Project Spotlight: 48 out of 50 sellers lost money in this District 9 condo
By Elizabeth Choong
/ EdgeProp Singapore |
OUE Twin Peaks experienced 48 unprofitable and 2 profitable transactions since 2013. (Photo: Samuel Isacc Chua/EdgeProp Singapore)
SINGAPORE (EDGEPROP) – The location of a condo has a significant impact on its demand and price. However, being located in District 9 did not prevent OUE Twin Peaks from experiencing numerous loss-making transactions. Our examination of condos in the prime district indicates that OUE Twin Peaks tops the charts with 48 unprofitable and only two profitable transactions since 2013.
We analysed this high-end development to uncover possible reasons for its numerous unprofitable transactions despite being in an extremely desirable location.
48 out of 50 transactions lost money
OUE Twin Peaks is a 99-year leasehold condo located along Leonie Hill Road in the River Valley planning area. The condo features 462 units and obtained temporary occupation permit (TOP) in 2015.
The high-end development is located within walking distance of Orchard Road and Orchard MRT Station. Additionally, Great World City, Zion Riverside Food Centre, and River Valley Primary School are within a 1km radius.
Despite its excellent location, OUE Twin Peaks has experienced 36 unprofitable transactions and only one profitable transaction from 2019 to the present year. Among all condos in District 9, OUE Twin Peaks has had the highest number of unprofitable transactions during that time frame. Last year, OUE Twin Peaks recorded no profitable transactions and 10 unprofitable ones, with losses ranging from $62,500 to $607,802.
Large planter and balcony for one-bedders
It is notable that nine out of the ten unprofitable transactions that took place last year involved one-bedroom units. The sole exception is a two-bedroom unit, whose transaction resulted in the highest loss, while two one-bedroom units, each 570 sq ft in size, took the second and third places.
A closer examination of the floor plan for the 570-sq ft one-bedroom units in OUE Twin Peaks provides us with some clues to their unprofitability. These units feature a large planter, which reduces the amount of liveable space in an already small unit. Furthermore, Singapore's hot and humid climate makes indoor space preferable over outdoor space, rendering the large balcony less usable.
Moreover, the one-bedroom units essentially resemble a studio apartment because there are no walls separating the master bedroom from the living and dining areas. While some may appreciate the open and unblocked space, others may dislike the lack of privacy and personal space. Although the owner could opt to build a sliding door or walls to enclose the master bedroom, this would increase renovation costs and reduce the unit's liveable area.
More than half of the units in OUE Twin Peaks are one-bedroom units, sized at either 549 sq ft or 570 sq ft, and both unit sizes share the same layout. The inefficient floor layout for the one-bedroom units could have contributed to the overall lacklustre demand for the development and thus placed downward pressure on its price.
Deferred payment scheme
According to data from URA Realis, the first sale for OUE Twin Peaks took place in August 2010, before the introduction of the additional buyer's stamp duty (ABSD) in December 2011. Initially, the ABSD rate was only 3% for Singaporeans purchasing their third and subsequent residential properties, and for permanent residents purchasing their second and subsequent residential properties. The ABSD rate was 10% for foreign buyers.
The introduction of ABSD and other cooling measures increased transaction costs, especially for investors. These measures had a negative impact on the sales performance of OUE Twin Peaks. Compounding the issue, more than half of its units are one-bedders, which are too small for occupation by families. Consequently, the majority of buyers would likely be investors who could be subjected to higher ABSD rates.
Since then, ABSD rates have increased significantly. Currently, the ABSD rate for Singaporeans stands at 20% for the second residential property and 30% for third and subsequent properties. Permanent residents pay 5% for their first property, 30% for their second property, and 35% for their third and subsequent properties. The ABSD rate for foreign buyers is 60%.
Although OUE Twin Peaks obtained TOP in 2015, only 79 units in the 462-unit development were sold by the end of that year. The low take-up rate of 17.1% prompted the developer to introduce a deferred payment scheme (DPS) in April 2016.
DPS is allowed only for completed developments that have obtained their TOP and certificate of statutory completion (CSC). The provision of DPS by developers usually boosts sales because buyers can purchase a brand-new unit by paying only 20% of the purchase price as a deposit. They can delay paying the remaining 80% till two or three years later. Furthermore, buyers are typically allowed to rent out the unit upon collecting the keys.
The delay in paying the full purchase price gives buyers more time to arrange for a mortgage loan or sell another property to finance the newly purchased unit. By selling another property, they might also qualify for a lower ABSD rate and a higher loan-to-value ratio.
