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Published June 9, 2011
New condos command fat premiums
Prices of condos at recent Govt Land Sale sites generally higher than at nearby developments
By KALPANA RASHIWALA
(SINGAPORE) Despite the record supply of state land, launch prices of new 99-year condos continue to climb, spurred by strong demand.
A study by DTZ shows that median prices of new 99-year leasehold condos launched in 2010 and 2011 on sites sold at Government Land Sale (GLS) tenders have generally been 8-35 per cent higher than those of comparable nearby condos released earlier.
Wing Tai recently launched Foresque Residences at Petir Road at an average price said to be about $1,100 per square foot (psf) - or 32 per cent higher than the median price for units at Tree House next door in the preceding three-month period. In February, Chip Eng Seng released My Manhattan in Simei for $1,219 psf median price - or 42 per cent higher than the $856 psf per plot ratio (ppr) median price of the Double Bay Residences nearby.
Last November, Keppel Land released The Lakefront Residences in Jurong at a median price of $1,075 psf, about 35 per cent higher than the median price for the neighbouring Caspian project over the previous three months.
DTZ's SE Asia research head Chua Chor Hoon noted that 'developments with fewer units and/or smaller units tend to have higher per square foot prices'. For instance, at Petir Road, Foresque Residences has one- to four-bedroom units whereas the next-door Tree House has two bedrooms and upwards. In Simei, My Manhattan has 301 units, half the 646 units at Double Bay Residences.
DTZ's COO and head of consulting and research for SE Asia Ong Choon Fah notes that, generally, developers have been incorporating more one-bedders and even slightly smaller one- and two-bedders in some instances compared to earlier projects. By keeping the lump-sum prices affordable, they have been able to achieve higher psf prices.
Also, units in new property launches are sold on the progressive payment scheme, which means buyers do not draw down the entire housing loan immediately. This leaves them more willing to pay a higher psf price for a new launch than for an older project nearby for which they would have to pay up the full price in a short time. 'Concerted efforts by developers to market new launches also create an emotive appeal to buyers which would be missing when one shops for an older property in the secondary market,' Mrs Ong added.
Analysts note that since last year, the government has been releasing more 99-year condo sites near projects that have sold like hot cakes in a bid to cool the market. However, strong demand for new projects from owner occupiers as well as investors keen on a hedge against inflation has been depleting land banks of developers, leading them to bid competitively for land at state tenders. This has translated to higher prices when they launch new projects.
As Credo Real Estate executive director Ong Teck Hui says: 'Many of us who have been burnt in the financial markets feel property is a more reliable, long-term investment. Cash-flush investors also see property as a desirable investment.
'For a family that has been aspiring for years to upgrade to private property, the conditions seem favourable: the job market and the economy are good, interest rates are low.
'It's difficult for policymakers to discourage people from buying property under these circumstances.'
Mr Ong also suggests: 'Releasing more land now to try and slow down end-unit take-up doesn't work, because when people are in a buying mood, numbers on future supply aren't going to deter them.'
For now, developers continue to bid for land, and prices have gone up, even for average sites. A 99-year condo site at Buangkok Drive fetched a top bid of $391 psf ppr in June, or 22 per cent higher than the $320 psf ppr that an Upper Serangoon View plot sold for last November.
This week, a Woodlands Avenue 2 plot sold for $367 psf ppr, 10 per cent more than what a neighbouring site fetched last November.
DTZ's Ms Chua expects developers to continue to bid for 99-year sites as many have a small land bank and need to replenish fast, especially since the time to launch a project is now shorter.
'With many developers in the market, including some new foreign players, they need to bid competitively to win tenders, especially for well-located sites. And due to high land prices, developers will continue to build smaller units as there is more demand for units below $1.5 million.'
Analysts warn about a potential glut when all the units being sold at property launches are completed - if there are no occupiers for a large number of these units, and the completions coincide with an economic downturn. A slowdown in the rate of immigration will also affect demand. 'There are so many variables that affect the equation. At the end of the day, people have to be mindful and buy within their means,' advises Mrs Ong.
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