For readers who have read SPK’s earlier review on Parc Botannia and agree that Parc Botannia is a good value condominium, you might tempted to buy a unit at Parc Botannia for your family. Probably the next question that you will be asking yourself is “Can I afford a unit at Parc Botannia?”.
Let us analyse the affordability of Parc Botannia from the perspective of an investor and a family for own stay.
Scenario 1: An Investor Buying a 1-Bedroom 431 sq ft unit at Parc Botannia
Mr Investor, a young working adult in his early thirties, is looking to invest in a 1-Bedroom, 431 sq ft unit at Parc Botannia. The unit costs S$600,000, or S$1,392 psf. Including stamp duty and other fees, the estimated investment in the unit would probably end up being around S$615,750 in total.
In terms of cash requirement, Mr Investor will need to have S$42,750 in his bank account to pay the 5% booking fee, stamp duty (which is payable upfront in cash and can be reimbursed from his CPF account later), and valuation for the loan.
Mr Investor can use his CPF Ordinary Account savings to pay for the downpayment of 15% and legal fees, and these work out to be around S$93,000 in total. Having worked for 6 years with an average salary of S$6,000 a month, he would have accumulated close to S$100,000 in his Ordinary Account and hence, he has sufficient CPF savings to drawdown for the purchase.
As for the balance 80% progressive payment to the developer, Mr Investor will have to get a mortgage to finance the payment. Mr Investor needs to borrow S$480,000 in total. Will the bank lend him? Let’s take a look at Mr Investor’s finances. He currently has a car loan to service, paying the bank S$700 a month, and every month, he charges approximately S$500 to his credit card. Adding on the potential monthly mortgage repayment for this property based on bank’s conservative assumptions, Mr Investor will end up having a total potential monthly liability of S$3,355.
According to rule under MAS’ total debt servicing ratio framework, monthly repayment of all debts cannot exceed 60% of Mr Investor’s monthly income, which means that Mr Investor needs to have a monthly income of at least S$5,592 in order for the bank to approve the loan. No issue as Mr Investor’s income is S$6,000 per month and this would have given sufficient buffer in the calculation of TDSR of Mr Investor.
Base on current low-interest rate environment, mortgage rates are still competitive at around 1.5% per annum. So in reality, the monthly mortgage repayment for Mr Investor is, in fact, lower than what the bank assessed, and he will only need to pay S$1,657 per month or 28% of his monthly income to service his mortgage. What we assumed earlier is on a fully drawdown basis 3 years later upon completion of Parc Botannia. But since Parc Botannia is a development under construction, the drawdown of the mortgage facility will be progressive based on the stage of completion of the project, which means that the monthly mortgage payment during the construction years will be lesser.
In summary, Mr Investor will require an upfront cash of S$42,750, CPF OA savings of S$93,000 and a monthly income of at least 5,600 per month, in order to be able to afford a 1-bedroom unit at Parc Botannia.
Scenario 2: A Couple Buying a 3-Bedroom Premium 980 sq ft unit at Parc Botannia
Mr & Mrs Couple, a middle age married working couple with kids and in their mid-thirties, are looking to buy a 3-Bedroom Premium, 980 sq ft unit at Parc Botannia. The unit costs S$1,240,000, or S$1,265 psf. Including stamp duty and other fees, the estimated investment in the unit would probably end up being around S$1,274,950 in total.
In terms of cash requirement, Mr & Mrs Couple will need to have a combined savings of S$93,950 in their bank account to pay the 5% booking fee, stamp duty (which is payable upfront in cash and can be reimbursed from his CPF account later), and valuation for the loan.
For the downpayment of 15% and legal fees, Mr & Mrs Couple can use their combine CPF Ordinary Account savings to pay and these works out to be around S$189,000 in total. Mr & Mrs Couple have both worked for around 10 years, earning an average salary of S$6,000 each. Their combined savings in CPF OA account would probably be close to S$150,000 each and hence, they can comfortably drawdown from their combine CPF OA savings to pay for the property.
As for the balance 80% progressive payment to the developer, Mr & Mrs Couple will be seeking a mortgage to finance the payment and they need to borrow S$992,000 in total. Will the bank lend them? Let’s assume that Mr & Mr Couple have a monthly car loan repayment of S$900 to service, and every month, they charge a combined amount of S$1,500 to their credit cards. Adding on the potential monthly mortgage repayment for this property based on bank’s conservative assumptions, Mr & Mrs Couple will end up having a total potential monthly liability of S$6,855.
According to rule under MAS’ total debt servicing ratio framework, Mr & Mrs Couple will need to have a monthly income of at least S$11,424 in order for the bank to approve the loan. This will not be an issue to Mr & Mrs Couple as their combined income is S$12,000 per month would have exceeded the minimum required income.
Base on current mortgage rates of 1.5% per annum, Mr & Mrs Couple will only need to pay S$3,424 per month or 28% of their combined monthly income to service the mortgage. Once again, what we assumed here is on a fully drawdown basis 3 years later upon completion of Parc Botannia. But since Parc Botannia is a development under construction, the drawdown of the mortgage facility will be progressive based on the stage of completion of the project, which means that the monthly mortgage payment during the construction years will be lesser.
