Prices of new leasehold condos in suburbs set to rise

by Albert02

Prices of new leasehold condos in suburbs set to rise

Prices of new leasehold condos in suburbs set to rise.  New 99-year leasehold condominiums in the suburbs, a segment bolstered by HDB upgraders, are about to become even more expensive.

Analysts predict that 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, will 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.

They cited rising construction costs as well as competitive bids for Government Land Sales sites in the suburbs. The AMO Residence Ang Mo Kio Avenue 1 site fetched $381.4 million, or $1,118 per sq ft per plot ratio (psf ppr), while the Lentor Central site fetched $784.1 million, or $1,204 psf ppr. “The break-even point is between $1,900 and $2,000 per square foot, depending on the land price. As a result, in order to cover their costs, developers will need to sell above $2,000 per square foot “Ms Christine Sun, senior vice president of research and analytics at OrangeTee & Tie, stated as much.

To date, only freehold projects in the suburbs have surpassed the $2,000 psf median launch price. Baywind Residences in Telok Kurau, for example, was launched in May of this year at a median price of $2,012 psf. The Lilium and The Gazania, two freehold condos, were launched in May 2019 at a median price of $2,036 psf and $2,067 psf, respectively. The most recent new launch in Ang Mo Kio was the freehold condo Lattice One in June 2019, with a median unit price of $1,779 psf. In comparison, the median unit price of new freehold and leasehold non-landed private homes in Ang Mo Kio for the first five months of this year was $1,904 psf, while it was $1,792 psf in the overall suburbs.

Analysts believe AMO Residence and Lentor Modern will set a new price benchmark for the leasehold non-landed mass market in Ang Mo Kio and the surrounding suburbs. Cushman & Wakefield’s head of research, Mr Wong Xian Yang, believes that their launch performance will be “a litmus test of broad suburban demand at pricing levels above $2,000 psf, which are more commonly seen in the high-end and city fringe markets.” Given the proximity of these two projects to the city outskirts, Mr Ong Teck Hui, senior director of research and consultancy at JLL, 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 of June 29, the median price of new private homes in the city fringe in the second quarter is $2,262 psf. “Lentor Modern is slightly further away from the RCR boundary than AMO Residence. The developments are also in popular residential areas and close to MRT stations “Mr. Ong stated. He believes that “HDB upgraders with larger budgets and private investors who can afford the $2,000 psf level” will be the most likely buyers. Mr Ong noted that the robust private residential leasing market has helped boost the investment potential of suburban properties.

Rents in suburban condominiums and apartments rose the most in the first quarter of this year, rising 13.1 percent year on year. This was followed by an increase of 12.4 percent year on year in the city outskirts and 10.8 percent 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 the first quarter of 2022, accounting for 36.5 percent of the market share,” Mr Ong said.

According to Mr Lam Chern Woon, Edmund Tie’s head of research and consulting, suburban condo demand has been boosted in the last two years by high liquidity, low interest rates, a robust HDB resale market, and the economic recovery. According to Ms Sun, a median unit price of $1,900 to $2,100 psf for new suburban launches translates to $1.68 million to $2.28 million for units ranging from 800 to 1,200 square feet.

According to analysts, the median price for new leasehold suburban condos is now around $1.7 million. “Considering the 30% increase in construction costs over the last two years, a higher launch price (for new suburban projects) in 2022 is not unexpected,” said Huttons Asia CEO Mark Yip. Strong demand for new launches on the outskirts of the city drove a 6% quarter-on-quarter increase in that sub-market in the second quarter, compared to a 2.7 percent drop the previous quarter. Mr Nicholas Mak, ERA Realty Network’s head of research and consultancy, warned of an impending clash between rising mortgage rates and recession fears, as well as developers unwilling to lower the prices of upcoming launches due to higher land, construction, and financing costs.

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