Nobody’s home

February 23, 2015 1:01 PM SGT

Join our Telegram channel and follow our Facebook for the latest update.

SINGAPORE: The most visible signs of vacancy may be in the prime districts. But some property consultants warn that danger lurks in the suburbs, where the majority of new units will be completed in the next two years. Is the residential market headed for a crash?

The new, imposing 36-storey glass towers at the posh Ardmore Park boast designs by world-renowned architects that easily outshine the nondescript residential blocks built in an earlier era.

SC Global Developments’ Sculptura Ardmore is sheathed in blue glass with cantilevered swimming pools, designed by American architect Carlos Zapata.

Wing Tai Holdings’ 43-unit Le Nouvel Ardmore is a gleaming new white tower by Paris-based Jean Nouvel, who also designed the neighbouring Nouvel 18 in solid black glass.

The 156-unit Nouvel 18 is a joint-venture project by City Developments Ltd (CDL) and Wing Tai.

However, behind the glittering façade of these newly completed luxury condominiums stand many silent, empty units.

“Very few lights are on,” says a property agent who declined to be named.

Ardmore Park has, therefore, been held up as a symbol of high vacancy, which is symptomatic in pockets of the Core Central Region.

In fact, the CCR was “a major contributor” to the non-landed housing vacancy rate in the Central Region hitting a near-decade high of 9.1% in 4Q2014, according to property consultants.

While there appears to be “a tidal wave of completed units”, they may not all end up in the rental pool, says Jacqueline Wong, senior director of residential leasing and ad hoc sales at Savills Singapore.

“It depends on whether the individual developer wants to bite the bullet and pay for an extension of the Qualifying Certificate (QC), which buys them time to sell their units, and rent them out as well,” she explains.

“But some developers may prefer to just hold on to their units for sale.” One of the conditions of the QC is that a developer with foreign ownership status (which includes most listed property companies) must sell all the units in the project within two years of completion, failing which it would have to pay for an extension of the QC, which is prorated based on the unsold units.

The developer is not allowed to hold any units for rental income.

‘Double-digit’ vacancy Wong is also projecting vacancy rates in the CCR to hit “double digits” this year.

“Handling leasing is never easy, and this year, it’s tough,” she admits.

“The movement in transacted rents is less than 5%.

However, corporate tenants are very optimistic that since it’s a tenants’ market, they can knock off rents by 20%.” The high vacancy rate in the CCR, and especially in Ardmore Park, is more the result of the property cooling measures than falling demand, notes Donald Han, managing director of Chesterton Singapore.

“You have listed property developers who have completed projects but can’t rent them out because listed companies are not allowed to rent out their residential units,” he says.

“They can’t launch because of the current market weakness, and they do not want to reduce their asking prices.” Until recently, property developers with newly completed luxury condo projects in Ardmore Park were still holding out for launch prices of “around $3,000 psf”, says a property consultant who declined to be named.

For example, the 84-unit Ardmore III, the latest instalment in Wheelock Properties’ Ardmore Park series, obtained its Temporary Occupation Permit (TOP) in 4Q2014.

Unlike its predecessors (Ardmore Park and Ardmore II), where all units have four-bedroom layouts, Ardmore III has three-bedroom units of around 1,800 sq ft each.

So far, three units at Ardmore III have been sold at private previews at prices ranging from $5.68 million ($3,160 psf) to $6.19 million ($3,485 psf), according to caveats lodged between October 2012 and May 2013.

“The joint developers of Nouvel 18 were exploring a selling price of about $3,600 psf, but now that the project is completed, it remains to be seen what the developers’ plans are,” says a property consultant who requested anonymity.

Wing Tai’s Le Nouvel Ardmore has sold only three units, with prices hitting a high of $4,372 psf.

Meanwhile, market talk is that SC Global is seeking a pricing “starting from $5,000 psf” for Sculptura Ardmore.

Chesterton’s Han sees more listed property developers exploring a restructuring of their companies or portfolios to allow them to rent out completed residential units.

Some could convert their foreign ownership status to local ownership through privatisation, as in the case of SC Global and, more recently, Popular Holdings.

Last week, Keppel Corp announced the privatisation of Keppel Land.

Others such as niche listed developer Hiap Hoe Holdings have sold their completed unsold units in condo blocks like Treasure on Balmoral, to a privately held entity.

“This may help in some way to ease vacancy in the CCR as units are rented out,” he reckons.