In summary, Mr & Mrs Couple will require an upfront cash of S$93,950, CPF OA savings of S$189,000 and a combined monthly income of at least $11,424 per month to afford a 3-bedroom Premium unit at Parc Botannia.
SPK hopes that the above illustrations can help readers in assessing their financial standings and affordability in buying a unit at Parc Botannia, or any other condominiums that they like.
The launch of Parc Botannia on 11th November is reported in 2 of the main newspapers in Singapore this morning – The Straits Times and The Business Times. SPK just issued a review on Parc Botannia last night and readers can access the review here.
You can also access the news articles from the links below:
Thinking that Parc Botannia is a good development and wanting to profit from this project? Well, the most direct way is to bring your cheque book down to the showflat and book a unit on the launch date. If direct property investment is not your cup of tea, why not look at investing in the shares of Sing Holdings?
Parc Botannia is developed by Sing Holdings (70%) and Wee Hur (30%), with Wee Hur being the main contractor for the project. The 2 partners acquired the site via Government Land Sales in September last year, when they outbid 13 other developers to clinch the site at a tender price of S$287.1 million or about S$517 psf ppr.
Adding on other costs, such as construction, marketing, fees and financing expenses, SPK estimates that the total development cost for the project would probably lie in the region of S$510 million to S$540 million, or breakeven selling price of S$900 psf to S$960 psf. If Parc Botannia turns out to be a sell-out project at S$1,280 psf, it could potentially generate an after-tax profit of S$145 mil to S$170 mil to the JV, of which Sing Holdings will get development profits S$100 mil to S$120 mil, and Wee Hur getting S$44 mil to S$52 mil (before adding in the profit margin for its construction work).
Sing Holdings is a publicly listed company on the Singapore Exchange. It currently has a book value of S$255 mil and it is trading below its book value, at an attractive 0.77x price-to-book value. Sing Holdings has a market capitalization is approximately S$196.5 mil. Upon fully sell-out and completion, the profit recognised from Parc Botannia could potentially raise the company’s book value by 40% to 47% to S$355 mil to S$375 mil. If we value Sing Holdings at this maximum potential book value, current valuation looks even more attractive at 0.52x to 0.55x its maximum potential (reappraised) book value!
So why not ride along with Sing Holdings and let the developer help you make your money instead?
IMPORTANT NOTICE
The information and opinion contained in this blog posting above is based solely on the personal analysis of Singapore Property Kaki (“SPK”) and is for general information purposes only. SPK assumes no responsibility for errors or omissions in the contents of this blog posting. In no event shall SPK be liable for any special, direct, indirect, consequential, or incidental damages or any damages whatsoever, whether in an action of contract, negligence or other tort, arising out of or in connection with the use of the content in this blog posting. SPK reserves the right to make additions, deletions, or modification to the contents at any time without prior notice.
With the launch of Parc Botannia, one of the last major launch of the year, happening soon, let’s spend some time to review on this project before bringing your cheque book down to the showflat.
Project Details on Parc Botannia
How good is the location?
If you do a quick search on ‘Parc Botannia’ using Google, you will be able to find many property agents’ website that can provide you with details on the amenities surrounding Parc Botannia. So let’s not spend too much time on the details of what is around Parc Botannia and jump straight in a review of the strength and weakness of the location:
Strength
Located on the quieter side of SengKang West, lining along side the land houses at Jalan Kayu. Provides a sense of exclusivity
For young families, there are many primary schools within a 1km radius
Daily/Weekly necessity shopping can be done easily at nearby Seletar Mall (1 LRT stop away) or Greenwich V and Compass One (which are slightly further)
Thanggam LRT station is conveniently located beside Parc Botannia
There are many interesting F&B options in the area, such as Jalan Kayu, The Oval @ Seletar Aerospace Hub and nearby malls
Public recreational areas and facilities such as Punggol Promenade and SengKang Sports Centre are within short jogging distances. Good for families and sports enthusiasts
Easy access to town via CTE and airport via TPE by car
There will be a new road that provides shorter access from Fernvale Road to Jalan Kayu and residents can avoid the congestion along the narrow Jalan Kayu Road
Parc Botannia is close to business/industrial areas such as Seletar Aerospace Park and Ang Mo Kio Industrial Estates. Many big MNCs such as Rolls Royce and Airbus are located there. For investors, there should be healthy rental demand
Weakness
Public transportation is not well developed in the area at the moment. Residents rely heavily on LRT to get around place. But the bus network in the area should improve as more residential projects are developed
Verdict: Overall, the location of Parc Botannia offers a very well-balanced mix and varieties of amenities, accessibility, and facilities that cater well to all age groups from single adults to young families.
