Will 2000 psf for OCR be the norm for 2022?
What are the property investment strategy that one can adopt?
The recent GLS sales for OCR highlighted a key point - Prices for OCR new launches will edge closer to 2K in the next few years. Residential GLS at Ang Mo Kio and Lentor Central attracted high bids with the latter setting the highest price for OCR projects.
What are GLS Sales
Government Land Sales (GLS) is a programme where state land is released for redevelopment. Each GLS is announced every 6 months. The sites are releases either through Confirmed List or Reserved List.
GLS is comprised of a mixture of residential, commercial or white sites. For residential, the lease period is usually 99 years.
What is OCR?
OCR refers to the planning areas which are outside Central Region.
GLS Sales in 2021 and their projected launch price
The following are residential GLS that had been awarded Tender for 2021
Northumberland Road ( RCR)
Type: Residential with commercial on 1st floors Site Area: 8732 m² Max Gross Floor Area :36,679m² Number of units: Up to 408 residential apartments of up to 23 floor Tendered Price: $445.9M PSF : $1,129 PSF Developer: Maximus Residential SG (CDL and MCL Land) Indicative Selling Price: $1900-$2100 PSF
Source: ST
Ang Mo Kio Ave 1 (OCR )
Type: Residential with commercial on 1st floors Site Area: 12,679.4 m² Max Gross Floor Area :31,699m² Number of units: Up to 370 residential apartments of up to 25 floor Tendered Price: $381.38 M PSF : $1,118 PSF Developer: UOL, Singapore Land Group and Kheng Leong Indicative Selling Price: $1900-$2100 PSF
Source: Edgeprop
Tengah Garden Walk (OCR EC)
Type: Residential (EC) Site Area: 22,020 m² Max Gross Floor Area :61,659 m² Number of units: Up to 370 residential apartments of up to 25 floor Tendered Price: $400.3M PSF: $603PSF Developer: Taurus Properties SG (CDL and MCL) Indicative Selling Price: $1190 to $1250 PSF
Source: ST
Lentor Central (OCR)
Type: Residential with commercial on 1st floors Site Area: 17,279.9 m² Max Gross Floor Area:60,480 m² Number of units: Up to 605 Units Tendered Price: $784.1m PSF: $1204 PSF Developer: Guccoland *(Highest Bid) Indicative Selling Price: $2000-$2100 PSF
Tampines Street 62 ( EC OCR)
Type: EC Residential (EC)
Site Area: 23,799.2 m²
Max Gross Floor Area: 59,598 m²
Number of units: Up to 590 Units
Tendered Price: $ 422m
PSF: $659 PSF
Developer: Qingjian Realty and Santarli Construction *(Highest Bid)
Indicative Selling Price: $1250 PSF
Source: ST
Why is GLS important when it comes to pricing a new launch?
The recent rise in property prices have buyers lamenting that prices are going up too high. The reality is that prices are usually dedicated by supply rather than demand for new launches in Singapore.
The selling price of a new launch in is Singapore comprise of the following component.
- Tendered Price
- Construction / Marketing Costs
- Developer's profit margin.
In the past, developers are known to take as much as 50% in profit margin. Today, with the higher bid prices of land, these margins can be as low as 10%. If a project's profit margin is priced between 10-15%, it is usually considered a 'good price' for buyers.
As you can see from the recent tenders, both OCR projects have a projected price of $2000-$2100 psf. At this price, this signals the direction of pricing of properties in OCR. The conclusion - tender prices WILL affect the final selling price of new launches.
HOW TO PROFIT FROM HIGH GLS PRICE?
How can a property investor benefit from this knowledge?
Given the prices of GLS, here are some strategies to adopt.
1) Recently TOP New Launches may have a price advantage
For projects that just TOP, they are still priced relatively cheaper to the new launch. The main reason is that those buyers who had bought these properties 3-5 years ago may want to cash in on their profits. Usually, they would be price more attractive than new launches.
The other benefit of getting these properties is that you will be able to move in anytime. This would save you rental cost vs when you book a new launch.
For example, Seaside Residences (99yr leasehold) 2 bedroom units are going for $20xx psf vs Pasir Ris 8 (99yr leasehold) 2 bedroom at $21xx. In terms of location, a D15 condo is usually seen as a better alternative than a D18 condo.
2) New Launches at other OCR region
OCR prices tend to move in tandem regardless of location. If you see new GLS sales are hitting above $2000 PSF for launches in the near future, current gems that are prices at $13xx becomes more attractive.
An example would be Treasure at Tampines(99yr leasehold) where 3 and 4 bedroom are going for $13xx psf. In terms of PSF and overall quantum, to the astute buyer, it looks more attractive than the future GLS new launch. For the record, you could get a 3 Bedroom in the vicinity for $1.2x m vs a similar size unit for $1.8x m in the future. A savings of SGD 600K looks very attractive in comparison.
3) CCR properties look attractive
CCR refers to Core Central Region. This location is usually considered to be the prime of Singapore Real Estate with a highly desirable address.
For example Kopar at Newtown (99yr leasehold ) is going at $22x psf. At this pricing, it is very similar to the upcoming new launches from the GLS sale. However, with a D9 address, Kopar is more centrally located and has a more desirable address.
From the past 5 years, OCR index has risen from 157.3 in Q1 2016 to 185.6 (+17.9%)in Q 1 2021. RCR has risen from 140.3 to 170.4 (21.5%), while CCR only rose from 129 to 134.3 (4.1%). Base on these figures, CCR regions appears to be lagging behind OCR. For value investor, this might be worth a second look.
4) Resale Property are undiscovered gems
While new launches are soaring, resale property prices are not exactly rising at the same pace. Base on an article by Edgeprop, the price gap between the average price of a private resale property and the average price of new launch projects is at the widest in the last five years.
Based on the transactions from PropNex Realty, the price gap has increased to a whopping 46% in 1 Q2021 from 35% in 2020 and 28% in 2019.
Historically, a price gap exists because new launches offer extra benefits such as new fittings which include white goods such as refrigerator and washer/dryer. Moreover, developers also provide 1-year warranty for the unit. Maintenance fees tend to be lower for new developments as well. Thus price premium would be required for a new unit.
However, if the gap widens to a certain point, resale units may end up looking attractive even when all the premiums attached to new launches are considered.
What should you do next?
The good news is that you can profit from this phenomenon TODAY and you can potentially make more than what future investors would make if they had purchased the new launch.
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