City-Fringe Units Not A Sure Bet

Source : The Sunday Times, April 19, 2009

Fall in prices in first quarter greater than that for properties in city centre, suburbs

Values for city-fringe homes are typically thought to hold up better than those in the suburbs, but the fall in prices in the first quarter means that this belief may no longer hold true, at least temporarily.

An artist's impression of The Arte at Thomson Road. City-fringe properties may not be the best buy for those hoping to cash out. -- PHOTO COURTESY OF CITY DEVELOPMENTS

These homes are in areas which are not attractive to institutional investors and are also not within the reach of many HDB upgraders.

In view of these dynamics, the question is whether the areas still present good buys.

The city-fringe areas are what the Urban Redevelopment Authority (URA) terms RCR, or rest of central region. They are sandwiched between the core central region (CCR) - which comprises districts 9, 10, 11, Sentosa and the Central Business District - and the outside central region (OCR).

RCR areas include Paya Lebar, Geylang, Amber Road, Lavender, Toa Payoh, Tiong Bahru and Telok Blangah.

URA data shows that last year, prices of non-landed properties in the city centre, city fringe and suburban areas fell by 5.6 per cent, 4.7 per cent and 2.9 per cent, respectively.

But first-quarter flash estimates show that prices of city- fringe flats slipped by 17.2 per cent - more than the 15.2 per cent drop for city centre flats and the 7.5 per cent fall for suburban ones.

Price

The price index reflects the rate of growth for each region, said Ms Jacqueline Wong, head of residential at Jones Lang LaSalle.

That the RCR experienced the steepest first-quarter price drop based on the flash estimates may just imply that the region is undergoing a greater price correction as prices might have been inflated during the property market boom, she said.

In terms of pricing, RCR pales in comparison to CCR as the latter's branding and location are better, she said.

It is thus fair to say that RCR is 'a poorer cousin to CCR', added Ms Wong.

In some parts of the RCR nearer to the city, developers tend to leverage on prime areas when they sell their projects, said Chesterton Suntec International's Mr Colin Tan.

He said: 'It'll be a discount from prime areas rather than a premium over suburban areas.'

But a price correction is happening now in the RCR, as with other areas.

'At the moment, it is probably perceived as overpriced. Investors may want to wait for it to come down to a more realistic level,' said Mr Tan.

Prime beats RCR

In general, where investors are concerned, prime areas are the best, experts said.

'If you can afford it, buy prime. Depending on the type of properties you buy, there is a better chance for capital appreciation when the market recovers,' said Knight Frank's Mr Nicholas Mak.

'If you cannot, buy a property near an MRT station farther away or in the suburbs if your objective is to cash out.'

Mr Tan said a price recovery, when it comes, will be quicker in an established area like Orchard.

The RCR has quite a few new residential areas, so it may take time for the value in these areas to rise, he said.

City centre properties generally enjoy 'unrivalled prestige, exclusivity and locational advantage', and are hence extremely popular with expatriates, particularly those with higher budgets, said Ms Tay Huey Ying, director for research and advisory at Colliers International.

As prices of these properties have eased substantially from their stratospheric levels in 2007, they would certainly be worthwhile investments for those who can afford it, she said.

A mixed bag

Nevertheless, the RCR is not a write-off, experts stressed.

'Properties in RCR will, however, continue to be attractive to those who remain priced out of the high-end market, or those with a lower risk appetite,' said Ms Tay.

'The RCR is definitely an area not to be forgotten,' said Ms Wong.

February and March sales data has proven that RCR projects such as the sold-out Alexis at Alexandra Road and The Arte at Thomson Road are in strong demand, she said.

'In terms of the leasing market, developments in RCR remain popular among tenants as they are more affordable compared to those in prime areas,' said Ms Wong.

The good thing about RCR is that there is a higher probability that the properties are freehold, Mr Mak said.

Condos in the suburbs next to MRT stations tend to be 99-year leasehold properties.

But unlike the case in most suburban estates, not many RCR projects are near MRT stations.

'The RCR is a mixed bag. For instance, there is Tanjong Rhu which is quite popular and not too far north, and there is Geylang, an area that some people will not touch with a 10-foot pole.'