Other than High Park Residences (located next to Parc Botannia; fully sold) which offers similar attributes, other nearby projects tend to attract another group of buyer segment. H2O Residences, RiverTrees Residences and Riverbank @ Fernvale (located to the East of Parc Botannia and along Sungei Punggol River) tend to cater more towards a lifestyle and sports enthusiast crowd due to proximity to the river, park connector, and sports centre.
What are the future development plans in the area?
There are a couple of things to take note, relating to the future developments in the area:
There will be a public park between Parc Botannia and High Park Residences, which provides a green buffer between the 2 developments. South facing units of Blk 16 and 18 will be at a good distance away from High Park Residences and enjoy the park view
2 new educational institutes will be built next to Parc Botannia, most likely to be secondary school or private school. There are already ample primary schools in the area
The land to the north of Parc Botannia is zoned for future residential development with plot ratio of 2.1. Considering that these sites are adjacent to the TPE, it is likely that these developments will have some set-back requirements from the TPE, multi-storey carparks facing the TPE and residential units along the side of Fernvale Street. If this happens, the north facing units of Blk 10 and 12 would eventually lose their unblock view towards the Seletar Airport area
Towards the South-west of Parc Botannia, there is a plot of land along SengKang West Way that is zoned for future commercial and residential development. Another small community mall could be built in future to give more shopping options to the residents of Parc Botannia
Verdict: Future developments in the nearby surrounding area look positive and beneficial to the residents in the area and Parc Botannia is likely to benefit as well. Buyers of the north facing units of Blk 10 and 12 may end up facing some other developments in the future, but well, this is probably a norm rather than the exception in a land-scarce city like Singapore, isn’t it?
How does the Site Plan look like?
Vehicular access to Parc Botannia is via Fernvale Street. Access to TPE will be a breeze in future
There are side gates at the south-east corner (for access to LRT) and south (for access to public park) perimeter of the development
Car park is in the basement
Clubhouse, gym and majority of the recreational facilities are tucked at the western section of the development, probably due to building set-back requirements because of proximity to the landed houses beside
BBQ pits are located in between (1) Blk 10 stack 2 and Blk 12 stack 45 and (2) Blk 2 stack 12 and Blk 18 stack 34/35. For the lower floor units, do take note of potential noise and bbq smell
No indication of bin centre and substation on the site plan, but they seem to be located at the north-west end of the development, beside the main gate
Tennis court is located at the eastern part of the development
There will be a childcare centre located within the development
Majority of the units have open views and good spacing distance from the direct opposite block
Verdict: Parc Botannia comes with standard condominium facilities like most condo projects, but probably some of its selling points are the childcare centre within the condo which makes it convenient for the working residents and the large open recreational space for children to run around safely.
What is the Unit Distribution?
Parc Botannia has a total of 735 units and a summary of the unit mix is given below. Please take note that the estimated pricing is based on indicative pricing that was obtained from online sources.
1-Bedroom
67 units (9% of total units), typical size of 431 sq ft
Estimated average price of S$600k or S$1,397 psf
1+Study
126 units (17% of total units), typical size of 506 sq ft
Estimated average price of S$685k or S$1,355 psf
2-Bedroom
206 units (28% of total units), typical size of 581 sq ft (compact) to 667 sq ft (premium)
Estimated average price of S$800k or S$1,361 psf for compact
Estimated average price of S$872k or S$1,308 psf for premium
2+Study
63 units (9% of total units), typical size of 786 sq ft
Estimated average price of S$1.0 mil or S$1,277 psf
3-Bedroom
189 units (28% of total units), typical size of 872 sq ft (compact) to 980 sq ft (premium)
Estimated average price of S$1.10 mil or S$1,256 psf for compact
Estimated average price of S$1.23 mil or S$1,262 psf for premium
4-Bedroom
63 units (9% of total units), typical size of 1,152 sq ft (compact) to 1,281 sq ft (premium)
Estimated average price of S$1.35 mil or S$1,174 psf for compact
Estimated average price of S$1.50 mil or S$1,174 psf for premium
5-Bedroom
21 units (3% of total units), typical size of 1,453 sq ft
Estimated average price of S$1.65 mil or S$1,137 psf
In terms of unit mix and distribution, it seems like the developer had carefully thought through it and came out with a pretty balance mixed of small units (26% of 1-bedroom, 1+Study) catering to investors, medium size units (37% of 2-bedroom. 2+Study) for singles and young families, as well as big units (37% of 3/4/5 bedrooms) for bigger families/extended households.
The smaller units of 1-Bedroom and 1+Study could be found in Blk 10, 12 and 18. These units face the north and will enjoy unblock Seletar Airport view, provided no new developments come up in the plot opposite. The bigger 3/4/5-bedrooms units are located at the corners of each block, which gives these units 180 degrees viewing directions and good ventilation within the units. The developer has also made the bigger units more conducive for families by giving most of the bigger units pool view or landed/garden view.
Blk 16 should be considered the ‘premium’ block, with 8 units per floor, garden/landed views and away from the road. This blk would cater more for families as it contains only 2/3/4-bedroom units. Blk 10, 12 and 18 have 9 units per floor. The premium 4/5-bedroom units come with exclusive private lifts.