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Thanks to DPS, the developer sold 241 units in 2016 but at a lower average price of $2,647 psf. The average price rallied to $2,861 psf in 2017 but fell in 2018 and has not been able to bounce back. The average price was $2,323 psf last year, and $2,287 psf thus far this year. The average price for OUE Twin Peaks has dropped by 19.3% ($548 psf) since 2010 and by 13.6% ($360 psf) since 2016.
Readers should note that URA deems all condo sales to be resale after the condo has obtained TOP and CSC, regardless of whether the seller is the developer or a subsequent purchaser.
Some owners, who purchased using DPS, had to sell their units at a steep discount because they were unable to secure a mortgage loan when the remaining 80% was due. This could explain the numerous unprofitable transactions for OUE Twin Peaks. Furthermore, these sellers set a precedent that made it challenging for subsequent sellers to set significantly higher asking prices, potentially contributing to the lacklustre prices for the development.
Surrounded by freehold condos
The unprofitability of OUE Twin Peaks could be attributed to its status as a 99-year leasehold condo surrounded by freehold condos. Within a 500m radius of OUE Twin Peaks, there are 46 condos. Only six of them are 99-year leasehold developments, and one is a 103-year leasehold development. The remaining 39 condos are freehold. This presents a disadvantage to OUE Twin Peaks because most buyers prefer freehold developments over leasehold ones.
Furthermore, the average resale price for OUE Twin Peaks consistently trends above the average resale price for 99-year leasehold condos in the same district. Hence, OUE Twin Peaks is more expensive than its leasehold neighbours by $77 psf last year and $47 psf this year.
Comparison of prices for OUE Twin Peaks and freehold condos in the same district reveals that OUE Twin Peaks was $40 psf more expensive last year, down from $58 psf in 2022. The lower average price for nearby freehold condos makes such developments even more attractive than leasehold OUE Twin Peaks. It is only this year that the average price for freehold condos in District 9 is higher than OUE Twin Peaks by a mere $47 psf.
Competition from neighbours
New Futura and Irwell Hill Residences are located within a 500m radius of OUE Twin Peaks. Both developments are luxurious condos, but New Futura is two years younger than OUE Twin Peaks, having obtained TOP in 2017. Irwell Hill Residences is still under construction and is expected to obtain TOP in 2026.
The average price for New Futura is higher than the average prices for the other two condos because of its freehold tenure. OUE Twin Peaks and Irwell Hill Residences are both 99-year leasehold developments. OUE Twin Peaks is more affordable than the other two condos. Last year, the average price for OUE Twin Peaks was $2,323 psf, significantly lower than Irwell Hill Residences ($2,916 psf) and New Futura ($4,327 psf).
However, the average price for OUE Twin Peaks has been declining. From 2021 to last year, the average price for OUE Twin Peaks fell by 2.3%. In contrast, the average prices for New Futura and Irwell Hill Residences rose by 7.6% and 9.5%, respectively.
Competition is expected to intensify due to the presence of four government land sale (GLS) sites in the neighbourhood. River Valley Green (Parcels A and B) are located within a 1km radius, while Zion Road (Parcels A and B) are situated within a 2km radius. All four sites have a tenure of 99 years.
The tender for Zion Road (Parcel A) was launched in December last year and will close in April. URA expects the site to yield approximately 1,170 residential units and 25,834 sq ft of commercial space. The tender for River Valley Green (Parcel A) was launched in March and will close in June. Approximately 380 housing units can be built on the site.
River Valley Green (Parcel B) and Zion Road (Parcel B) are on the reserve list, so the sites will not be launched for tender unless they are triggered. River Valley Green (Parcel B) is expected to yield approximately 580 housing units and 5,382 sq ft of commercial space, while approximately 610 residential units can be built on Zion Road (Parcel B).
Source: EdgeProp LandLens (as at 13 March 2024)
Key lessons to be learnt
While location is an important indicator of demand for a condo, OUE Twin Peaks proves that a prime location does not guarantee capital appreciation or profitability.
It is vital for potential buyers to investigate neighbouring developments. A leasehold development is likely to be more affordable than its freehold counterparts. However, owners can expect to face more challenges when selling a unit in a leasehold condo if it is surrounded by freehold condos.
The layout of a unit impacts its usable size, which in turn affects its demand and price. Prospective buyers should bear in mind the importance of an efficient unit layout and indoor usable space, especially for small units.
DPS gives buyers time to get their financial ducks in a row and helps developers boost sales of newly completed units. However, it does not always translate into demand for units in the resale market or capital appreciation in the long run especially if the original owners are forced to sell when they failed to obtain a loan or if the original bets on cooling measures removal did not pay off.
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