Thoughts On The Recent New Launches

 

The recent new leasehold launches in the OCR region are mostly above the 2k psf mark. They are all over the news, be it AMO, Lentor Modern or even the boutique development Sky Eden. 

This is problematic to me as the highly desired freehold CCR condo like Rivergate(500+ units) are transacting quite close at a range of 2.3-2.7k psf. 

Even old condos that are situated beside Nassim and right beside the upcoming Napier mrt, like Botanic Garden Mansion are transacting at sub 2k psf. Besides the school effect, what are the reasons to choose a leasehold ocr over a freehold ccr if both are near the mrt?

I would think its a no brainer if the psf is similar, to choose a ccr freehold due to the affluency and the immunity to bala curve. Maybe the quantum is smaller and hence buyers think that its more 'affordable". I can imagine a 800 sqft unit now having three bedrooms.

Lets assume one of the new launch unit is priced at S$2.1k psf with a size of 1000 sqft, that's S$2.1mil. Assuming the best case scenario where you can rent out perpetually at 4k per month, that's only a gross cap rate of 2.28%. If you include the mcst fee and tax it might go sub 2%. Lower than risk free Singapore Saving Bonds of 2.8%. 

Will these 2k+ psf new leasehold launches make money over time? They are now very close to freehold ccr psf pricing, and the net cap rate is less than 2%, lower than the risk free rate. You can decide for yourself.

Could this be the case of developers in the past over reaching on the price ppr for their enbloc purchases, hence the need to market and sell at close to freehold CCR price now? 

In 2019 Lawrence Wong during an NUS conference mentioned: 

"The government has concluded that it cannot take a “hands-off” approach to managing Singapore’s property market and allow asset bubbles to develop. This is not what a responsible government would do,” 

“Our aim is not to bring prices down, but to steady the cycle and to stabilise the market. [We want] to have a steady and sustained property market, moving broadly in line with income growth,” he reiterates. “This is a shift from the past where we tended to take a more laissez-faire approach [to the property market].”

“Investors have to consider what it means to buy property and the implications for property values.” 

The property market has shown that left to itself, it tends to go through large price swings. This harms genuine homebuyers and if corrective actions are not taken to prevent an asset bubble from forming, the costs would eventually be larger and more painful for everyone, the minister says.

“Investors have to consider what it means to buy property and the implications for property values,” 

“We cannot just continue with the status quo and assume that property prices will always appreciate, regardless of fundamentals,”

full article here

I feel the government is watching the property price movement closely especially HDB. They want property price to increase in tandem with income growth and not be speculated or pushed up in a short period of time. 

One has to be cognizant of their purchases, especially be sensitive to the net cashflow if you are investing, or the affordability if you are own staying. Own view.