Collateral benefits

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Collateral benefits

The ripple effect of rising realty prices

by Tan Hui Leng

11:42 AM Sep 12, 2009

RECENT high-profile property launches boasting eyebrow-raising prices have not just breathed life back into the market, they have also pushed up the asking rates of properties nearby as well.

At Tanah Merah, thanks to the new Optima condominium, asking prices for units at the adjacent Casa Merah have shot up to about $850 per square foot (psf) in slightly more than a month. Units at Casa Merah were selling at about $700 psf before the Optima was launched.

Meanwhile, The Optima, which saw all its units snapped up within three days of its launch in late July, was priced between $800 psf and $900 psf.

This phenomenon of neighbouring property values benefiting from the launch of new projects in the area is not just a function of market exuberance, as there is some kind of "knock-on" effect from the new developments, property analysts said.

"This is a very common phenomenon," said Dennis Wee Group director Chris Koh.

"When a new development comes up nearby, its price has an indirect effect on units of other neighbouring projects even though they may be five to 10 years old."

That is why some property agents have started to market these older projects at higher prices than what they were before the new developments came up, a property agent said.

Another beneficiary is the Grandeur 8 apartments in Bishan, where their values have shot up since Far East Organization's Centro came up next door.

Priced at an unprecedented $1,100 psf to $1,200 psf, Centro has helped push up prices at the neighbouring Grandeur 8.

The four-year-old condominium is now going for about $850 psf - up from $750 psf before Centro came up.

Looking at this trend, another area that has seen prices of existing condominiums move up is in Toa Payoh, thanks to the launch of Trevista.

A quick check by Today with property agents shows that prices have risen at nearby Trellis Towers from generally below $1,000 psf in the first half of this year to above $1,000 psf in June and July.

"Definitely, in a market with positive sentiments, the take up rate of new developments gives greater confidence in the general market and also has an effect on the resale market," said PropNex chief executive Mohamed Ismail.

As the valuation of a unit is often based on comparable prices in surrounding properties, the price tags from the new developments are likely to have an impact on the prices of existing properties. However these new values may still fall short of the sellers' asking prices, property dealers said.

Still, property agents said some of the older developments have their own followers.

"There are investors who look at neighbouring projects of new launches as they have potential for capital gains and can command rental yields much faster than new launches," said Dennis Wee Group's Mr Koh.