With office units in short supply, condos make a good option for investors: Analysts
Shophouses are a staple of Tanjong Pagar. But while these properties are usually more affordable than other commercial units, says Mr Mak of Frank Knight, they are more sensitive to market downturns. -- ST PHOTO: CHEW SENG KIM
Singapore's city centre is set to get bigger and bolder in the next decade, with the injection of around 23,000 homes that promise to take the buzz to another level.
And if Singapore's urban planners have their way, more office buildings will sprout at Marina Bay, along with mixed-use developments in the Beach Road and Ophir-Rochor areas - bringing people closer to their jobs.All this will come to pass while hotels and lifestyle hot spots in Little India and the Singapore River surroundings ensure that the city teems with activity.
And even if you need a quick getaway from the city's frenzy, green open spaces such as the upcoming Gardens by the Bay and Esplanade Park are all within walking distance.
This vision for Singapore's 1,650ha central area was unveiled by the Urban Redevelopment Authority (URA) last week as part of its latest masterplan, which outlines Singapore's land use over the medium term.
With all these grand plans and more, is it time for investors to hunt within the city for a good buy?
Property experts say this depends on the location of the property, the timing and how quickly URA's blueprint materialises in the next few years.
Let us start with the Central Business District (CBD).
Office space investments are limited, although there are some strata-titled commercial units available, such as those at The Arcade in Raffles Place and International Plaza in Tanjong Pagar.
However, there is only a small pool to shop from, and units in good locations could be beyond the reach of the average investor. Units at The Arcade, for example, changed hands at around $5,000 per sq ft (psf) at the end of last year.
Knight Frank director of research and consultancy Nicholas Mak said there are 'very few good strata-titled office spaces in the city'. A more obvious choice would be to shop for homes.
With the government's latest strategy to repopulate the city centre and bring people closer to their jobs, investors can rest assured that this pool will only get bigger.
Some projects that have already been launched include The Sail@Marina Bay and Marina Bay Residences. Further inland, One Shenton Way and Scotts Square also offer units in the heart of the city.
The latest URA data shows Marina Bay properties transacting at around $2,100 psf. This is a slight dip from the peak prices seen in the property boom last year.
At Scotts Square in Scotts Road, units are being sold at an average price of $3,700 psf this year, down about 8 per cent from $4,000 psf in last year's fourth quarter.
At One Shenton Way, the latest sale went at $2,069 psf in January.
Prices might be falling at some condos now, but as these homes were launched at just below or around the $1,000 psf level, the question remains whether the upside is limited if one buys now, say some market watchers.
It is possible that prices might drop further, given the current cooling of the market, but Mr Mak added that owners are unlikely to let go of units if they would incur a loss.
Savills Singapore's director of business development and marketing, Mr Ku Swee Yong, said that sellers are more likely to negotiate now given the current market sentiment.
For investors holding out for drastic price drops, he said it is unlikely that home prices in the city will drop as much as 30 per cent, as recent bank reports have predicted.
'Current market conditions do not support that. At the most, we will see a 5 to 10 per cent decrease for top-end luxury homes.'
Mr Ku said that even at the $2,000 psf level, city homes can command rental yields of about 4 per cent as they are attractive properties to rent, catering to the international expatriate community.
At DTZ Debenham Tie Leung, senior director of research Chua Chor Hoon agreed.
'City centre homes fetch pretty good rentals and therefore give good yields...URA's data shows that rentals for condos such as Icon were in the range of $6.50 to $7.50 psf a month,' she said.
Mr Ku added that investors who are in for the long haul might find that their investments will pay off in the next five to 10 years, especially after the Marina Bay integrated resort opens and the city gets busier.
Other homes to consider include those at Robertson Quay and Tanjong Pagar.
The condos include Robertson Blue, RiverGate and Watermark at Robertson Quay; at Tanjong Pagar, there are the Pinnacle @ Duxton and Icon. Units at these projects have changed hands for $1,400 to $1,600 psf in the last three months.
The other option for investors is to wait for further government land sales, for more new homes to be developed, said Mr Mak. These developments would probably be in the Marina Bay area, he added, unless URA allows city properties to be converted into mixed-use projects.
Around Beach Road and the Ophir-Rochor area - touted as the northern gateway to the city - investment opportunities are more diverse.
There is a good mix of shophouses and strata-titled commercial and residential units on the market for the average investor.
The 101, Premier Centre and The Plaza, for example, are all strata-titled properties with a mix of commercial and residential units. At The Plaza, transacted apartment prices have gone up 28 per cent, rising from $600 psf in June last year to $900 psf currently.
Commercial units in this area have generally stayed at the $1,500 psf price level this year, though transaction volumes have fallen since last year, said Mr Ku.
Over at Tanjong Pagar, shophouses are also a staple of the district. These properties are usually more affordable, added Mr Mak, although he warned that they are more sensitive to market downturns.
If plans for a revamped Kallang Riverside and Paya Lebar Central go ahead, the city centre will also benefit from the buzz added by these new, nearby commercial hubs.
How soon investors will see price movements in city investments will depend on the pace of development. Market watchers agree it is still too early to see the price effects from URA's masterplan.
'Prices are peakish now, so one should consider the investment time horizon and yield before making a purchase,' said Ms Chua.
LOCATION AND TIMING CRUCIAL
# Market watchers point out that while prices of many city centre residential properties have come down since last year's peak, the upside may be limited as many of these homes were launched at much lower prices.
# On the other hand, apartments at The Plaza, a development in the Beach Road and Ophir-Rochor area with a mix of commercial and residential units, have actually enjoyed price increases since last year.
Promising outlook
For property investors who are in for the long haul, they might find that their investments will pay off in the next five to 10 years, especially after the Marina Bay integrated resort opens and the city gets busier, says Mr Ku Swee Yong, Savills' director of business development and marketing.
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