Verdict: It seems like the developer has put in effort in its development planning to cater to the different groups of buyers and designed according to their different needs. It would also make sense from a risk management perspective by targeting a wide catchment of different buyers.
What about the unit layouts?
Generally, the layouts across all unit types at Parc Botannia can be considered efficient and well-designed with regular shapes, decent size rooms, and do not have overly excessive big balcony and aircon ledges. Sizes are optimal, i.e. not too small that compromise on quality of life and yet not too big and over-luxury that buyers have to pay a high price. Some of the minor points that buyers might want to take note would include big entrance walkway area and lack of natural ventilation for toilets of smaller units. But many would consider this as what we typically see in development these days and hence, no cause for concern.
Below are SPK’s comments on the layout of the typical unit types for readers’ reference:
How does Parc Botannia compare to High Park Residences?
High Park Residences is developed by a consortium of Singapore developers – Chip Eng Leong, Heeton and KSH. This project was launched in July 2015 and on the first weekend of sales, nearly 1,100 units were snapped up out of a total 1,399 units. What could have driven such strong sales? It was most likely due to the low price quantum and affordability of the units. A studio/1+study cost between S$425k to S$486k on average, whereas a bigger 3-bedroom unit costs only S$929k on average. Average selling price per sq ft for High Park Residences was only S$963 psf back then.
In terms of unit mix, High Park Residences have more mid-size units (2BR, 2+Study), with a total of 595 units that is equivalent to 43% of total units. Larger units are also dominant in this project, with 570 units of 3/4/5 + Semi-d and Bungalows, equivalent to 41% of the total units. The remaining are small studio/1+study units, with a total of 225 units that is equivalent to 16% of total units. In terms of % unit mix, this seems lower than the 26% of 1-BR and 1+Study at Parc Botannia, but in terms of the absolute number of units, both projects have approximately similar numbers of units at around 200 each.
Let’s do a side by side comparison between Parc Botannia and High Park Residences. On a like-for-like comparison, similar unit types at Parc Botannia are mostly bigger in size compare to units at High Park Residences, with some unit types as much as 25% bigger in the area. The average price per square foot at Parc Botannia is also approximately 30% more expensive than High Park Residences. A combination of bigger unit sizes and higher price per square foot resulting in the absolute price of a unit at Parc Botannia costing 35% more than a similar unit type at High Park Residences on average.
Does it mean that High Park Residences is a better buy? In terms of price, High Park Residences is obviously a better choice. But in terms of value, we would need to look beyond pricing alone. Let’s look at some other metrics to compare. In terms of land area per unit, High Park Residences has a ratio of 128 sq ft of land area per unit in the development, whereas, for Parc Botannia, the ratio is 252 sq ft of land area per unit, almost double that of High Park Residences. What does this tell us? It simply means that Parc Botannia is less densely populated than High Park Residences and probably the intangible benefits of a more exclusive, less crowded and quieter environment would be able to justify a premium for Parc Botannia. In addition, unit sizes at Parc Botannia are more luxurious in comparison and it would be a better choice for long-term owner occupation.
We use an example to illustrate this. Let’s compare Martin Modern and Starlight Suites in District 9. These 2 projects are beside each other. Martin Modern is a new 99-year leasehold luxurious project whereas Starlight Suites is a Freehold compact development completed in 2015. Martin Modern is able to command premium prices of around S$2,300 psf but Starlight Suites, despite being a freehold project is selling at S$1,800 psf to S$2,000 psf. It is probably the perceived value that really matters rather than the absolute price.
Verdict: Whilst High Park Residences was designed to sell, Parc Botannia, on the other hand, was designed to live. Both developments cater to a different group of buyers and Parc Botannia does have its own unique selling points and hopefully, these can justify the premium of its price and attract value buyers and investors.
Should I buy Parc Botannia?
Well, SPK can’t answer this question on your behalf. Everyone has a different priority and preference in evaluating a property purchase and hence, it is difficult or rather unprofessional to give a boilerplate answer for everyone to follow. But, since Singapore Property Kaki is supposed to be a sharing platform, SPK shall share with readers on SPK’s personal and general opinion relating to decision-making process when comes to evaluating a potential property purchase:
If affordability is not an issue, go for a development with better value instead of a cheap one. A better value project tends to preserve value better and offers better chance of profit opportunity and future buyer demand
If the property is for long-term occupation, do think long term, especially on space planning and family planning. A small space might last you for a couple of years, but may not be good for long-term
Coming back to Parc Botannia, SPK would consider it as a value for money property that is conducive for a young family and it could probably preserve value better over the longer term.
Happy Shopping!
IMPORTANT NOTICE
The information and opinion contained in this blog posting above is based solely on the personal analysis of Singapore Property Kaki (“SPK”) and is for general information purposes only. SPK assumes no responsibility for errors or omissions in the contents of this blog posting. In no event shall SPK be liable for any special, direct, indirect, consequential, or incidental damages or any damages whatsoever, whether in an action of contract, negligence or other tort, arising out of or in connection with the use of the content in this blog posting. SPK reserves the right to make additions, deletions, or modification to the contents at any time without prior notice.
