UOL rightly invests in prime 99-year Leasehold Projects

Residents of suburban condominiums are able to access a number of amenities in their complexes, as well public transportation, shopping and healthcare facilities nearby.

After the Covid-19 Pandemic, private home prices in the United States have soared. Suburban condos are leading the pack among non-landed houses.

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Data from the Urban Redevelopment Authority shows that non-landed house prices in Outside Central Region (OCR), also known as the suburbs or city fringes, have risen by 40 percent and 38 percent, respectively, between Q4 2019 to Q1 2024. The Core Central Region’s (CCR), which comprises the prime districts of 9, 10 and 11 as well Downtown Core, Sentosa and Sentosa Island, saw a 14 percent increase in non-landed prices.

Singapore citizens, permanent residents, and foreigners who do not hold PR status, but buy a home in Singapore, will be charged higher ABSD.

Citizens and PRs that purchase their first home do not pay ABSD.

Due to non-PR foreigners’ historical involvement in CCR condos the demand in this sector has been severely affected.

Land costs today can make up the majority of a project’s costs. Due to higher interest rates, construction costs and financing costs have both increased.

The demand for housing can be unreliable, due to buyers being more selective, due to the economic uncertainty. Also, mortgage rates are higher and there is more choice on the marketplace. Developers also pay huge sums to clawback ABSD remissions if their housing inventory is not sold within the specified timelines.

Developers of housing may find it wise to stop development or concentrate on projects that will primarily appeal to first-time local buyers, like suburban condos and luxury executive condos.

UOL Group U14 0.0% is a company listed in the Stock Exchange that has purchased non-landed CCR residential sites.

A joint venture 80:20 between UOL & its subsidiary Singapore Land Group (U06 0%) secured a 99 years leasehold Government Land Sale(GLS) site at Orchard Boulevard (District 10), which is zoned primarily for private homes. This was for S$428,3 Million bid, or S$1,617 square feet per plot ratio.

Last week, UOL (35%) CapitaLand Development (20%) Singapore Land (10%) and Kheng Leong (1%) won the 99-year leasehold GLS housing site on Holland Drive in District 10 with a price of S$805.4m, which is about S$1,285ppr psf.

Yes, the land cost of the two sites above is far lower than that of nearby sites purchased in state tenders for 2018.

UOL’s partners and UOL must believe that there will be a strong demand for 99-year leasehold properties.

UOL’s confidence in prime condos could be fueled by the strong sales taken up by the Watten House freehold condo project in District 11 which is developed jointly by UOL Singapore Land. The Watten House project, which was launched for sales in November 2014, has already sold 78% of its units based on URA’s data.

UOL’s bets against the odds on 99-year leasehold projects in prime districts that are close to MRT station may prove successful.

First, the decreasing price gap between CCR home prices and OCR non-landed home values could encourage buyers in CCR to recognize relative value.

Orchard Boulevard new condos can sell for S$3,200/sqft and S$2,800/sqft respectively. This would be about 27 to 45% more expensive than a S$2,200/sqft condo unit near Lentor MRT in District 26.

As an example, the price of a terraced home near Lucky Plaza on Orchard Road might be S$3,500, while a similar house near Lentor MRT would cost S$1,900, which is a premium by 84 per cent.

Secondly, the fact that Orchard Boulevard, Holland Road and Watten House are not located within 1km from a local primary school is not likely to deter most buyers.

The chances of your child getting accepted into a school that is within 1km of you can be increased significantly. Many buyers are interested in homes located near schools that are highly sought-after, because it can boost a home’s resale prices and attract more buyers.

Still, lifestyle features could encourage a growing number singles and couples without children to opt for prime district properties that are not located near popular primary education.

Third, well-heeled, wealthy PRs will be looking for prime condos when they buy their first home.

The approval process for a PR to purchase a landed home can be complicated, compared to condos. Singapore’s PRs could become a valuable source of future prime homebuyers if they continue to be wealthy and earn high incomes.

While some buyers in prime areas prefer freehold units to prime condos, there is a limited supply. People who are looking to buy new condos in a prime district might have to look into 99-year leasehold project.

Developers usually buy older housing development in the en block market to build brand new freehold condos. When non PR foreigners hold a large percentage of units in an existing development, it can be challenging to obtain support for enbloc sales.

Fifth, the wealthy buyers of condominiums in prime areas may be better equipped to handle any economic slowdown as they will have enough money saved up to tide them over.

In addition, wealthy residents will likely be willing to pay higher prices for the home they are able to buy without having hefty taxes applied.

The recent price slashing to encourage sales at Cuscaden Reserve 99-year leasehold, near Orchard Boulevard would undoubtedly have alarmed many developers.

Cuscaden Reserve features many units that are less than 1,000 square-feet in size. Condo buyers in high-end areas may prefer larger units.

UOL’s 99-year-leasehold prime housing projects could yield a high return if UOL and its partner build the best product.

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