Condos bask in reflected glow of new launches

Published April 20, 2007

Condos bask in reflected glow of new launches

By ARTHUR SIM

(SINGAPORE) New property launches are raising the asking prices of existing developments around them by as much as 10 to 50 per cent within weeks.

The most recent example is neighbouring developments Reflections at Keppel Bay and Caribbean at Keppel Bay.

Units at Caribbean - which received its Temporary Occupation Permit in 2004 and is now fully sold - were selling for around $1,000 per sq ft in the secondary market in the first quarter of this year. But since Reflections was launched this month at an average price of about $1,900 psf, asking prices for Caribbean have surged to $1,200-$1,500 psf.

Property agent Andrew Tan of DTZ Debenham Tie Leung says most of the buyers he has seen are investors who expect prices to keep rising for the next few years. 'They plan to sell it in two years and even if the price goes up by $100 psf they will make money.'

Another agent, Kenny Tan of ERA, who is also marketing units at Caribbean, says prices have been edging up for a few months. 'The prices for Reflections have supported the increase,' he said.

Savills Singapore director of marketing and business development Ku Swee Yong says the same spillover effect is happening elsewhere.

In traditional prime areas, transacted prices for new developments like Orchard Residences, Suites @ Cairnhill and Trillium have hoisted prices of surrounding developments. And in some areas outside the prime districts, new launches appear to have an even bigger impact.

Mr Ku says that on the East Coast, the launches of The View @ Meyer and more recently Seafront on Meyer - at prices averaging $1,500-$1,600 psf - have boosted prices of existing developments like the 10-year-old The Makena.

According to Savills' analysis of available data, the average price for The Makena over three months from December 2006 to February 2007 was about $834 psf. Mr Ku says prices have since passed $1,000 psf. Indeed, a check of advertisements in The Straits Times Classifieds recently revealed that some owners are now asking for $1,300 psf.

Asking prices are not the same as transacted prices, but Mr Ku says valuations that factor in prices of recent transactions in the same area - for old or new property - appear to support higher asking prices. 'The valuation of an older development is dragged up by association,' he said.

Jones Lang LaSalle national director (head of valuation advisory services, capital markets) Tan Keng Chiam said: 'Empirical evidence has proved that sale prices of new units will influence the value of the neighbouring old developments, be it up or down.'

There are several methods of calculating valuations, such as direct comparison and income.

Mr Tan says that with direct comparison, a valuer has to understand the dynamics of the market and judge the appropriate discount for an older development against a newer one. Factors include age, condition, location, amenities and even design.

The income is based on rental return under current market conditions. 'For older developments, with the current rental being known, one can work out the net yield based on the transacted prices,' Mr Tan said. 'Such yield, when applied to the new development, will present a level of rental which one has to decide is realistic and achievable when the development is completed.'

Saying that valuations sometimes require a 'reality check', Mr Tan said the income approach can be seen as the 'rational approach'. Ideally, of course, the market finds its own level and it is supported by fundamentals.

Colliers International associate director (residential) Vincent Chong believes the spike in some prices is not a matter of under or over-valuation, but more of demand and supply.

'Asking prices for residential developments are based on how the market is performing at the time of the launch,' he said. 'If there is no demand, a project will not sell even if the asking price is very low. Conversely, when demand is high, chances are, benchmark price records are then set - for example, Sentosa Cove and Reflections.

'When such new launches do well, more often than not the demand will then spill over to the neighbouring properties, and as such, prices for older developments will be re-adjusted upward to reflect the market demand.'