Today Online published an article recently, titled “Private community homes for seniors needed for Singapore, property firm says” <Link to Article>. This article talks about the need to prepare Singapore to meet the needs of its ageing population. It was quoted that one in four Singaporeans will become senior citizens by 2030, compared to one in eight who were seniors in 2015.
There is one sentence in the article that is particularly important to takeaway – “they (senior citizens) would face fewer options to monetise their property, being “asset rich (but) cash poor”.
Majority of Singaporeans’ wealth is tied to the property that they live in. Having spent their working life striving hard to pay off their mortgages, it will be very unfortunate if a person retires and end up holding a property that offers limited options to monetise at the end of the day.
How real is this situation of being asset rich but cash poor? Why can’t I sell my asset during my retirement? Well, the answer would probably lie in the CPF withdrawal limitations for properties with less than 60 years lease left.
What are these limitations?
Most Singaporeans rely heavily on their CPF savings to pay for their property purchases, which means that they are subject to the above limitations. You might be wondering why is it that the old HDBs in mature estates are still fetching record high prices despite the limitations. Well, the reason could be that we have not seen the full impact from this drawdown limitation at this point in time.
Let’s use a 52-year old HDB unit (built in 1965) as an example. According to the withdrawal limitations, a buyer can still use his CPF to pay for this old property today, as long as his age is at least 28 years old and above. This age group is considered a ‘sweet spot’ for a new family formation and a person in this age category would also be moving towards the prime of his career with rising income. Hence, for various reasons such as lifestyle, proximity to parents, schools etc, a person in the eligible age category may still choose an old HDB without being subject to the limitations of CPF drawdown at this stage.
Let’s take a look at the statistics. The table above contains the building statistics obtained from HDB, showing the number of dwelling units built since 1960. To date, HDB has built 1.13 million dwelling units for Singaporeans. For the purpose of this study and illustration, let’s simplistically assume that this is the total amount of dwelling units in the market today, even though some units might have already been taken back by HDB via SERS programme.
On this basis, there are currently 76,000 units or 20% of total HDB units that have remaining leasehold of 57 years and below, and these units are subject to the CPF Housing Scheme withdrawal limitations. But nonetheless, as long as the buyer’s age is above 23 years old, he is still allowed to withdraw his CPF savings to buy a property has a remaining leasehold hold 57 years old. The potential pool of buyers for the old properties is still pretty big at this moment.
But what happens 13 years down the road, in year 2030? Things would become significantly different from now. Looking at the table above that simulates the remaining tenure of existing pool of HDB units in year 2030, there will be 668,000 units or 59% of total HDB units that have remaining leasehold of 59 years and below! A whopping three times increase within a span of 13 years! While majority of these units can still be purchased using CPF savings (as most of them still have leasehold of more than 30 years left), but on the demand side, the potential pool of buyers would have shrunk. For a typical new family formed at age group of 25 to 35 years old, they will not be able to drawdown their CPF to buy the older units built between 1960 and 1975 (as age + remaining leasehold is less than 80 years). Hence, it would be much harder for a retiree to monetise his old HDB in 2030.
This looks like a potential social issue in the making. But nonetheless, there is still time for government to react before the situation gets worse. In SPK’s opinion, government still have the flexibility to use various policy measures to prevent a worst case scenario from happening. For example, the CPF Housing Scheme withdrawal limitations could be relaxed, by lowering the 60 years threshold to 40 or 50 years, or starting to offer cheaper units with shorter leasehold of 60 years or less and change public perception of short leasehold tenure properties. This was previously done when government experimented and sold a 60-year leasehold site at Jalan Jurong Kechil. Maybe this might be the norm in future?
It is anyone’s guess at this point in time.
Keep Calm and Carry On!
IMPORTANT NOTICE
The information and opinion contained in this blog posting above is based solely on the personal analysis of Singapore Property Kaki (“SPK”) and is for general information purposes only. SPK assumes no responsibility for errors or omissions in the contents of this blog posting. In no event shall SPK be liable for any special, direct, indirect, consequential, or incidental damages or any damages whatsoever, whether in an action of contract, negligence or other tort, arising out of or in connection with the use of the content in this blog posting. SPK reserves the right to make additions, deletions, or modification to the contents at any time without prior notice.
Another day, another enbloc news. Another 3 residential estates are going for collective sale. Let us take a look at 2 of these projects – How Sun Park and Pearl Bank Apartments, to evaluate their chances of success for their enbloc attempts.
How Sun Park
Quick Facts
Tenure: Freehold
Location: How Sun Road, near Bartley MRT (12 min walk)
Number of owners: 20
Land Area: 54,942.7 sq ft
Zoning: 5-storey residential with 1.4 plot ratio
Permissible GFA: 76,920 sq ft (before bonus GFA)
Asking Price: S$78 mil (S$1,052 psf ppr, including development charge of S$2.92 mil)
Kopi Talk: Price quantum of S$78 mil is low enough to attract developers. Asking price of S$1,052 psf ppr is 21% lower than the price that SingHaiyi paid for nearby Sun Rosier. Considering that this piece of land is smaller in size (which means a development would come with less facilities) and has a long west-facing frontage, it is not unexpected for this site to come with a lower asking price.
