Finding value in prime districts

Being centrally located, prime non-landed homes in Districts 9, 10 and 11 are highly sought after by both local and foreign investors, given the area's close proximity to Orchard Road, prominent embassies and the Central Business District.

These homes are generally considered as the topmost segment in terms of prestige, price and place.

Over the recent years, demand for such homes saw an increase in the proportion of foreign homebuyers.

In some developments, one out of every two units were bought by a non-Singapore resident.

The Additional Buyer's Stamp Duty, which was introduced last December, has affected the demand from foreign homebuyers as they are now required to pay an additional 10 per cent on the purchase price or market value of the property in addition to the existing buyer's stamp duty.

With an expected fall in foreign demand, some had predicted that prices of prime non-landed homes would fall.

The URA Private Residential Price Index for the Core Central Region (CCR) fell for the first time in Q1 2012 after experiencing eight consecutive quarters of price appreciation since Q3 2009.

Interestingly, recent statistics in Q2 2012 by the same index registered a rebound of 0.6 per cent quarter-on-quarter (q-o-q), compared with 0.5 per cent increase for Outside Central Region (OCR) and 0.4 per cent rise for Rest of Central Region (RCR).

What could be the reasons for the upturn of sale prices?

Buying shift

The price recovery in the CCR stemmed from the marked increase in prices of completed residential units, with the URA price index for completed non-landed properties in the CCR having risen by 2.2 per cent q-o-q in Q2 2012, the highest magnitude of increase compared to other regions.

In contrast, the price index for uncompleted non-landed properties in the CCR fell by 0.6 per cent in the same period.

This could reflect a preliminary trend of a shift in buying demand from uncompleted new sale and sub-sale projects to completed new sale and resale units in the CCR, as homebuyers hunt for value-for-money investments in older residential properties located in the coveted prime district locale.

Focusing on Districts 9, 10 and 11, Knight Frank studied the transacted prices of completed and uncompleted non-landed residential units according to the age of the property.

Notably, prices of uncompleted units in Districts 9, 10 and 11 averaged $2,756, $1,957 and $1,949 psf respectively in Q2 2012.

The average prices of resale properties generally trend lower as the age of the property increases.

For instance, transacted prices of resale units within developments that are between four and six years old averaged $1,828, $1,736 and $1,672 per sq ft respectively for the same quarter, which are 34 per cent, 11 per cent and 14 per cent lower correspondingly when compared to uncompleted homes.

Notably, the prices of resale properties that are seven years and older located in Districts 9 and 10 hovered at similar levels as some new mid-tier developments launched in the past year, while properties of the same age group at District 11 have been sold at average prices below $1,300 psf.

In contrast, mass market residential prices moved higher and averaged beyond $1,000 psf in Q2 2012, with a few newly launched projects at the suburbs selling at above $1,300 psf.

Older properties

The price trends affirm the proposition that older properties in prime Districts 9, 10 and 11 could be perceived as value investments, on the basis of location and price psf.

The centralised location presents better connectivity and convenience for residents, a superior attribute for any property investment decision.

Furthermore, the freehold tenure status for most of the residential properties in these prime districts is an attractive consideration for long-term investment and multi-generational wealth preservation.

With a generally lower price quantum for older residential properties, rental yields are expected to be higher than uncompleted new sale properties.

Yield conscious investors prefer completed residential projects with its immediate occupation status and inflow of rental income.

The state of building quality and standard of upkeep is another key consideration before deciding on the investment.

Residential estates that are well maintained with lush landscaping and full condominium facilities are positive attributes for owner-occupiers and tenants.

Additionally, older residential estates are usually more generous with the size of the units and open spaces between blocks, providing spatial comfort for residents.

District 9

A traditionally coveted prime district in Singapore, District 9 comprises mainly Orchard, Cairnhill and River Valley areas.

Paterson Hill, Cairnhill Circle, Anguilla Park and Scotts Road areas are typical areas where many senior executives, high net worth locals and foreign investors buy and lease.

Recently, more homebuyers were seen investing in other areas such as Mount Sophia, Mount Emily and River Valley areas as prices hover attractively at $1,500-$1,800 psf for residential properties that are four to six years old.

District 10

District 10, which consists of Bukit Timah, Holland Road, Tanglin and Farrer Road areas, has a variety of non-landed and landed properties.

Expatriates generally favour homes in this district for its close proximity to embassies, established schools and the Botanic Gardens.

For the past year, most of the sales transactions of uncompleted new sale units in District 10 came from D'Leedon, a mega residential development comprising about 1,700 units.

For completed properties that are approximately three years old, prices for some that are located within close proximity to District 9 area have been higher compared to certain uncompleted properties in District 9, such as the Latitude (above $2,000 psf), 8 Napier, Parkview Eclat and Nassim Park Residences (above $3,000 psf).

District 11

Comprising the Watten Estate, Newton, Novena and Thomson areas; District 11 appeals to both locals and foreigners due to its central location and connectivity to other parts of Singapore.

Various lifestyle amenities and recreational enclaves also cater to residents in the area.

One of the new projects that have seen healthy buying interest for the past quarter is 8 Bassein; a "Soho" concept that has been well received by aspiring professionals as the development is located near Novena MRT station and shopping/medical hubs.

Investing in resale properties

As home prices of new projects remain high on the back of stable developer sales over the first half of this year, homebuyers are turning to older resale properties as an attractive alternative.

While new design features and a suite of innovative facilities in upcoming non-landed developments remained as an appealing consideration for many prospective buyers, the main considerations of price and location would generally take precedence.

Some market watchers see that the upcoming supply of over 4,000 units to be completed within the next six months (with many of them in the city centre and fringe regions) could put pressure on high-end rentals.

However, with a medium to long-term perspective in mind, the limited supply of available land for future development in the prime districts, particularly those with freehold tenures, creates potential for capital appreciation in new and old residential developments in Districts 9, 10 and 11.

Owning a home in the coveted prime area remains a goal for many aspiring local and foreign homebuyers.

Wendy Teng is executive director, residential services, and Alice Tan is senior manager, consultancy & research, at Knight Frank