Prices of new leasehold condos in suburbs set to rise

The site location of Lentor Modern on June 30, 2022. ST PHOTO: CHONG JUN LIANG

Updated from : The Straits Times, 4 July 2022

SINGAPORE – New 99-year leasehold condominiums in the suburbs – a segment buttressed by HDB upgraders – are about to get even pricier.

Two upcoming large projects in the suburbs – the 372-unit AMO Residence in Ang Mo Kio Avenue 1 and the 605-unit mixed development Lentor Modern – are likely to be launched at a median price of around $2,000 per sq ft – a price level more commonly seen in the prime and city fringe condo markets, analysts said.

They cited higher construction costs and robust bids for Government Land Sales sites located in the suburbs. The Ang Mo Kio Avenue 1 site for AMO Residence was sold for $381.4 million or $1,118 per sq ft per plot ratio (psf ppr), while the Lentor Central site was sold for $784.1 million or $1,204 psf ppr.

“Based on the land price, the break-even cost is around $1,900 psf to $2,000 psf. Therefore, developers will need to sell above $2,000 psf to cover their costs,” said Ms Christine Sun, OrangeTee & Tie’s senior vice-president of research and analytics.

To date, in the suburbs, only freehold projects have topped the $2,000 psf median launch price. Baywind Residences in Telok Kurau, for instance, was launched at a median price of $2,012 psf in May this year. Two freehold condos – The Lilium and The Gazania – were launched in May 2019 at a median price of $2,036 psf and $2,067 psf respectively.

In Ang Mo Kio, the last new launch was freehold condo Lattice One in June 2019 at a median unit price of $1,779 psf.

In comparison, for the first five months this year, the median unit price of new freehold and leasehold non-landed private homes in Ang Mo Kio was $1,904 psf, while that of those in the overall suburbs was $1,792 psf.

Analysts say AMO Residence and Lentor Modern could potentially set a new price benchmark for the leasehold non-landed mass market in Ang Mo Kio and in the suburbs.

Mr Wong Xian Yang, head of research at Cushman & Wakefield, said that their launch performance will be “a litmus test of broad suburban demand at above $2,000 psf pricing levels, which are more commonly seen in the high-end and city fringe markets”.

Given that these two projects are near the city fringe boundary, Mr Ong Teck Hui, JLL’s senior director of research and consultancy, noted that “it may not be surprising to see their prices trend closer to those in the Rest of Central Region (RCR) or city fringe area”.

According to URA Realis data as at June 29, the median price of city fringe new private homes in the second quarter is $2,262 psf.

“AMO Residence is just outside the RCR boundary while Lentor Modern is slightly farther away. The projects are also located in popular residential areas and near MRT stations,” Mr Ong said.

He believes it will likely be “HDB upgraders with stronger budgets and private investors who can afford the $2,000 psf level”.The robust private residential leasing market has helped boost the investment potential of suburban properties, Mr Ong noted.

Condominium and apartment rents in the suburbs grew the most in the first quarter this year, up 13.1 per cent year on year. This was followed by a 12.4 per cent year-on-year increase in the city fringe and a 10.8 per cent increase in the prime district.

“The suburbs also led in terms of volume of leasing transactions of condos and apartments between the second quarter of 2021 and first quarter of 2022, accounting for 36.5 per cent of the market share, while 32.7 per cent and 30.8 per cent were attributable to the city fringe and prime district respectively,” Mr Ong said.

Suburban condo demand in the last two years has been buoyed by high liquidity, low interest rates, a robust HDB resale market and the economic recovery, said Mr Lam Chern Woon, Edmund Tie’s head of research and consulting.

A median unit price of between $1,900 and $2,100 psf for new suburban launches would translate to $1.68 million to $2.28 million for units ranging between 800 sq ft and 1,200 sq ft, Ms Sun said.

Median prices for new leasehold suburban condos are now at around $1.7 million, analysts said.

Huttons Asia chief executive Mark Yip said: “Considering the 30 per cent spike in construction costs over the past two years, a higher launch price (for new suburban projects) in 2022 is not unexpected.”

But he believes HDB upgraders have muscle. “The four-room resale flats at new Build-To-Order projects in Ang Mo Kio have transacted at more than $800,000 this year. Based on SingStat’s latest data, there are more than 12,000 households earning a monthly income of $14,000 or more in Ang Mo Kio planning area.”

While the second quarter flash estimate for the overall private home price index surprised with a 3.2 per cent gain following a 0.7 per cent rise in the first quarter of this year, some analysts pointed to the unsustainability of such price increases.

Strong demand for new launches in the city fringes stoked a 6 per cent jump quarter-on-quarter for that sub-market in the second quarter, compared with a 2.7 per cent drop in the previous quarter.

But Mr Nicholas Mak, ERA Realty Network’s head of research and consultancy, warned of an impending clash between headwinds from rising mortgage rates and recession fears and developers unwilling to lower prices of upcoming launches due to higher land prices, construction and financing costs.