But is a 21% price differential (compare to Sun Rosier’s price) a good enough price gap for developers to snatch this site? It probably does, considering the margin of safety that a developer has at this price point. Based on SPK’s estimate, breakeven price for How Sun Park would be around S$1,400 to S$1,450 psf and selling price would probably be around S$1,650 psf to S$1,750 psf. With the expectation of Chip Eng Seng’s new 99-year residential development at Woodleigh selling at S$1,720 psf to S$1,800 psf and Sun Rosier selling at an even higher price, the estimated selling price of How Sun Park would appeal to buyers due to its Freehold and proximity to the other 2 projects.
Verdict:
How Sun Park is likely to be sold, but owners should not expect a huge premium from developers.
Pearl Bank Apartments
Quick Facts
Tenure: 99-year leasehold from
Location: Pearl Bank Road, near Outram Park MRT Interchance
Number of owners: 280 residences + 8 commercial units
Land Area: 82,376 sq ft
Zoning: Residential with 7.2 plot ratio (Baseline plot ratio is 7.4479)
Permissible GFA: 613,530 sq ft (before bonus GFA)
Reserve Price: S$728 mil (S$1,505 psf ppr, including upgrading premium of S$195 mil)
Kopi Talk: This is the fourth time that Peal Bank has gone for an enbloc attempt. This time round, the asking price of S$728 mil is slightly lower than the S$750 mil that owners were asking for back in 2011. Would this make Pearl Bank an attractive enbloc opportunity for developers now?
Let us take a quick look at the numbers. Asking price of S$728 mil works out to be around S$1,505 psf ppr after adding in a lease upgrading premium of S$195 mil. That means a whopping S$923 mil for a 82,376 sq ft of mid-size prime land! A new development on the Pearl Bank site will need to be built high, and come with sky facilities due to land constraints and to leverage on its unblock views in order to make the development more premium and sellable (probably Sky Habitat would be a good reference). But all these would come at a higher construction costs to developer. Base on SPK’s estimate, such a project would probably breakeven at S$1,900 psf to S$2,000 psf and developer will need to sell at S$2,200 psf for a decent margin. Despite Pearl Bank’s prime location, it might be a challenge to achieve such a high pricing for a 99-year leasehold in current market. Moreover, the investment quantum is huge. Hence, the risk-reward for this site might not be optimal for most developers.
Verdict:
Pearl Bank still looks too expensive for any sensible developers to absorb. But let’s hope a rich foreign developer comes in and make it fourth time lucky for the owners!
Good luck to all the enbloc owners!
IMPORTANT NOTICE
The information and opinion contained in this blog posting above are based solely on the personal analysis of Singapore Property Kaki (“SPK”) and is for general information purposes only. SPK assumes no responsibility for errors or omissions in the contents of this blog posting. In no event shall SPK be liable for any special, direct, indirect, consequential, or incidental damages or any damages whatsoever, whether in an action of contract, negligence or other torts, arising out of or in connection with the use of the content in this blog posting. SPK reserves the right to make additions, deletions, or modification to the contents at any time without prior notice.
The Sunday Times published an article by Senior Correspondent, Mr Goh Eng Yeow yesterday. The title of the article “You don’t have to be super-smart to get rich” speaks for itself and these would probably be the few keywords that you can takeaway from this article.
Below is a summary of the key points of the article:
Blindly following experts may be the worst possible reason for buying into a stock
We seek safety in whatever we invest in by seeking out information which lends support to the idea that our investment decision is right (Confirmation Bias)
At the end of the day, what really matters is how to control our emotions and ensure that they do not affect our investment decision-making process
You don’t have to be super-smart to get rich
SPK enjoyed this article and thought this was a quite a good piece for sharing. Being in the equity and real estate investment industries for years, SPK can fully comprehend what the writer was trying to say.
Controlling emotion is easier said than done. We are all human beings after all and filled with emotions. In times of panic, emotions will overcome our thinking and this could inevitably lead to irrational decisions being made. Probably some individuals can manage their emotions better than others and hence the chance of making irrational decisions might be smaller than others.
Having said that, does it mean all hope is gone for the rest of the people who might not be as capable as managing emotions than other? Not necessarily the case. Being preparedwould be a good way to deal with any situation that might arise and hence, minimising the chance of making irrational decisions along the way.
Let’s use buying a property as an example. If an investor tracks the recent property news closely, he would probably feel very upbeat about the property market, with almost an enbloc sale happening every day, property price index turning up, better than expected economic growth and lower retrenchments. With daily exposure to such news, the investor would probably be rushing to pick up an investment property now, base on the ‘fact’ that prices are going to increase, future launches are going to be expensive, existing inventories are selling fast and the dear of “missing the boat”. If the investor purchase a property now and the property market heads south next year, he may not know how to react to this ‘unforeseen’ circumstance and in the worst case, he will be depressed and pressured with the financial burden and hence. He might just sell his investment property at a loss, under the fear that prices might go even lower.
