments, there is no clear winner between leasehold and freehold properties in terms of price performance. However, things could change when the remaining lease gets shorter.

For one, financial institutions might be reluctant to extend loans for properties with a short balance lease. The loans are usually granted on a case-by-case basis and come with a lower loan-to-value ratio or shorter tenure.

There are also more restrictions in using CPF savings to finance the purchase of such properties, such as a stipulation of a minimum remaining lease of 30 years. For properties with a remaining lease of between 30 and 60 years, the buyer’s age and the remaining lease must total at least 80 years.

All this means that as the remaining lease runs down, the pool of potential buyers will shrink. To illustrate: 30-year-old buyers can only use CPF savings for properties with a balance tenure of at least 50 years while buyers above 40 years of age can still use CPF savings for a property with a balance tenure of at least 40 years.

There are also limits on the amount of CPF savings that buyers can use to pay for such homes, based on this formula: (Remaining lease of the property when buyer is 55 years old) / (Lease of the property at the point of purchase) x (Valuation Limit). The Valuation Limit is the lower of the purchase price or the value of the property at the time of purchase.

Positive examples

Surprisingly, however, ageing leasehold properties have shown positive price performance despite the seemingly gloomy outlook.Factors such as en-bloc potential and attractive rents appear to make up for their reducing tenure. New condos in their vicinity would also have boosted their prices.

Alternative methodology

A more intensive methodology of assessing the price performance of ageing leasehold properties is to compute the profit and loss of unit sales and compare the figures against the change in the URA price index for private non-landed homes over the same period.

According to this measure, many of the oldest private non-landed homes in Central Region have outperformed the index even as their balance lease runs down (see charts). Homes resold with a balance lease of 60 years or less had the highest majority of outperformers — 86% (289 of 335 cases) — followed by those with balance leases of 60-65 years (81%, or 447 of 550) and 65-70 years (78%, or 626 of 801).

However, in Outside Central Region, the trend was the opposite, with the proportion of transactions that outperformed the index slipping as the balance lease approaches 65 years and below. This difference in fortunes could be owing to the scarcity of GLS offerings in Central Region, leading to higher en-bloc potential for older properties in Central Region, and limited supply in general.

Thus, regardless of the financing issues and restrictions on the use of CPF savings, older leasehold homes, particularly those in the city centre, appear to stand the test of time in monetary terms. Only time will tell if they can maintain their value as the lease reaches its end. Currently, the shortest remaining lease may be held by the apartments at Bedok Shopping Complex, which sits on a site with a 60-year lease from 1977. A 1,216 sq ft apartment fetched $288,000 ($237 psf) in March, reflecting a hefty 25% price decline from 2013, when two units went for $317 psf on average. Still, it is difficult to establish a trend as transactions were scarce. On the other hand, three similar-sized units have fetched an average rent of $3,067 psf this year, which translates into a very attractive rental yield.

Charts: Higher proportion of transactions in Central Region outperform price index as balance lease runs down

Source: URA, The Edge Property

This article appeared in The Edge Property Pullout, Issue 745 (Sep 12, 2016) of The Edge Singapore.