Source : The Business Times, December 22, 2008
Project development deferred; en bloc properties return to rental market
At least 1,000 projected new apartment units can be expected to be withdrawn from immediate supply in Singapore's property market, as properties that were sold en bloc in recent years are put back on the market for rental.
The latest of these is Lucky Tower at Grange Road which was bought by City Developments Ltd (CDL) in May 2006.
Still standing: Lucky Tower has been leased to a master tenant that intends to sub-let the 91 units
A CDL spokesman said that the entire development of 91 units has been leased to a master tenant that intends to sub-let the units.
According to data complied by Savills Singapore, Lucky Tower was expected to be redeveloped into a 178-unit condominium. However, with redevelopment pushed back, these units are not expected to come on to the market anytime soon.
Another development, the 192-unit The Grangeford at Leonie Hill, acquired by OUE in 2007, has also been put back on the rental market.
OUE is controlled by the Lippo Group and Malaysian tycoon Ananda Krishnan. Lippo Realty executive director Thio Gim Hock said that approximately 70 per cent of the units have already been leased, mainly to expatriates.
On why it decided to defer redevelopment, Mr Thio said: 'The market does not look good for this year or the next.'
It is understood that asking rents for The Grangeford start at about $3,500 for 1,110 square foot two-bedroom units and about $4,500 for a 1,700 sq ft three-bedroom unit.
The Pontiac Land Group has also started to lease out Pin Tjoe Court, which it acquired in September 2006. Senior vice-president (residential leasing) William Teh said that it expects to redevelop the site next year. 'Till then, we are offering very short-term leases, and this is not representative of typical rental in the market,' he added.
Frasers Centrepoint said that Flamingo Valley, which it acquired in early 2007, has been put on the rental market with close to 60 per cent of the 185 units leased out.
Other en bloc developments back on the rental market include Furama Towers, Fairways Condominium, Sophia Court, and Lincoln Lodge.
The increasing number of en bloc sites put back on the rental market is expected to further depress already weakening rentals.
Referring to this 'hidden leasing supply', Japanese investment house Nomura said: 'The move by developers to return en bloc units back to the leasing market to cover to a degree of the holding costs is not unanticipated.'
In the case of Grangeford, assuming a gross rent of $3.40 psf for the 396,483 sq ft apartment block, Nomura estimates that it could secure net income of $14.6 million, equating to a 2.3 per cent yield over its $625 million acquisition price, 'providing some relief to covering the site's holding costs'.
Regardless of 'hidden leasing supply', rentals are already expected to fall. Still, Knight Frank director (research and consultancy) Nicholas Mak believes that the 'hidden supply' of leasing units will not make much of a dent on the rental market. For starters, he notes, many of these en bloc developments have already reached a state of disrepair.
Pointing out that the 108-unit Fairways is about 10 per cent leased, he says that many of the units have been 'stripped bare'.
He also noted that these units have short leases and tenants may be given only one-month's notice to vacate.
Another consequence of deferred en bloc redevelopment is the impact this has on future supply.
Savills Singapore estimates that based on the en bloc deals between 2005 and 2007, over 23,000 new units could be added to the market.
But, as Nomura notes, supply has been increasingly pushed to 2012. As at the third quarter of this year, it found that some 16,762 units are scheduled for completion in 2012, versus the previous quarter's estimate of 14,179 units.
Based on an analysis of official data since Q499, it also found that actual completions lagged behind forecast completions.
The Urban Redevelopment Authority (URA) has also clarified that while developments are deemed 'under construction' in its database, this does not necessarily mean construction has begun.
A spokesman for URA said that it considers a project to be 'under construction' once the Building and Construction Authority records indicate that a project has been issued a permit to commence structural works.
As at Q308, there are 10,007 units under construction. URA said: 'As developers do not have to inform the government of actual ground-breaking after obtaining the permit to commence structural works, URA does not have information on the number of units, expected to be completed in 2009, which have actually broken ground.'
However, it added that it understands that actual construction for a project typically begins within 1-3 months after the developer obtains the permit to commence structural works for the project.
The number of developments that could be deferred will remain unknown. CB Richard Ellis executive director Jeremy Lake pointed out: 'Even if the property has been demolished, a meaningful number of projects will be delayed as construction costs are expected to fall over the next 18 months.'
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