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.

For Further Information click here.

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.

Queens Peak Unit Mixes

Queens Peak Unit Mixes

Queens peak Showflat Location

Queens Peak Condo Showflat is located at the actual site. From Commonwealth Avenue, turn in to Strathmore Avenue and into Dundee Road as shown in the map above.

If coming from public transport, take an MRT to Queenstown MRT EW19, exit and turn left. Walk towards Strathmore Avenue and turn into Dundee Road. It will be a short 5 minutes walk.

Queens Peak Showflat Direction

Queens Peak Condo Quick Fact

Developer	MCC Land
Description	2 Blocks of 44 storey Residential units with 6 level of car park, a childcare centre  & 3 commercial units
Address	Dundee Road
Tenure	99 Leasehold
Site Area	113,194 sqft
TOP Date	Q2 2020
Total Units	736 units, 3 commercial units, 1 childcare centre
Parking	6 levels of carpark
Unit Types	1/1+1, 2, 3, 4, 5 & Penthouses

Bright spots in the property market

With the release of second-quarter real estate statistics by the Urban Redevelopment Authority (URA), there is increased consensus in the industry that the ailing residential property market is stabilising after a total 9.4 per cent slide from the peak of Q3 2013, with an underlying recovery underpinned by the luxury segment. 

Lending support to the residential market now is a “lower for longer” interest rate environment, which not only keeps cost of borrowing low, but also prods investors into a deeper pursuit for yields. 

Despite rising vacancies and softening rents, early signs of a bottoming-out in the private residential market surfaced – the 0.4 per cent fall in overall private residential price index in Q2 was the smallest quarterly decline seen in the 11 straight quarters of correction. 

Resale transactions also staged a strong rebound with a 17.1 per cent year-on-year growth to 2,140 units. In particular, the Core Central Region (CCR) saw a 33.7 per cent jump in resale transactions, which made up 78 per cent of the total 767 transactions in the region, while prices in the CCR rose another 0.3 per cent for a second consecutive quarter. 

Notwithstanding continued pressures on rental yields in the private residential market, investors are still expected to pile into real estate amid wild swings in the financial markets stoked by the increased occurrence of “black swan events” such as “Brexit” and global terrorism. 

Real estate in Singapore still remains one of the safe haven assets that the rich want to park their money in. Those who are buying are looking at the longer term; they are not looking at short-term rental yields but are looking at long-term capital appreciation. 

A total of 131 luxury apartments each worth S$5 billion and above were sold in the first half of this year, marking a 76 per cent jump from the whole of 2015. 

The average price of such luxury units sold stood at S$2,950 psf, up from S$2,700 psf as at end-2015. 

Among them, Wheelock Properties’ Ardmore Three sold 34 units in H1 at S$3,200 psf. Other projects that moved units during the same period included Leedon Residence and Goodwood Residence by GuocoLand, and Gramercy Park by City Developments Ltd. 

Early signs of a bottoming-out are also seen in the city fringe, where prices in the Rest of Central Region (RCR) rose by 0.2 per cent after being flat in the first quarter. Prices in the suburban areas or the Outside Central Region fell by a smaller 0.5 per cent, compared to 1.3 per cent in the previous quarter.

The 1.4 percentage point increase in vacancy rate for private residential units to a 16-year high at 8.9 per cent – when viewed against the surge in completions – may not be all that alarming.

A tapering-off in completions after this year will also provide the needed breathing space for the market to absorb the current unsold units in both completed licensed projects and uncompleted projects, which have fallen to a historical low of 23,282 units in Q2.

All these may be encouraging signs for developers with upcoming project launches. But they will have to bear in mind that buyers are still price sensitive and cautious and have many residential options to choose from.

Having strong product attributes and the right pricing remains the winning formula seen in launches that have performed well so far.

Elsewhere in Malaysia, there is no denying that the near-term outlook for the residential sector remains cloudy. But some consultants believe that demand for housing in select cities such as Kuala Lumpur and Nusajaya remains strong, with the high-speed rail link between Kuala Lumpur and Singapore set to benefit cities along the rail corridor.

A “lower for longer” interest rate environment, along with the slide in capital values, may also inspire big-ticket transactions in Singapore’s commercial space, if the sovereign wealth funds and insurance companies are willing to stomach lower yields in the short term.

During Q2, office and retail space marked their steepest quarterly price and rental falls over the past one year or so.

This is also triggering more flight-to-quality movements by companies in the office space as they see this as an opportune time to secure premium spaces at favourable rates.

There was a slew of pre-leasing deals in the upcoming prime developments during Q2. Marina One reportedly achieved 550,000 sq ft in leasing pre-commitments, translating into a pre-commitment rate of 30 per cent; Guoco Tower also saw substantial take-up of space during the quarter with tech firm SAS leasing 20,000 sq ft of floor space in the development.

An estimated 6.6 million sq ft of office gross floor area is projected to be completed in the next 18 months. The average annual office demand in the past three years is about 1.2 million sq ft. Along with a potential increase in secondary shadow space, the heat is on office landlords to offer attractive rents to compete.

Similarly in the retail space, malls will have to evolve too, given retailers’ rising interest in omni-channel retailing – in other words, providing a seamless shopping experience across stores and the online channel. 

Given the challenging outlook, it would be imperative for landlords to undertake a proactive approach to manage their tenant mix to continually engage and excite shoppers. One possible area of growth is the F&B sector as well as the experiential and lifestyle segment.

Adapted from: The Business Times, 28 July 2016