Supply deluge URA data in 4Q2014 shows that 21,359 private residential units are expected to be completed in 2015, and another 20,919 units in 2016.

This looming onward supply could bring vacancy rates of non-landed homes to 10% in 2015, reckons Ong Teck Hui, JLL’s national director for research and consultancy.

“The pressure is still greatest in the Central Region where the CCR and Rest of Central Region are located, as it accounts for the bulk of the leasing market,” says Ong, who estimates that 68% of lease transactions are in the CCR and RCR, which already have a fairly high vacancy rate of 9.1%.

This translates into a total of 14,982 vacant units out of the total housing stock in the Central Region.

Newly completed projects would naturally have higher vacancies as they will take some time to fill up, especially if they have mostly been bought by investors for rental income, adds Ong.

“That is likely to be the case for projects in the prime districts as higher rents in these locations are now less affordable to tenants with tighter budgets.

With increased supply, more landlords are competing for tenants and [they] will take a longer time to lease their premises.” Fissures have started to appear in Ardmore Park.

At the 330-unit Ardmore Park condo, Wheelock Properties’ first project in its Ardmore series, transactions hovered around the $3,000 psf level for much of 2012 and 2013.

Last Nov ember, a unit on the 28th floor of one of the three 30-storey blocks was sold for $8.2 million ($2,843 psf).

In October 2013, a neighbouring unit on the same floor had fetched $10.5 million ($3,640 psf).

Two other units at Ardmore Park were sold late last year at prices below the psychological threshold of $8 million.

A fourth-floor unit changed hands for $7.5 million ($2,600 psf), while another unit on the 10th floor sold for $7.28 million ($2,524 psf) in November.

“Everyone is talking about the unit that went for $7.28 million,” says an owner-occupier who only wants to be identified as Mr Wong.

“I was one of the original buyers at Ardmore Park.

I bought my unit for $5.3 million in 1996.

If I were to put it on the market for $8.5 million, it would be a good price.

But I don’t intend to sell.” The spate of bulk sales of units in the area by funds disposing of their legacy assets has made it harder for developers at Ardmore Park to set a launch price for their new projects.

For exam ple, Blackstone Group is reported to have purchased the entire residential block of 21 Anderson Royal Oak Residence on Anderson Road, just one street from Ardmore Park, for $164 million (or $1,917 psf, based on strata area) from Arch Capital Management Co.

Word on the street is that a German core fund managed by Morgan Stanley is considering the bulk sale of 23 units or half a block of a tower at Draycott 8.

The asking price is said to be in the ballpark of $2,300 psf, which brings the absolute amount to $157.4 million.

The $2,300 psf price for the units at Draycott 8 is similar to the amount paid by Keppel Land’s property fund, Alpha Investment Partners, in 2010, when it purchased the other half of a block of 23 units from another Morgan Stanleymanaged fund.

The units owned by the German core fund at Draycott 8 have been leased at an ave rage of $18,000 a month.

Only the penthouse is available for lease at the moment.

Family offices, property funds and high-networth individuals are actively sniffing for opportunities in the prime districts, says Savills’ Wong.

“But they all want extremely good deals.” Even rents have come off in the Ardmore Park area.

In 1Q2014, rents at Ardmore Park condo transacted at $16,000 to $19,000 a month.

In 4Q2014, rents concluded were hovering between $14,000 and $15,500, estimates Wong.

Just one street away is Draycott Park, where a penthouse of over 4,000 sq ft at the 136-unit Draycott 8 was recently listed with an asking rent of $22,000 a month.

But offers coming in are at $20,000.

Privately held Pontiac Land’s Ardmore Residence has typical units with a four-bedroom layout and 3,186 sq ft of space.

When the 58- unit luxury project was first completed in 2013, high-floor units were commanding rents of up to $28,000 a month.

Recent asking rents posted on PropertyGuru by agents are at $23,000.

What Savills’ Wong is more concerned about is the holding power of individual owners of units, rather than developers in the prime districts.

“From past experience, it’s the individual landlords who set the benchmark highs and lows, in terms of rents and prices,” she says.

As the CCR has been the major contributor to the high vacancy, JLL’s Ong sees rents in the prime districts falling by “around 10%” in 2015.

However, Chesterton’s Han says “a collapse in the CCR is not on the cards.

When rents start to correct to a level that’s compelling enough, you will see tenants that have moved to the RCR return to the CCR.

It’s similar to what we’ve seen with capital values in the prime districts”.

In the meantime, the high vacancy in the CCR is likely to persist in the short term, says Desmond Sim, head of CBRE Research.

