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Published August 30, 2006

Further price, rental gains seen for Orchard area homes
Simon Cheong: Shortage looms as enbloc properties get torn down


(SINGAPORE) High-end residential rents and capital values in the Orchard Road 'corridor' are set for significant gains in the next 18-24 months amid a shortage of such property, says upmarket residential developer SC Global Developments' chairman and CEO Simon Cheong.

Taking a view: Mr Cheong (above), whose SC Global bought Paterson Tower (next) this year, says rents in the Orchard Road corridor may go up by about 15-20 per cent in 2007 after appreciating 10-15 per cent in the remaining part of 2006

He estimates that about 1,000 homes in the corridor - in places like Grange, Paterson and Tomlinson roads, Angullia Park, Ardmore Park and Cairnhill - have been transacted in en bloc deals over the past year or so. Examples include Lucky Tower, Beverly Mai, Hilltops, Paterson Tower, Angullia Mansion and Habitat One and Two.

'As these en blocs are taken down, where will the people living in these units go to?' Mr Cheong asks.

According to him, they will find a replacement property to own or rent in the same area, and this will lead to a shortage.

'My view is that next year, there will be a shortage in high-end homes,' he says. 'Rents are poised to surge and that will mean capital values will go up as well.'

He predicts that rents could go up by about 15-20 per cent next year, after appreciating 10-15 per cent in the remaining months of this year.

Mr Cheong says another factor that will drive up rents and prices is that contrary to popular belief, the new developments that will go up on many of the prime sites will have only slightly more gross floor area than the existing properties.

This is different from earlier waves of collective sales in 1994-1997 and 1999-2000 which covered the most lucrative sites, where redevelopments could tap huge enhancements in gross floor area over the previous properties.

The investment sales head of a major property consultancy in the collective sales market agrees with Mr Cheong's thinking, saying many recent en bloc sales in the prime area involve old developments which, under an earlier method of calculating density, were built to high plot ratios - the ratio of potential maximum gross floor area to land area. The bottom line is that redevelopment of such sites will not lead to significant additional supply but just replacement supply.

The upshot of a surge in prices would be that owners going for a collective sale would demand higher prices for their land, since it will cost them more to find replacement properties.

'So unless they get their price they will not sell,' says Mr Cheong. 'We're already starting to see this. Just look at the list of en bloc stalemates in the Orchard Rd corridor. The long and short of it is, we'll have a very firm high-end market over the next 18-24 months.'

Mr Cheong's listed SC Global this year bought Paterson Tower on Paterson Hill and Hilltops at Cairnhill Circle and some surrounding terrace houses in collective sale deals totalling $650 million. And he is on the lookout for more such sites in Singapore's choicest locations.

While land in such areas is expected to cost more, SC Global claims to hold an ace. 'We believe that SC Global, with our brand name, can buy land at a premium because we can command a higher selling price for our properties,' Mr Cheong says. 'What's the difference between Four Seasons and Holiday Inn? The problem we have is not price for land, but whether land is suitable for a high-end project, for our type of market.'