On the other hand, if an investor does his own analysis and research, works out his financial planning and affordability for a potential investment property purchase, maps out a scenario route map on what to do under different market conditions, he would be in a better position to react to what happens next as there is already a framework for him to follow, rather than acting on impulse and do the ‘wrong’ things.
Well, let’s admit that none of us has a crystal ball that tells us how the property market is going to perform for the next few years. What we can do is to try our best to analyse and have a view on the market based on today’s condition. But what is more important is to be prepared to react to whatever that doesn’t happen according to our plans.
Probably this is something that we can apply to all parts of life and not just for investment.
Below is a summary of the expert views quoted in the Business Times article:
Industry players see insufficient supply from government land sales (GLS) and strong purchasing demand for mass-market private homes among the biggest factors
Larger leasehold sites that can achieve greater economies of scale and churn out substantial revenue
The collective sales cycle started from the mass market. This came on the back of strong purchasing demand for mass-market private homes from Singaporeans
Many of the HUDC owners are in their 60s and would want to cash out of their ageing properties that have depleting leases
The urgency among owners of former HUDC estates may explain their land rates being more reasonable than some freehold properties
10-15 per cent price premium that freehold properties tend to command over leasehold properties also present a hurdle to quantum-sensitive buyers and investors
Probably one of the important factors that led to this change in trend was missed out in the coverage by Business Times – the introduction of Additional Buyer Stamp Duty (“ABSD”) remission rules in 2011. Under the ABSD remission rules, developers who complete and sell ALL their units within five years of the acquisition date of a site will not have to pay ABSD on the purchase of land. In the event that they fail to do so, they will incur a 15% on their land cost. A 5% interest rate per annum will also be levied.
In the past, developers prefer to buy Freehold sites as they can landbank the sites and have greater flexibility and control over their launch strategy. But with the ABSD remission rules, land banking is not feasible anymore. Also, with the run up in property prices and a 10-15% price premium of a freehold project over leasehold projects, affordability of freehold projects may be an issue which could lead to slow take-up rate, and, in turn, result in ABSD on their land cost if they can’t fully sell their projects within 5 years. On the other hand, leasehold projects are more affordable and take-up rates tend to be stronger than leasehold. Hence, from a risk management perspective, it would have made more sense for developers to go for leasehold sites instead.
The owners of ageing leasehold properties would probably have the government to thank for this round of leasehold enbloc frenzy!
Financing of a property purchase would probably be a ‘simple and straight-forward’ process for most of the young working Singaporean adults. Why is it ‘simple and straight-forward’? It is probably not because everyone is an expert in financial planning and management. It is rather the case where most of us are left with very little financing options given the high prices of Singapore property.
Majority would have taken the maximum loan limit of 80% (subject to meeting the total debt servicing ratio limit), maximizing the loan tenure and source for the lowest interest rate mortgage loan package to make sure our monthly mortgage repayment is manageable and the financing of the 20% down payment using cash and CPF savings.
This was the case for myself when I made my first purchase of an investment property in my late twenties. Back then, banks could lend up to 35 years and the total debt servicing ratio limit was not as stringent as today. I managed to secure a 35-year loan at 1-month SIBOR + margin rate and it comes with the option of switching the base rate at any time. This option is something useful and offers flexibility as I can enjoy the low-interest rates at that point in time and yet protect against any rise in interest rate by switching the base rate to a longer term SIBOR when short-term rates start to increase. Yes, the word ‘Flexibility’ is the key.
What about the 20% down payment? The initial 5% option fee had to be paid in cash. Then for the remaining 15% down payment, there are a few factors to consider when I was deciding how much cash/CPF to use for the payment:
Maximizing the interests of my CPF savings – There is an extra 1% interest per annum paid on the first S$60k combine balances with up to S$20k from Ordinary Account. Hence, I would want to make sure that I still have sufficient savings in my CPF combine balances to maximise the extra interest. Just as an illustration, if S$20k of my OA savings can get to enjoy a higher 3.5% interests, I would rather keep these S$20k inside my OA account and not drawing it down for property purchase, to let my money work harder for me!
CPF Accrued Interest – Using similar principle as point 1 above, if we compare the CPF OA interest rate of 2.5% (without additional interest) against cash savings rate in banks of about 0.05%, one might be inclined to use more of their cash savings to pay for the property purchase and not to use their CPF savings. Moreover, there is an accrued interest component repayable to a person’s CPF account for the amount in CPF OA drawn down for property purchase. A person needs to top up into his CPF account from the sales proceeds upon selling his property. And the greater amount a person draws down from his CPF OA for a property purchase, the more accrued interest he will need to refund to his CPF account when he sells his property in future. Also, the amount of CPF accrued interest will be more if the holding period of a property is longer. Hence, in some instances, the remaining cash left for a property seller might not be much after deducting the accrued interest.