HDB ‘upgrader’ segment the wild card? Han thinks the segment to be concerned about is the HDB upgraders’ market.

He anticipates high vacancy rates this year, notably for executive condos and private condos in the mass market segment.

Over 60% of the new supply entering the market this year is private condos in the suburbs or Outside Central Region (OCR).

If ECs were included, it would make up 70% of the supply coming on stream this year.

The supply is mainly from government land sales of previous years.

Last year, of the 23,298 private residential units completed, 3,357 were ECs.

According to the Urban Redevelopment Authority (URA)’s 4Q2014 figures, the number of completed private residential units, including ECs, will balloon to 24,796 in 2015, and 25,717 in 2016.

The 3,357 EC units completed in 2014 came from seven projects.

Watercolours (with 416 units) was completed in Dec ember, which means most, if not all the families, would not have moved into their new homes yet.

As for some of the projects that were com pleted in 2H2014, owners could still be renovating their units, or some couples could be waiting to get married before moving in.

“Whatever the reason, eventually all the units will be occupied,” assures CBRE’s Sim.

“Most HDB second-timers buying an EC will take their time to move in as they have an existing home.” Illustrating the point is the drop in EC vacancy rate from 16.2% in 3Q2014 to 11.5% in 4Q2014, says JLL’s Ong.

Pockets of high vacancy are also expected to appear in clusters where there are several new large condo projects completing around the same time, warns Chesterton’s Han.

In the Tanah Merah neighbourhood, the 582-unit Urban Vista by World Class Land and Fragrance Group is expected to be completed sometime this year (see table), and the 748-unit eCo jointly developed by Far East Organization, Frasers Centrepoint and Sekisui House is scheduled for completion in 2016.

This will add 1,330 new units to the neighbourhood.

And that’s excluding Keppel Land and China Vanke’s joint project, the 726-unit The Glades at Bedok Rise on the other side of the Tanah Merah MRT station.

Rents in the Tanah Merah area could drop with the completion of these new condos, says Han.

“The older condos will see a more significant dip in rents of perhaps 5% to 6%, as tenants prefer new condos.

Prices of the older condos in this micro market could also weaken further.” Meanwhile, in the RCR neighbourhood of Bishan, the 509-unit Sky Habitat designed by Moshe Safdie (the architect for Marina Bay Sands) is scheduled to be completed later this year.

As at end-December, 350 units had been sold.

Next door is the 694-unit Sky Vue, where 506 units have been taken up, with the latest transaction at $1,311 psf, according to URA data.

The two 99-year leasehold private condos with a total of 1,203 units are jointly developed by CapitaLand Singapore and Mitsubishi Estate Asia.

Timing and resale prices Ku Swee Yong, CEO of Century 21, also sees the HDB upgrader market being worse off.

Most would have purchased their EC units or private condo units three to four years ago, when the project was first launched.

“At that time, they were probably expecting the resale prices of their HDB flats to continue on an uptrend,” he argues.

“But now, when it’s time to take the keys to their new units, they find that prices have fallen.

Some may, therefore, have to take longer to sell their HDB flats or lower their price expectation.” For the whole of 2014, HDB resale prices fell 6.2%, according to PropNex.

This is the largest decline since 2001, when the index fell 8.2% in the year, says PropNex CEO Ismail Gafoor.

HDB resale volume declined by 4.3% from 18,100 units in 2013 to 17,318 units in 2014.

Falling resale prices are largely because of “a potent combination of government measures”, such as the 30% cap on the mortgage servicing ratio (MSR), the three-year wait for new PRs before they can purchase resale HDB flats, and the opening up of BTO (built-to-order) flats in non-mature estates to singles who could previously only purchase resale flats.

Over 77,000 BTO flats were launched for sale between 2011 and 2013, more than twice the number in the three years before, adds Gafoor.

Another area of concern is the slow EC sales at recent launches, particularly in the northeast region, notes CBRE’s Sim.

“There are now a record 2,000 vacant EC units that have been launched and remain unsold islandwide as at December 2014.

There are, in the near future, at least 6,000 units in the pipeline, of which 1,700 are located in the northeast.” Developers will also now have to take into consideration the impact of the MSR and the resale levy that EEC buyers will now be subjected to, he adds.

This article appeared in the City & Country of Issue 662 (Feb 2) of The Edge Singapore.

Follow our channels to receive property news updates 24/7 round the clock.

Subscribe to our newsletter