Is it worth paying more to live above a mall?

Is it worth paying more to live above a mall?

Christine Sun

Sep 25, 2022

Integrated developments are highly sought after by investors and people who want more than just a home. These properties are specially curated by top developers who have diverse expertise in building residential and commercial projects.

Integrated developments feature a dynamic composition of residential homes, a large shopping mall beneath the development, an array of dining options and direct access to a major transportation node.

Some developments may incorporate an office tower, serviced apartment or hotel. Buyers enjoy an all-encompassing live-work-play lifestyle in one destination.

With an increasing appetite for properties that offer more than one value proposition, residential homes nested within an integrated development are in hot demand. Home sales are usually brisk, and there were instances when hundreds of homes were snapped up within a day. Are integrated developments worth the hype? What is the investment return of such properties?

Rare and distinctive

These amalgamated developments are rare and exclusive, as there are only 20 projects in Singapore. Collectively, there are about 11,700 residential units which account for less than 4 per cent of the total condominium stock.

Nine of these properties are in the suburbs, five are in the city fringes and six in prime locations. Only one to two projects are launched each year.

The convenience of living in an integrated development is unparalleled. Home owners enjoy seamless connectivity with an MRT station, LRT station or bus interchange integrated within the development.

A sizeable retail mall is located beneath the condominium, hosting a wide selection of amenities like supermarkets, retail shops, speciality stores, childcare and enrichment centres, cafes, restaurants, foodcourts, banks and more.

Examples of such malls include Ion Orchard, Waterway Point, Paya Lebar Quarter, Northpoint City, Hillion Mall and Compass One.

Price at a premium

Given their convenience and exclusivity, buyers are willing to pay up to 30 per cent more for such developments. For instance, North Park Residences in Yishun Central 1 was launched at an average price of $1,365 psf in the second quarter of 2015, 27 per cent more than the average price of $1,075 psf for other new leasehold condominiums in District 27.

Sengkang Grand Residences was similarly sold at a premium of $1,747 psf in the fourth quarter of 2019, which was 20.5 per cent higher than the average price ($1,450 psf) of other new leasehold condominiums in District 19.

Despite higher prices, most integrated developments achieve astounding sales results during their launch months. Based on URA monthly developer sales data, 81.8 per cent of the 583-unit Bedok Residences was sold within a month at a median price of $1,359 psf.

The 487-unit Pasir Ris 8 similarly moved 85.8 per cent of the entire project during its launch in July 2021. The project achieved one of the highest median prices of $1,624 psf in the area, with the maximum price hitting $2,084 psf.

Some integrated developments have created new benchmark prices in their districts and uplifted the valuation and resale prices of some older condos in the vicinity. This is because new amenities are often created after the integrated developments are completed.

Attractive rental returns

Due to their superb connectivity, residential units in integrated developments usually face little difficulty attracting tenants, even during a downturn. Most investors are rewarded with attractive rental returns in the long run.

Based on URA rental data, 11 out of 13 completed integrated developments commanded higher rents than other resale condominiums in the vicinity. For instance, the median rent of two-bedroom units at Park Place Residences in Paya Lebar Road ($3,800 a month) was 31 per cent higher than other condos in District 14 ($2,900 a month) during the first half of 2022. Watertown in Punggol Central similarly saw higher rents for its two-bedroom units at $3,100 a month, which was 10.7 per cent more than other condos in District 19 ($2,800 a month) over the same period.

Rental returns for some downtown integrated developments can be pretty significant. In the first half of 2022, the median rent of three-bedroom units in South Beach Residences in Beach Road hit a high of $18,500 a month, while those in the Orchard Residences situated above Ion Orchard reached $12,600 a month. Similar room types in Wallich Residence and Marina One Residences at the heart of the Central Business District were $12,800 and $8,250 a month, respectively.

Due to the high rents achieved, the average rental yield of completed integrated developments is around 3.8 per cent, with the highest yield touching 7.9 per cent.

Limited supply will drive demand

As more people desire to live near MRT stations for convenience and connectivity, demand for integrated developments will continue to outstrip supply. However, the supply of integrated developments is expected to remain low, and their scarcity may continue to prop up the values of such developments. Their higher prices may even push the overall price index higher.

New benchmark prices are formed whenever a new integrated development is launched, and sellers of other properties will raise their asking prices in tandem.

Lentor Modern is the only suburban integrated development to be launched this year and the third suburban integrated development launch in seven years. The project sold more than 500 units within its first week of sales in September.

Buyers will have to wait until 2023 for the next integrated development launch. The land parcel in Jalan Anak Bukit was awarded in August 2021 to Far East Organization and Sino Group at a bid price of $1.03 billion or $989 psf.

The project may comprise 700 residential units, 150 serviced apartments and 2,000 sq m of community space on a 32,185 sq m site.

Thereafter, no other land parcels have been sold. The site in Woodlands Avenue 2 is still placed on the reserve list under the Government Land Sales Programme. This integrated development can host 440 residential units and 78,000 sq m of commercial space.

The writer is senior vice-president of Research & Analytics at OrangeTee & Tie.