Financial Flexibility – So, should we just keep all our CPF savings untouched and use as much cash as possible? It all boils down to the amount of financial flexibility that a person would like to have. The trade-off of the higher CPF savings rate is that the savings inside the CPF account have restricted use prior to our retirement age. Savings inside the CPF accounts can only be used for property purchase, CPF-approved investments, and financial planning products. For a person like me, who is always on the lookout for investment opportunities, having the financial flexibility in holding more cash is more important than enjoying the high interest rates in CPF accounts.
I believe that there isn’t one rule for all when it comes to financial planning and management. Every individual has a different set of considerations and priority to consider. Hence, it would be important to list down your priorities and considerations, think through them and even seek advice, so that you are able to make a sound decision that would not cause you to lose any sleep over it.
Yes, the headline number of 9,300 new home supply looks bad and this figure could even be higher than what URA estimated. A reverse engineering of URA’s estimate seem to imply the following key assumptions in URA’s estimate:
URA has not assumed that the developers will go for the bonus GFA scheme, which is a fair assumption as it is at the developer’s discretion to decide whether they would like to subject themselves to the scheme requirements and apply for the bonus GFA;
An assumed efficiency of 85%;
An average unit size of 820 sq ft per unit
Pessimistic Scenario: 10,800 new units from enbloc sites
Let us take a more extreme, ‘pessimistic’ view of the supply outlook, assuming that all of the developers apply for the 10% bonus GFA scheme and maximise their efficiency to 90% that is already the norm in today’s developments. Average unit size assumption looks reasonable, especially when a lot of the enbloc plots are big in size and will have a good mix of small and large units. Under this ‘pessimistic’ scenario, we could be looking at a potential 10,800 new units from enbloc sites, which is 1,500 units or 16% more than what URA has estimated.
Looks bad? Let’s not get worried too soon. A significant number of the enbloc sites are in the Outside Central Region and developed mature estates, where demand tends to be primarily driven by new homeowners and upgraders purchasing for own stay, with a smaller proportion of buyers for investments. New homeowners and upgraders are likely to be more location-specific in their purchases. They may look for a place closer to their current homes or childhood homes, or somewhere near their parents, for example.
Hence, SPK thinks that as long as the enbloc site is located in an established matured estate, with limited new residential supply and if developer comes out with a good product and reasonable price, the new development should still see healthy demand from buyers. Moreover, there is also a potential demand from the enbloc sellers who might be keen to re-investment part of their profits in the new development, due to sentimental reasons or familiarity with the neighbourhood.
More new condo options for Kovan and Hougang residents
However, there might be some cause for concern on the potential new condo supply in District 19, which is the current enbloc hotspot. 3 of the biggest enbloc projects – Rio Casa, Serangoon Ville and Florence Regency, are located within close proximity in the Kovan and Hougang area. Even though these are matured estates, it is still unsure how much of these new condo supply can be absorbed by the buyers. SPK estimates that these 3 projects could potentially yield a total of 3,600 units (which makes up about 34% of the total potential new supply from enbloc sites), which is quite a large number of units to be absorbed for the area.
But, let’s look at the brighter side of things! If you are staying in Hougang or Kovan, there will be ample choice of new condos for you to choose from in 1 or 2 years time!
Crystal Tower had 2 previous collective sale attempts back in 2011 and 2012, when asking prices were S$155 mil (S$1,600 psf ppr) and S$150 mil (S$1,458 psf ppr). This 3rd time round, the asking price of S$138 mil (S$1,406 psf ppr) looks more palatable to developers.
The current asking price would translate to an estimated breakeven price of about S$1,900 psf, and at an average selling price of the new units at S$2,300 psf, the developer would enjoy a nice profit margin of 18% base on SPK’s estimates. Not bad in the current competitive market for land. The is still room for developers to increase their bid to secure the land, and developers can still bid up to S$144 mil (4% above asking price) and yet maintain a decent 15% margin. Downside risk seems limited as in a worse case where the developer has to sell at breakeven price, it is unlikely to be an issue for a freehold development in the area. S$138 mil is also a reasonable quantum to acquire a piece of prime land in Orchard Road area. There should be sufficient interests from developers for this site.
If the enbloc sale goes through, the 18 owners of the 2,713 sq ft unit will each receive S$4.6 mil, the 9 owners of the bigger 3,261 sq ft unit will each get S$5.0 mil and the single penthouse unit owner will receive S$9.2 mil. Current penthouse owner bought the unit for S$4.05 mil in 2006. If the enbloc goes through, the owner gets to profit S$5.15 mil, or an attractive annualised return of 7.7% per annum. The penthouse unit is currently put on sale at S$9.8 mil.
Probably a 3rd time lucky this time round? Let’s wait for the results on 28th November.
How Sun Park is likely to be sold, but owners should not expect a huge premium from developers.
Pearl Bank still looks too expensive for any sensible developers to absorb. But let’s hope a rich foreign developer comes in and make it fourth time lucky for the owners!
